Burundi - First and Second Structural Adjustment Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10685 PROGRAM PERFORMANCE AUDIT REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) 40(b MAY 19, 1992 0 0 >ns Evaluation Department at has a restricted distribution Pnd may be used by recipients only in the performance of duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (annual averages) Currency Unit = Burundi Franc (FBu) 1984 US$1.00 = 119.71 1985 US$1.00 120.69 1986 US$1.00 = 114.17 1987 US$1.00 = 123.56 1988 US$1.00 = 140.40 1989 US$1.00 158.67 1990 US$1.00 = 171.26 1991 US$1.00 = 181.51 ABBREVIATIONS AND ACRONYMS AFNOR - Association Frangaise de Normalisation BNDE - Banque Nationale de D6veloppement Economique BRB - Banque de la R6publique du Burundi CADEBU - Caisse d'Epargne du Burundi COOPEC - Coop&ratives d'Epargne et du Cr&dit GDP - Gross Domestic Product ICA - Intern.tional Coffee Agreement IDA - International Development Association IMF - International Monetary Fund MIS - Management Information System OED - Operations Evaluation Department OGL - Open General Licensing PE - Public Enterprise PEP - Public Expenditure Program PFP - Policy Framework Paper PIP - Public Investment Program PPA - Program Performance Audit PPAR - Program Performance Audit Report PR - President's Report REGIDESO - R&gie de Distribution d'Eau et d'Electricit6 SAF - Structural Adjustment Facility SAL - Structural Adjustment Loan SCEP - Service Charg6 des Entreprises Publiques (Service in Charge of Monitoring Public Enterprise Reform) SFA - Special Facility for Africa SOSUMO - Soci6t6 Sucri&re du Moso SPA - Special Program of Assistance TA - Technical Assistance UNDP - United Nations Development Programme UNICEF - United Naticns Children's Fund VERRUNDI - Verrerie du Burundi FISCAL YEAR January 1 - December 31 THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Office of Dictor-General Opetatons Evaiatkin May 29, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Performance Audit Report on Burundi - First and Second Structural Adjustment Credits (IDA Credits 1705 and 1919-BU and African Facility Credit A-017-BU) Attached, for information, is a copy of a report entitled "Program Performance Audit Report on Burundi - First and Second Structural Adjustment Credits (IDA Credits 1705 and 1919-BU and African Facility Credit A-017-BU)" prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY -ROGRAM ERPORMANCE AUDIT REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) TABLE OF CONTENTS Page No. PREFACE ....................................................i BASIC DATA SHEET ............................................ii EVALUATION SUMMARY ........................................ vii PROGRAM PERFORMANCE AUDIT I. BACKGROUND .......................................... 1 II. THE SALS AND POLICY DIALOGUE ............................ 2 A. Objectives, Content and Design ...... ........................... 2 B. Bank-Country Dialogue ......................................... 3 C. Donor Coordination ...................................... 4 III. IMPLEMENTATION AND OUTCOME ............................. 5 A. The Measures Taken...................................... 5 B. Results Achieved ........................................ 6 C. Overall Evaluation ............................................ 8 IV. SUSTAINABILITY AND LESSONS LEARNED ...................... 9 PROGRAM COMPLETION REPORT PART I - PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE ............. 3 I. INTRODUCTION .......................................... 13 A. Background ........................................... 13 B. The Role of the Bank ..................................... 14 II. OBJECTIVES AND CONTENT OF THE ADJUSTMENT PROGRAMS ........ 14 A. Objectives and Description of SAL I ............................ 15 Public Expenditure Management ............................. 15 Public Enterprise Reform ................................. 16 Trade, Industrial and Credit Policies ............................... 16 Agriculture.......................................... 16 This document has a restricted distribution and may be used by recipients only in the performoance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Thisdocmen ha a rstrcte ditriutio an ma beusedby eciiens oly I th peforanc TABLE OF CONTENTS (cont'd.) pageNo II. OJBCTVES AND CONTENT OF THE ADJUSMENT PROGRAMS (cont'd.) B. Objectives and Description of SAL II ........................... 17 Public Expenditure Management ............................. 17 Public Enterprise Reform ..................................- 17 Trade, Industrial and Credit Policies ............................... 18 Agriculture........................................... 18 Labor Policy and Social Programs ........................... 18 II. DESIGN AND ORGANIZATION OF THE ADJUSTMENT PROGRAMS ....... 18 A. SALI.... ............................ ........... 18 B. SALII ........................................ 19 IV. IMPLEMENTATION AND SUPERVISION ......................... 19 A. Implementation ......................................... 19 Overview and General Constraints ..... ........................... 19 Public Resource Management ................................. 20 Public Enterprise Reform .................................... 21 Trade, Industrial and Credit Policies ............................... 22 Financial Sector Reforms .................................... 22 Agriculture.......................................... 22 The Labor Market and Social Action Plan ...................... . 23 B. Monitoring of the Program .................................. 23 C. Auditing and Procurement .................................. 23 D. Bank Supervision........................................ 23 E. Donor Coordination ...................................... 24 V. IMPACT OF THE PROGRAM ................................. 25 A. The Stabilization Program .................................. 25 B. Impact of SALs I and . . .................................... 25 VI. CONCLUSIONS AND LESSONS LEARNED ........................ 27 PART II- BORROWER'S ASSESSMENT OF PROGRAM IMPLEMNTI .. . 28 PART III - STATISTICAL DATA .................................... 30 Key Macroeconomic Indicators .................................. 30 National Accounts.......................................... 31 Balance of Payments ........................................ 34 External Trade ............................................ 36 External Capital and Debt ..................................... 38 Public Finance ............................................ 42 Money and Credit .......................................... 42 ANNEXES: I: First Structural Adjustment Credit - Conditionality ........................ 43 II: Second Structural Adjustment Credit - Conditionality ....... .... ... 45 III: Matrix of Conditionality for SALs I and II ............................ 47 ATrACHMENTS 1: Comments Received from the Saudi Fund for Development ................. 55 2: Comments Received from the Swiss Development Cooperation ............... 56 PROGRAM PERFORMANCE AUDIT REPORT BURUNDI FIRST AND SECOW. STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS ,,5 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) PREFACE This is a Program Performance Audit Report (PPAR) on the First and Second Structural Adjustm nt Credits (SALs I and II). SAL I (involving IDA Credit 1705 and African Facility Credit A-017) was approved by the Bank Board on May 22, 1986, in an amount equivalent to US$31.2 million (US$15 million IDA and US$16.2 million African Facility); Japanese and Swiss cofinancing for US$18.8 million brought the total financing package to US$50 million. SAL I was fully disbursed during 1987 and closed on June 30, 1988. SAL II (IDA Credit 1919) was approved by the Board on June 14, 1988, in an amount equivalent to US$90 million. Japanese, German and Saudi cofinancing for US$27 million brought the total financing package to US$117 million. SAL II was fully disbursed in February 1992 and closed on March 31, 1992. The PPAR consists of the Program Performance Audit (PPA) prepared by the Operations Evaluation Department (OED) and the Program Completion Report (PCR) prepared jointly by the Africa Regional Office of the Bank (Parts I and III) and the Borrower (Part II). The PPA is based on the attached PCR, the President's Reports, sector and economic reports, the credit documents, summaries of the Board discussions, study rf the program files, and discussions with Bank staff. An OED mission visited Burundi in October/November 1991 and discussed the effectiveness of the Bank's assistance with Government officials, the business community and donor representatives. Their kind cooperation and invaluable assistance in the preparation of this report is gratefully acknowledged. The PCR provides a very good account and assessment of the program experience, and discusses the performance of the Bank and the Government. The PPA reinforces the conclusions of the PCR. The draft PPAR was sent to the Borrower and co-financiers for comments. The comments received from the Saudi Fund for Development and the Swiss Development Cooperation are reproduced as Attachments to the report; no comments were received from the Borrower. - iii - PROGRAM PERFORMANCE AUDIT REPORT BURU'~DI FIRST AN' SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CTEDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) BASIC DATA SHEET CREDIT POSITION /a (Amounts in US$ Million) As of April 30, 1992 Credit No. Original Disbursed Cancelled Repaid outstanding 1705-BU 15.0 16.35 - 18.09 A-017-BU 16.2 17.89 - 19.59 1919-BU 90.0 88.24 - 88.92 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS /a Credit 1705 FY87 FY88 Appraisal Estimate (US$M) 7.50 15.00 Actual (US$M) 15.17 17.89 Actual as % of Appraisal (%) 102% 1192 Date of Final Disbursement: 10/8/87 Credit A-017 FY87 FY88 Appraisal Estimate (US$M) 8.10 16.20 Actual (US$M) 13.54 17.89 Actual as 2 of Appraisal (%) 167% 1102 Date of Final Disbursement: 10/7/87 Credit 1919 FY88 FY89 FY90 FY91 FY92 Appraisal Estimate (US$M) 40.00 70.00 90.00 90.00 90.00 Actual (US$M) 38.64 52.29 68.23 68.23 88.24 Actual as 2 of Appraisal (%) 96.6% 74.7% 75.8% 75.8% 98.0% Date of Final Disbursement: 2/11/92 PROGRAM DATES Credit 1705 Original Actual Initiating Memorandum 05/85 05/85 Letter of Development Policy 04/23/86 04/23/86 Negotiations 04/18/86 04/18/86 Board Approval 05/22/86 05/22/86 Signing 06/30/86 06/30/86 Effectiveness 09/08/86 09/08/86 Credit Closing 06/30/88 06/30/88 /a All Credits were fully disbursed. Disbursed and outstanding totals differ from the original amount of the credits in terms of US$ because of changes in the US$/SDR exchange rate. - iv - PROGRAM DATES (cont*d.) Credit 1919 Original Actual Initiating Memorandum 12/11/87 01/11/88 Letter of Development Policy 03/30/88 03/30/88 Negotiations 04/18/88 04/18/88 Board Approval 06/14/88 06/14/88 Signing 06/29/88 06/29/88 Effr ctiveness 11/08/88 11/08/88 Cxedit Closing 12/31/88 03/31/92 STAFF INPUTS (ataffwaeks) Credit 1705 FY85 FY86 FY87 Ir788 FY89 FY90 FY91 TOTAL Preappraisal 52.3 38.4 - 0.8 - - - 91.5 Appraisal - 43.9 0.2 - * - - 44.1 Negotiations - 7.4 - - - - - 7.4 Supervi.ion - 3.3 26.1 12.9 2.0 3.1 5.8 53.2 Other - 0.4 0.5 - - - - 0.9 Total 52.3 93.4 26.8 13.7 2.0 3.1 5.8 197.1 Credit 1919 FY8i FY88 FY89 FY90 FY91 FY92 TOTAL Preappraisal 0.8 35.4 - 0.3 - - 36.5 Appraisal - 54.2 - - - - 54.2 Negotiations - 21.0 - - - 21.0 Supervision - 0.5 93.4 59.3 23.9 8.6 185.7 Other - - - - - - - Total 0.8 111.1 93.4 59.6 23.9 8.6 297.4 MISSION DATA No. of No. of Staff Report Credit 1705 Month/Ye.r Weeks Persons Weeks Date Preparation 05/85 n.a. n.a. n.a. n.a. Preparation 09/85 n.a. n.a. n.a. n.a. Appraisal 11/85 n.a. n.a. n.a. n.a. Supervision 1 06/86 n.a. n.a. n.a. n.a. Supervision 11 10/87 3.0 10 30 12/87 No. of No. of Staff Report Credit 1919 Month/Year Weeks Persons Weeks Date Preparation 10/87 3.0 9 27 na. Appraisal 01/88 2.0 10 20 02/88 Supervision I 07/88 3.0 8 24 09/88 Supervision II 10/88 - - - n.a. Supervision III 01/89 3.5 12 42 02/89 Supervision IV 04/89 2.5 8 20 06/89 Supervision V 09/89 3.0 9 27 09/89 Supervision VI 09/89 1.0 6 6 10/89 Supervision VII 12/89 2.0 6 12 01/90 Supervision VIII 04/90 3.5 12 42 06/90 Supervision IX 06/90 3.0 9 27 07/90 Supervision X 09/90 1.0 6 6 10/90 Supervision XI 10/90 4.0 9 36 12/90 Supervision XII 03/91 2.0 2 4 04/91 Supervision XIII 04/91 2.0 6 6 05/91 Supervision XIV 06/91 2.0 10 20 07/91 - V - OIHER PROGRAM DAfA Bor,-over/Executing Agency: Government of Burundi Follow-on Oper-tions: Operation : Economic & Public Enterprise Management Credit Number : 1795-BU Amount : $7.5 million Approval Date : May 14, 1937 Operation : Agricultural Services Sector Credit Number a 2024-BU Amount : $33.1 million Approvi.l Date May 25, 1989 A third SAL is expected to be presented for Board approval during the remainder of 1992. - vii - PROGRAM PERFOP%ZANCE AUDIT REPORT 3URUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) EVALUATION SUMMARY Introduction sector development and, increase the efficiency of public spending. Five 1. With a per capita income of important areas for policy action US$220, Burundi is one of the least were targeted: public expenditure developed countries in the world. management; public enterprise re- Agriculture still contributes more form; trade, industrial and credit than half of GDP and 90% of both policies; agriculture; and, labor employment and export earnings, policy and the social sectors fully 80% of the latter coming from (paras. 2.02-2.06). coffee. Industrial activity is limited and dominated by the public 4. On the surface, the SALs sector. were a fairly comprehensive policy package. Yet, the conditionality 2. The boom in coffee prices was often vague, the multitude of during the mid-1970s was followed by policy measures was not ranked in a major expansion in Government any order of priority and important activity in the economy, and then, actions to reach the stated objec- while the international terms of tives -- elimination of restrictions trade began to deteriorate after on domestic competition, full liber- 1977, by untenable fiscal and alization of the labor and financial balance of payments pressures to markets and of the agricultural which the Government responded by sector -- were missing from the tax increase3 and administrative program. Even more importantly, the controls on prices and imports, design (and subsequent implementa- culminating in a considerable slow- tion) of both SALs suffered from an down in economic activity by 1984. almost total lack of Government To help rectify the situation, the involvement in their preparation and Bank supported the Government v.th a extremely limited internalization first SAL for US$31.2 million in (paras. 2.08-2.09). Furthermore, mid-1S86 ($15 million IDA and $16.2 support by other donors of the millio African Facility) and a action program was tentative second SAL in mid-1988 for 'JS$90.0 (para. 2.10). mil3ion (IDA), concurrently with IMF programs (para. 1.03). Implementation and Outcome The SALs and Policy Dialogue 5. The implementation record has been mixed. In some areas gcod 3. The SALs' objectives were progress was made, notably in tariff threefold: improve production in- reform, exchange rate and interest centives by opening up the economy rate policy. On the other hand, to market forces, promote private limited progress was made in many - viii - areas which were considered corner- 7. It is clear that, in the stones of the reform proeram, in- absence of any measurable change in cluding ths restructuring of public Lhe structure of the economy and of sp -nding, public enterprise reform, any new sources of growth, and in full liberalization of prices and view of increasing indebtedness, imports, export and private sector programs such as those supported by promotion, and agricultural policy. SALe I and II cannot be sustained, While the economy grew during the although it must be added tha one adjustment period and the level :f major tangible benefit has been a international reserves increased, gradual strengthening in the econom- both fueled by generous extern&l ic management capacity of the assistance, there was remarkably Burundi Government. little change in the structure of the economy (Table 1). There was no 8. The primaty and obvious reduction in the budget and balance lesson from this experience is that of payments deficits as both con- in ord r to be successful a struc- sumption and investment spending tural adjustment program must be continued unabated and the public fully owned by the Government and sector's share in GDP remained un- fully internalized. Thit was not at changed. In particular, central all the case with SALs I and II in government support of inefficient Burundi. In view of the socio- public enterprises, if anything, political %limate in 1986 through increased during the SAL pericd. 1988 (para 2.08), it is highly ques- There was also little evidence of tionable whether SAL lending was any private sector supply responIse. indeed the most appropriate form of Bank support. Sustainability and Lessons Learned 9. Additional lessons are that 6. In retrospect, the Bank was the links between stated policy far too optimistic about the speed objectives and policy measures have at which change could take place in to be complete and concrete, and the Burundi environment. While most that an abundance of foreign aid may conditions contained in the legal be counterproductive if it helps documentation were eventually met, facilitate maintenance of the the overall development performance status-quo. of the SALe was disappointing partly because the original objectives were 10. Burundi's development prob- unrealistic. Political resistance lems run very deep and their solu- to change, a reflection of the lack tion will require a long and sus- of ownership and internalization of tained effort. Long-term economic the program, coupled with large progress will have to be based on amounts of supply-driven foreign considerable project support in many donor support seriously undermined areas, to which some limited program progress (para. 2.12). In addition, lending may be a desirable comple- there were important design problems ment. It is encouraging to note with the SALs. Thus, e.g., the that the ongoing preparation for a hoped-for private sector supply third SAL incorporates the above response could not possibly mater- lessons from experience. ialize without a number of addi- tional actions, thus far absent from the SAL program, such as full liber- alization of the labor and financial markets and of the agricultural sector. PROGRAM PERFORMANCE AUDIT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) I. BACKGROUND 1.01 Although Burundi's overall economic performance since independence compares favorably with the average for Sub-Saharan Africa, it remains one of the least developed countries in the world. Per capita GDP is estimated at US$220 (198P), with agriculture contributing more than half of GDP and 90% of both employment and export earnings; coffee accounts for 80% of the latter. At the same time, Burundi is one of the few African countries that is self- sufficient in food. The manufacturing sector is still small, accounting for about 14% of GDP. While agricultural production and transport are primarily in private sector hands, the public sector dominates manufacturing, energy, construction, and processing and export of primary commodities. The obstacles to development are severe: the country is landlocked, has a limited natural resource base apart from fertile soils, a relatively weak human resource base and a population growth rate of 3% per year; with a total population of about 5.5 million, Burundi is already the second most densely populated country in Africa. 1.02 The boom in coffee priceu during the mid-1970s was followed by a major expansion in Government activity in the economy, both through direct increases in public spending and through an increase in the size of the public enter- prises' sector. For a number of years, the economy grew at a satisfactory rate even though the terms of trade deteriorated steadily after 1977, and precipi- tously so in 1981, as a result of both declining coffee prices and rising import prices: external financial assistance covered the increasing resource gap. As fiscal and balance of payments pressures intensified during the early 1980s, however, the Government responded in 1983 by tax increases and resorted to administrative controls, including price controls and restrictions on imports and on remittances of foreign exchange abroad. The resulting distortions in the economy, aggravated by a prolonged drought, led to a considerable slowdown in economic activity: real GDP declined by 4% in 1984, thereby prompting renewed interest in and examination of the multitude of problems troubling the Burundian economy, including undisciplined public sector spending, the preponderance of poorly performing public enterprises, a very narrow production base, low national savings and rapid population growth. 1.03 The possibility of structural adjustment lending was first discussed during a visit to Burundi fy the Regional Vice President in October 1984. Preparatory work on a structural adjustment program took place durinS 1985 and early 1986. The first structural adjustment credit (SAL I) was approved by the Bank Board on May 22, 1986, in an amount equivalent to US$31.2 million (US$15.0 million IDA and US$16.2 million African Facility); Japanese and Swiss cofinancing for US$18.8 million brought the total financing package to US$50 million. SAL I was fully disbursed during 1987 and closed on June 30, 1988. - 2 - SAL II was approved by the Board on June 14, 1988, in an amount equivalent to US$90 million (IDA). Japanese, German and Saudi cofinancing for US$27 million brought the total financing package to US$117 million. SAL II was fully disbursed in February 1992. Concurrently with Bank support, Burundi's adjustment efforts were supported by three annual SAF arrangements from the IMF. A third SAL is expected to be presented for Board approval some time during 1992. SALs I and II are the focus of the evaluation in the following paragraphs. II. THE SALS AND POLICY DIALOGUE A. Objectives, Content and Design 2.01 The overall objectives of the SAL programs were threefold: (1) to improve production incentives by removing constraints to growth and by redirecting the economy towards a development path with more reliance on market forces and a greater outward orientation; (2) to promote private sector development and investment; and (3) to increase the efficiency of public resource utilization, especially through public enterprise reform and improved public expenditure management. The adjustment programs also contained specific quantitative medium-term targets for GDP growth, inflation, the external current account and the budget deficits, the external debt service ratio and the level of international reserves. The essence of the action programs needed to achieve these objectives is described very well in detail in the PCR (paras. 10-22) and need only be summarized here. Five important areas where structural change was deemed necessary are identified: Public Expenditure Management; Public Enterprise Reform; Trade, Industry and Credit Policies; and Agriculture under SAL I; the same four areas plus Labor Policy and Social Programs under SAL II. 2.02 Improvements in public expenditure management focussed on the preparation of a public investment program (PIP) in the context of a three-year rolling public expenditure program (PEP), the latter including both current and capital spending. A unified budget system would replace the existing one whereby investment and operating budgets are prepared by separate ministries. Bank-financed technical assistance was to play an important institution- building role in helping develop project preparation and appraisal capacity as well as the PEP. Finally, external borrowing would be on concessionary terms only, in order to place a limit on the debt service ratio. 2.03 The public enterprise reform action program included a number of first steps towards the goals of reducing the size of the sector and its drain on the budget as well as improving public enterprise management. The initial focus was on select liquidations and rehabilitation through the signing of perfor- mance contracts. The rehabilitation program was to be managed by the service in charge of monitoring public enterprise reform (SCEP), an institution which was also to be strengthened. In addition, reports were to be prepared on the potential for privatization and a privatization program was to be agreed upon. 2.04 Changes in trade, industrial and credit policies were all designed to shift gradually towards a more outward-oriented development strategy. Imports were to be liberalized in stages; prices were to be liberalized at the same - 3 - pace as imports; the tariff structure was to be simplified and effective protection reduced. Additional measures included a revision of the investment code, simplification of the duty drawback system for exporters and liberaliza- tion of interest rates. 2.05 The primary focus of the agricultural component of the SALs was on export crops and included the creation of a mechanism to allow for appropriate adjustment of producer prices, and changes in processing techniques to improve coffee quality. 2.06 Finally, SAL II included proposals for minor changes in labor Policy as well as the preparation of a social action and poverty alleviation program. 2.07 Both SALs contained a large number of actions to be taken by the Government in order to implement the program: about 45 as part of SAL I and 90 as part of SAL II, the latter larger number partly being a spill over from the unfinished agenda of SAL I. This multitude of measures spread across sectors would suggest that the adjustment program was quite comprehensive. Yet there were important shortcomings. First, much of the conditionality was vague, which made it difficult to judge what progress was really being made towards the ultimate objectives. Thus, e.g., in fundamental areas such as private sector development and public enterprise reform the conditionality for effectiveness for SAL I simply stated "the borrower has taken such steps as are necessary to encourage private investment" and "the borrower has initiated procedures to liquidate public enterprises which are economically non-viable" (SAL I, Development Credit Agreement, June 30, 1986, p. 8); or, SAL II abounded with conditions such as "Submission of an action plan satisfactory to the Association...", with no apparent follow-up envisaged (SAL II, Development Credit Agreement, June 29, 1988). Second, the large number of actions were not ranked in any order of priority and little account was taken of the Govern- ment's differing capacity (or commitment) to implement the different measures. Third, some elements, crucial to reach the stated objectives, were simply missing from the program. Thus, e.g., while the ov6rwhelming presence of the state (as producer or regulator) in the economy is probably the main factor inhibiting private sector development, proposals for remedial action were lacking: private sector entry into the market is prevented in many ways, such as through Government imposed low tariffs, concessions granted to public enterprises, or the very presence of a public enterprise in a particular line of activity which has tended to create de facto monopolies; also, the issue of Government administered producer prices was not addressed adequately; and, while the markets for goods were meant to be fully liberalized, there were no comprehensive proposals for labor or financial market reform: the labor code is overly protective of existing employees thus limiting labor mobility, while banks are reluctant to extend significant amounts of medium-term credit to the private sector, preferring instead Government guaranteed lending to public enterprises. Perhaps most importantly, as discussed below, both the Bank- country dialogue and coordination with other donors were deficient. B. Bank-Country Dialogue 2.08 Socio-political conditions played a major role in the preparation, as well as in the implementation, of the structural adjustment program. To begin with, both SALs were prepared largely by Bank staff with minimal Government participation. In the case of SAL I, no more than three top Government policy- makers and a few civil servants were involved, which would have made implemen- tation difficult under the best of circumstances. In the event, the Govern- ment's commitment to the program was further diminished by a deteriorating political climate during 1986 and early 1987, which culminated in a coup in September 1987, and a new Government. Subsequently SAL II was prepared (negotiations were in April 1988) before the new administration had much opportunity to absorb lessons learned from SAL I, let alone carry out background analyses of the policies and objectives contained in the country's new five year plan and incorporate these in the SAL. Often, even those civil servants who were to implement the reforms were not fully familiar with the program's contents and objectives. Shortly after SAL II was approved by the Board, economic policy-making was again interrupted by ethnic violence in August 1988. 2.09 This lack of Government ownership and poor internalization of the SALs has meant hesitancy and delays in implementation. As mentioned earlier, a good part of the SAL I action program was carried over into SAL II, whereas release of the second tranche of SAL II was delayed by 15 months and that of the third tranche by about two years. It is encouraging to note, however, that since 1989 a major effort has been underway to internalize Burundi's adjustment program in preparation for a follow-up SAL III. C. Donor Coordination 2.10 Burundi has been the recipient of generous donor support. During the SAL period (1986-90), total net foreign assistance flows, measured by the sum of official transfers and net public sector medium- and long-term loans, averaged close to $200 million per year, the equivalent of 17.5% of the country's GDP, and almost double average yearly export earnings of goods and non-factor services ($115 million).!' Major donors, in order of importance, are IDA, the EEC, France, Belgium, Germany, the African Development Fund, and Japan. 2.11 Indications are that foreign assistance to Burundi may at times have been excessive, as illustrated by the SAL II experience. As reported in the PCR (para. 27), Burundi's import requirements were much overestimated in the President's Report, so that although SAL II was disbursed over a much longer period than anticipated, reserves grew more than projected, and this in spite of an unexpected fall in coffee prices. It is worth adding that the analysis underlying the size of SAL II would appear to have been limited: while a $60 million credit was suggested in the initiating memorandum (January 11, 1988), no mention of the size of the program was made in the back-to-office report of the appraisal mission (February 28, 1988), yet, by April, a $90 million program was being negotiated. 2.12 External aid finances about 80% of the public investment program. Partly because most donor programs have a momentum of their own and partly because foreign assistance, including that provided by the SALe, has been relatively plentiful, it has proven extremely difficult to ensure the cooperation of donors. The objectives of individual donors often ran counter ' Source: World Bank, Burundi: Public Expenditure Review, Report No. 9566-BU, 1992. - 5 - to the SAL action program in such areas as the control of uneconomic public spending or the rehabilitation of public enterprises, many of which have been promoted by and have received long-time support from particular donors. In addition, coordination with the IMF, as discussed in the PCR (para. 52), left much to be desired in a number of areas. III. IMPLEMENTATION AND OUTCOME A. The Measures Taken 3.01 Although the second and third tranches of SAL II were considerably delayed, most conditions contained in the legal documentation were eventually met. Both SALs were thus fully disbursed, yet real progress towards structural adjustment was slow and limited, reflecting the vagueness and incompleteness of much of the conditionality. 3.02 Good progress was made in the areas of tariff reform, exchange rate reform and the gradual introduction of more flexible interest rates, the latter two clearly more in the context of the IMF programs. In addition, the Government has proceeded well with the introduction of a unified budget, with technical assistance from the IMF. At the same time, reform was seriously deficient in some of the most crucial areas of the adjustment program: the rationalization of public spending, public enterprise reform, price and import liberalization, export promotion and agricultural policy. 3.03 Attempts to strengthen the analytical and policy-making capabilities of the Ministries of Finance and of Planning, backed by Bank-financed technical assistance, have had limited success. Partly as a result, and partly because of the ample availability of foreign aid, the development of a public expenditure program has been much delayed and, although a good public investment programming process is now in place, project preparation and appraisal capabilities still need much improvement. Also, while new external borrowing has been on concessional terms only, as agreed, this could not prevent the debt service ratio from rising, because of past borrowing which did not translate into increased foreign exchange earnings. 3.04 The large amounts of foreign assistance also played a role in slowing public enterprise reform, in particular as they reduced the urgency of adjusting tariffs for many of the public enterprises, thereby also preventing the entry of.potential private competitors. For a variety of reasons, including especially the lack of reliable financial information on the public enterprises and the scarcity of potential indigenous private capital and entrepreneurs, little progress was made in preparing privatization plans. Nevertheless, on the positive side, progress was made in improving the informa- tion base on public enterprises, some liquidations were completed, performance contracts were signed for several enterprises, and the proposed study on the potential for privatization wa6 completed. On the other hand, one indication of the Government's continuing vacillating commitment to public enterprise reform was the creation of several new public enterprises during the SAL period (PCR, para. 36). 3.05 Reform in the area of trade and industrial policies has been significant though confined mainly to the removal of quantitative restrictions and to tariff reform; while several import and price liberalization measures were taken, licensing and price controls continued to exist for a number of products. Furthermore, proposed export promotion measures, especially a simplified import duty drawback system, were delayed. On the other hand, good progress was made in easing the regulatory framework for private sector firms. 3.06 In the agricultural sector, the control exercised by public enterprises over processing and marketing of export crops has remained, and successive devaluations of the currency have not been translated in increased producer prices, which was an important objective of the SALs. Measures to improve the quality of export products, however, have been implemented. Finally, the few timid measures towards liberalization of the labor market also were carried out. B. Results Achieved 3.07 With rare exceptions, the principal macroeconomic targets embodied in the SAL programs were not met. While some of this can be explained by negative exogenous influences -- deteriorating terms of trade during the period, the August 1988 civil disturbances, bad weather in 1989 -- it is also true that donor assistance mobilized in response to the SAL program was generous. Such support was instrumental in maintaining GDP growth at a satisfactory level of about 3.7% per year during 1986-90, which, though less than in the pre- adjustment years, was still positive in per capita terms and generally above rates in other low-income Sub-Saharan Africa; furthermore, gross international reserves increased during the period from the equivalent of about 1 month's imports in 1986 to about 5 by 1990. In addition, inflation, as measured by the Bujumbura consumer price index, was kept limited during the adjustment period in spite of the devaluations, partly because of declining wholesalers' margins as a result of increased competition as part of the adjustment program and partly because of continuing price controls on a number of products. 3.08 More importantly, however, the period 1986-90 witnessed no fundamental change in the structure of the Burundian economy. A summary assessment of the impact of SALs I and II is provided by the macroeconomic aggregates in Table 1, where the three pre-adjustment years (1983-85) are compared with developments during the SAL years. None of -he indicators reveals any real adjustment during the period. -7- Table Is BASIC ECONOMIC INDICATORS Average Estimated 1983-85 1986 1987 1988 1989 1990 Growth Rates GDP 5.1 3.3 5.5 4.9 1.5 3.3 Inflation 8.7 1.8 7.1 4.5 11.6 7.1 As Percent of GDP Consumption 96.3 92.3 93.1 98.4 95.6 98.9 Investment (inc. stocks) 16.9 16.4 22.7 15.0 16.7 19.3 o&w Public Capital Form. 14.3 11.4 16.4 13.4 13.7 15.1 Private Capital Form. 2.5 2.6 4.5 1.6 3.2 3.3 Exports (G&NFS) 10.0 11.4 9.8 12.6 9.7 7.8 Imports (G&NFS) 23.2 20.1 25.6 26.0 22.0 26.0 Total Public Expenditure 27.3 23.8 30.4 26.6 27.9 28.5 Current Public Expenditure 11.5 13.0 13.3 14.9 15.1 15.3 on Wages & Salaries 5.4 5.7 6.1 6.4 6.5 6.8 Transfers & Subsidies 1.2 1.5 1.6 2.2 2.5 2.4 Health & Education 3.0 3.5 3.5 3.9 4.0 4.3 Overall Budget Deficit -14.0 -8.5 -16.8 -11.2 -9.7 -12.6 Balance of Payments Current Acet. -12.0 -11.7 -17.9 -14.6 -13.2 -18.6 Ratios Debt Service/Exports 17.9 22.9 44.9 35.2 47.2 49.2 Exports/Imports (G&NFS) 43.8 56.8 38.2 48.3 43.9 30.0 US$ Million Coffee Exports 82.8 105.6 69.8 103.0 74.8 52.5 Non-Coffee Exports 14.8 23.5 28.5 21.4 18.4 20.0 Source: World Bank, Burundi: Public Expenditure Review, Report No. 9566-BU, 1992. 3.09 The average resource gap during 1986-90 was equivalent to 13.7% of GDP compared to 13.2% during the pre-adjustment years: in fact, both consumption as well as investment spending, at respectively 95.7% and 18.0% of GDP during 1986-90 have remained at very high levels; in addition, primarily because of increased factor payments, the current account deficit was somewhat larger during the adjustment lears. Capital formation by -he public sector, at the equivalent of 14% of GDP, virtually the same as in 1983-85, has continued to absorb the bulk of investment resources, in contrast to SAL objectives and to the experience of many other adjusting countries. Likewise, the public sector's overall share in GDP has remained unchanged at 27.4% of GDP, despite the Government's intentions of reducing its role in the economy and promoting private sector development. It is of particular interest to note that current expenditures for wages and salaries have increased as a share of GDP, as has spending on transfers and subsidies, much of the latter to inefficient public enterprises. The adjustment program did not include measures to offset potential social costs: however, such costs turned cut to be minor because there was, in fact, very little adjustment; on the contrary, in line with - 8 - Government objectives, current expenditures on health and education increased substantially, and the Government, on its own, also introduced subsidized tariffs for low-income users of public services. Finally, exports of goods and non-factor services covered only about 45% of imports during 1983-85 (as opposed to 70% during the 1970s) and this situation has not changed materially either. C. Overall Evaluation 3.10 After more than five years of structural adjustment efforts, Burundi has changed much less than was hoped for. On the positive side, it is undeniable that the overall economic environment has improved measurably. Among others, quantitative import restrictions have been eliminated, a sensible exchange rate policy is being pursued, many imports and prices have been liberalized, effective protection is down and the regulatory environment affecting businesses has been made much easier, although the latter was accomplished independently of the S1Ls. More importantly, the very presence of the SAL programs and constant supervision by the Bank have strengthened the Government's economic management capacity and raised its awareness of the need for structural change, to the point that by the end of 1991 the Government became, for the first time, fully involved in the preparation of a follow-up SAL. Unlike on previous occasions, the Government also drafted the Policy Framework Paper for 1991-94. 3.11 On the other hand, as discussed earlier, thus far the structure of the economy has changed remarkably little. In retrospect, the Bank was far too ortimistic about the speed at which change could take place in the Burundi environment, in contrast to its own cautionary words in paragraph 18 of the President's Report for SAL I: "Even if appropriate policies begin to be applied immediately, it would be unrealistic to expect the initial adjustment process to take less than a decade." In addition, a number of elements, vital to the achievement of the stated objectives, were left out of the programs. 3.12 The least progress was recorded in some of the most urgent areas of reform -- restructuring and rationalization of public spending, and public enterprise reform -- partly because of political resistance to the changes, in turn a reflection of the lack of internalization of the program, and partly because the availability of ample foreign aid made it easier to postpone tough decisions. In addition, the slow pace of development of Public Investment and Public Expenditure programs is not surprising, given the prior and poorly attended need to lay the foundation and build the institutions to carry out these tasks. Also, the Government's hesitation to reform existing public enterprises and the creation of new ones were confusing signals to the business community, thereby discouraging private sector entry. 3.13 The obstacles to private sector development in general in Burundi are many and severe. Even if all actions proposed under the SALs had been fully implemented and even if an appropriate macro-environment were created, these would have been necessary but not sufficient conditions for a major private investment response. First, significant private sector development in Burundi will take time. The country's dirigiste past (until September 1987) effective- ly put a brake on private initiative. While there is by now an embryonic private industrial sector, it will take several years for a significant pool of private sector entrepreneurs and for confidence in policy to develop. In - 9 - addition, current international perceptions about business in Africa are bound to make it difficult to attract foreign partners in efforts to stimulate a private investment take-off. Second, important complementary measures were absent from past structural adjustment efforts. Thus, e.g., revisions are needed in the labor code (firing employees is difficult and non-wage costs are excessive) and in banking regulations (banks remain reluctant to provide risk credit). Agriculture, by far the dominant sector in the economy, is still highly controlled: Government administerbd producer prices and fixed input prices remain prevalent; moreover, there is a need for clarification of land tenure and allocation rules and for the elimination of mandatory crop cultivation. Also, taxation of the private formal sector is comparatively very high. Finally, it is difficult to conceive of long-term progress in Burundi without addressing the problem of rapid population growth. 3.14 In sum, while SALs I and IT brought the Burundi economy a bit closer Lo a free market economy and especially promoted awareness among policy-makers of the need for further structural change, they also facilitated maintenance of the status quo, as illustrated in Table 1, and, on balance, fell far short of their expected goals. IV. SUSTAINABILITY AND LESSONS LEARNED 4.01 Because GDP continued to grow, albeit at a low rate, and because inflation was kept under control and international reserves accumulated, the Burundi SAL9 I and II gave a false sense of progress. In reality, such progress is not sustainable: there was no measurable supply response to the program, no change in the structure of spending in the economy, and public indebtedness increased sharply as share of GDP. The main redeeming feature in terms of sustainability was that the SALs were a catalyst to initiating changes in economic management behavior. 4.02 The primary lesson, by far, from this experience is far from new: in order to be successful a structural adjustment program must be fully owned, i.e. developed, supported and believed in, by the Government and must be fully internalized within the bureaucracy as well as the private sector; in addition, genuine cooperation from other donors is essential which can only be achieved once the Government has full leadership of the program. None of these conditions were present in Burundi. In view of the socio-political climate in 1986 through 1988, it is highly questionable whether SAL lending was indeed the most appropriate form of Bank support to the country. 4.03 Second, there has to be a concrete link between objectives and policy proposals. Tr the Burundi case, the formulation of policies to, e.g., secure a restructuring of public spending was weak and that to achieve a supply response was inadequate; in particular, liberalization of the all-important agricultural sector was not included in the program. While an "enabling" macro-environment is essential for growth, micro-policy measures may be equally necessary. 4.04 Third, an abundance of foreign aid may be counterproductive to structural change, because it may facilitate maintenance of the status quo. Burundi's development problems run very deep and their solution will require - 10 - a long and sustained effort. Long-term economic progress will reauire considerable project support in many areas, to which some limited program lending may be a desirable complement. 4.05 It is encouraging to note that the ongoing preparation for a third SAL incornorates many of these lessons from experience. Thus, e.g., the proposed size of SAL III, at the stage of appraisal, is a modest $30 million (one-third the size of SAL II), conditionality is being tightened to ensure concrete Government action before release of funds, and the focus of the Bank's strategy is meant to shift increasingly to project support. Also, in order to strengthen the links between policy means and objectives, the SAL III proposed policy measures are being complemented by supportIve Eank investment operations such as a Private Sector Development and Export Promotion project and an Agro- Industrial Sector project. - 11 - PROGRAM COMPLETION REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) June 26, 1991 )perations Division itral and Indian Ocean Department gion - 13 - PROGRAM COMPLETION REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-PU AND AFRICAN FACILITY CREDIT A-017-BU) PART I - PROGRAM REVIEW PROM THE BANK' S PERSPECTIVE I. INTRODUCTION A. Background Name Structural Adjustment Credits I and II Credit No.s Cre. 1705/A-017 and 1919-BU Region Africa Country : Burund. Sector Non-Project Leading 1. Burundi is a small landlocked country in Central Africa. Its per capita GDP is about US$205 (1989) and its growth rate has been consistently above average levels for Sto-Saharan Africa since the mid-1960s. With an estimated population of 5.38 million in 1990 and a population growth rate of 3.06 percent (1988-1992), Burundi has the second highest population density in Africa. About 90 percent of the population lives in rural areas and the economy is highly dependent on aqriculture (more than half of GDP, 90 percent of employment and 90 percent of export earnings). Coftee accounts for 80 percent of total exports. The secondary sector (mining and manufacturing) represents only 14 percent of GDP and 6 percent of exports respectively. The private sector is active in the transport sector and in the production of export and food crops (small holder farmers), while the public sector enjoys a quasi- monopolistic position in manufacturing, energy, and construction as well as in the processing and export of primary commodities. The public sector also generates half of the country's formal employment and Burundi's economic and financial situation has been closely linked to the international price of coffee which has fluctuated widely from year to year. 2. After a period of relatively good performance during the late 1970s, Burundi's economic and financial situation took a turn for the worse in 1981-84, due to a sharp deterioration in its terms of trade, expansionary fiscal and monetary policies and :dverse climatic condit.'ns. GDP growth, which had averaged 5.1 percent per annum in real terms during 1978-81, declined to less than 1 percent per annum during 1982-84. Annual inflation reached 14 percent, leading to a rapid appreciation of the real effective exchange rate. The government responded with administrative controls aimed at containing the external deficit and protecting domestic industry. The ensuing distortions, however, only served to highlight Burundi's major structural constraints: a dominant subsistence oriented primary sector with a - very narrow and poorly diversified productive base (excessive dependence on coffee exports), a rapidly growing population, very low national savings, an excessive role of the public sector with deficient public expenditure management and poorly performing public enterprises that dominated the productive sectors. 3. In recognition of the gravity of the situation, the government of the Second Republic, led by President Bagaza, approached the World Bank and the Fund in 1985 to request their assistance in formulating an adjustment program. The adjustment program was supported by SAL I and a first-year SAF arrangement with the IMF. SAL I was fully disbursed in April 1987, shortly before a change in government. Burundi's current government (the Third Republic) is led by President Buyoya who took power in a military co;p d'dtat in September 1987. SAL II was approved in June 1988, but effectiveness was delayed, in part due to the outburst of ethnic violence that occurred in August 1988. The President responded to the latter with the appointment of a national unity government with equal representation from the two main ethnic groups, the Hutu and the Tutsi. Currently, a process of democratization of political institutions is underway. The President has appointed a commission to draft a new constitution that is to be submitted to a national referendum in 1992. - 14 - B. The Role of the Bank 4. The Bank played a major role in the design and implementation of both SALs. While government technicians contributed substantially to the preparation of SAL I, they were not very involved In the preparation of SAL II. The latter was designed soon after the new government was appointed, following the September 1987 coup d'dtat. The first thrie PFPs were prepared mainly by the Bank and the IMF while the fourth for 1991-94 was drafted entirely by the government. Bank supervision missions, partitilarly under SAL II, played a major role in explaining the adjustment program and its implications. Frequent turnover in relevant government personnel (there were three cabinet rechuffles) placed a premium on the "pedagogical" role of supervision missions. 5. A technical assistance project (Economic Management and Public Enterprises - Cr. 1795- BU) financed by the Bank was approved in early 1988 to aid the Government to implemer.t SAL II reforms. However, the Government has not taken full advantage of these resources, and in some cases the experts hired were not effective or well used. While technical experts were financed to reinforce the government service responsible for public enterprise reform (SCEP), the lack of strong leadership within SCEP and the absence of a well-defined government privatization policy detracted from their effectiveness. Qualified technical assistance was mobilized only in 1990 (SAL II) to develop a harmonized methodology for preparing sector public expenditure programs (PEP), while assistance to develop guidelines for investment feasibility studies, has not yet been sought. The technical assistance (TA) project also provided assistance to the Planning Ministry to strengthen the project preparaion and selection process, particularly in the area of expenditure programming for sectoral projects in agriculture, health, education, transport/road, water supply and energy.' 6. Despite the availability of funds for the Government under the TA project, background studies for the adjustment loans were initiated by the Bank. For the preparation of SAL I, the Bank financed a study on effetive protection rates to help identify the new tariff structure, as well as a study examining methods to improve coffee processing and marketing. For SAL II, a Country Economic Memorandum covering broad issues was completed and a review of the labor market was undertaken. Economic and sector work accelerated during the second half of SAL II to prepare the third program. These studies included: a public expenditure review, a detailed study of the economic impact of SAL I and II, sectoral reports on agriculture and industry and a study of the competitiveness of the exchange rate. These reports permitted the Bank to evaluate government strategies in agriculture, health, education, transport/roads, water supply and energy. In addition, the Bank's sector operations provided an effective vehicle to implement the general principles of SAL II, in particular in the areas of PE reform, removal of pricing distortions, cost recovery and public expenditure management and project selection processes. The Bank also reviews the government's budget and public investment program (PIP) annually, which has allowed it to eliminate potential "white elephants". II. OBJECTIVES AND CONTENT OF THE ADJUSTMENT PROGRAMS 7. Recognizing the serious economic consequences of failing to correct its economic and financial imbalances, in 1985 the government embarked on an economic reform program, which was I Management capacity for pu%lic debt management was also supposed to be strengthened but a UNDP/UNCTAD project took over tms component. - 15 - supported by two Bank structural adjustment credits (SAL) (1986-91) and three IMF annual SAF arrangements. The SAL programs, described below, sought to: (a) remove constraints to growth; (b) promote private investment; and (c) strengthen institutional capacity to manage the adjustment process. The objectives of the IMF stabilization program were to: (a) correct the overvalued exchange rate and pursue an adjustable exchange rate policy; (b) strengthen the balance of payments and increase foreign exchange reserves to the equivalent of least three months of imports; (c) reduce the debt service; (d) decrease the domestic financing of the budget deficit, in order to expand credit to the private sector; and (e) increase revenues and public savings. A. Qbjectives and Description of SAL I 8. The first SAL (US$15 million IDA, US$16.2 million SFA, US$18.8 million cofinanciers) was a two-tranche program covering the period mid-1986 to mid-1987. The program included five main areas: (a) public expenditure management; (b) public enterprise reform; (c) trade and industrial policies; (d) credit allocation; and (e) agriculture sector policy. A Technical Assistance Project (TA III Cr. 1456) was already in place to strengthen the national capacity to implement some of the objectives of the program. The objectives of SAL I were to establish a new incentive structure for the productive sector, trengthen the institutional capacity to improve public expenditure management and reorient expenditure to support private sector development. The medium-term objectives of the SAL were to divt. sify the economy and lay the basis for sustained growth based on the country's comparative advantage and private sector incentives. 9. A first Policy Framework Paper (PFP) for 1986-89 was prepared to provide the framework and specify the qualitative targets of the program. The main objectives were to achieve a real growth rate of at least 4 percent pt;r annum, maintain a low inflation rate, reduce the external debt service ratio from 23 percent in 1985 to 18.5 percent in 1989 and increase the level of official reserves to at least three months starting in 1986. The external current account deficit (excluding transfers) was targeted to be 12.6 percent over the period 1987-89, while the overall budget deficit (on a commitment basis and excluding grants) was to be 4.1 percent of GDP in 1986, 6.4 percent in 1987 and remain at a level compatible with the balance of payments thereafter. Public Expenditure Management 10. SAL I sought to: (a) rationalize public expenditures to facilitate a reduction of the budget deficit in line with the stabilization program; (b) increase the efficiency of public spending; and (c) formulate a PIP compatible with available resources, while maintaining adequate funding for social sectors. The PIP was to be prepared in the context of a comprehensive three-year rolling PEP to be initiated in 1986. The size of the PIP was to be consistent with the IMF financial targets and was to be limited to 20bn FBu. Within the PIP, a core program of projects offering the highest rates of return as well as a priority non-core program were to be identified. A debt strategy was also to be prepared by the government to insure that future commitments would be on concessionary terms and that the debt service would be maintained under 20 percent between 1986-90 and under 15 percent thereafter. A PEP (including recurrent and capital expenditures) was to be prepared for each government executing agency, with the first year of the PEP corresponding to the 1986 budget. A unified budget was to replace the existing system, whereby the Planning Ministry prepares the investment budget, while the Ministry of Finance prepares the operating budget and executes both budgets. Institutional capacity building was to be supporte6 by Bank and IMF technical assistance. The Bank-financed TA project was to have provided support for project preparation and appraisal (including the design of harmonized project criteria and guidelines) and the development of the three-year PEP. The IMF assisted the Ministry of Finance to reirforce the public finance accounting system. - 16 - Public Enterprise (PE) Reform 11. The main objectives of PE reform were to limit government participation to only those enterprises providing vital public services or operating in strategic sectors and to improve their management. This required: (a) the development of a PE strategy; (b) the rehabilitation of PEs with medium-term economic viability; (c) the restructuring of others through privatization or liquidation; (d) the limitation of new PEs to economically viable activities where private investment would not be forthcoming; and (e) the establishment of a system that would enable the government to monitor the performance of td PE sector. Specifically, the PE program proposed to: (a) close four enterprises; (b) reintegrate three in the public administration; (c) rehabilitate five through performance contracts; (d) design and implement performance contracts for six; (e) review the trade and tourism sectors to identify enterprises to be rehabilitated in a second phase; and (f) prepare a diagnostic report assessing the private sector potential for PE privatization. The financing and management of the rehabilitation program was to be handled by the service in charge of public enterprises (SCEP) with support from an intervention fund located in the development bank (BNDE) and supported by a Bank-financed Technical Assistance project. A management information system (MIS) was also to be set up to monitor PE performance. Trade. Industrial and Credit Policies 12. The main objectives of trade and industrial reform were to open the economy to domestic and foreign competition by liberalizing imports and prices and by introducing a new tariff structure. Imports were to be liberalized in two phases. First, import licenses were to be automatically granted for most products, except luxury goods, cotton textiles, glass and pharmaceutical products. In addition, during the first phase, regulations governing the profession of importer were to be eased to facilitate competition. During the second phase, trade liberalization was to be extended to luxury goods. Prices were also to be liberalized at the same pace as imports (except strategic products where price ceilings could be imposed for up to four months in case of shortages and petroleum products, where a price ceiling was to reflect international price movements). A new simplified tariff structure was also to be developed that reduced the number of duties from 3 to 2, the number of duty rates from 57 to 5 and the spread from 50-15 in 1986, to 40-20 in 1989 (keeping luxury goods at 100 percent). A maximum surcharge of 30 percent could be applied for up to three years to protect infant industries. 13. To promote domestic investment and competition, the investment code was to be evaluated and its capital intensive bias eliminated. In particular, import duty exemptions were to be eliminated on raw materials, intermediate products and durable goods. To promote small and medium enterprises, the authorized credit ceiling of commercial banks was increased from FBu 3 million to FBu 10 million and a guarantee fund for small and medium enterprises was established. In addition, all export taxes on locally produced manufactured goods were to be eliminated. Agricultur 14. Agricultural reforms were to concentrate on export crops, and sought to provide adequate producer incentives, increase efficiency and improve crop quality and marketing. Measures included: (a) establishing a mechanism to regularly adjust export crop prices (based on a regularly updated rural consumer price index and on the comparison of returns to labor from other crops and non-agricultural activities); (b) modifying processing techniques for coffee to improve the quality and the marketing of fully washed coffee; (c) improving SOSUMO's (sugar refinery) efficiency; and (d) reorganizing the Regional Development Companies by transferring extension, research, planning and programming activities to the regional offices of the Ministry of Agriculture. - 17 - B. Objectives and Description of SAL II 15. The second SAL (US$90 million equivalent from IDA and US$65 million equivalent in cofinancing) was a three-tranche program covering the period mid-1988 to end-1989. In addition to covering the areas included in the first SAL, reforms were also introduced regarding the financial sector, labor policies and social/poverty alleviation. The adjustment program of SAL II was concentrated on pul*- expenditure management, public enterprise reform and interest rate deregulation, and was supported by a new Technical Assistance Project (Economic Management and Public Enterprises). The Bank program was accompanied by the second and third year of the three-year SAP arrangement from the IMF, which included the same features as the first year. 16. The adjustment program of SAL II was outlined In a second PFP, which took into account the weaker outlook for coffee prices. The main objectives were: (a) to accelerate GDP growth during the period 1988-91 (to 4.5-5.0 percent); (b) maintain the inflation rate at approximately 5-6 percent; (c) reduce the external debt service ratio from 44 percent in 1987 to 30 percent in 1991 (compared to 18 percent in the first PFP); (d) build-up net iternational reserves to 4 months of imports starting in 1988; (e) limit the overall budget deficit (on a commitment basis and excluding grants) to 5 percent of GDP in 1991; (f) increase government revenues; and (g) maintain the expansion of domestic credit in line with balance of payment objectives. 17. During the second year of SAL I (1989), a third PFP was prepared to take into account the continued weakness of the coffee market. The GDP growth objective was lowered to 4.6 percent for 1989-93 (assuming that total investment would reach 22 percent of GDP, of which 5.7 percent would be for private investment), the inflation objective was maintained at 3.5 percent for 1993, the debt service ratio objective was raised to 32 percent for 1993, and the overall fiscal deficit was targeted to be 4 percent of GDP by 1993. Public Expenditure Management 18. SAL I had concentrated on developing the PIP (although a PEP was to have been formulated) and SAL II was to follow-up by generating a full-fledged PEP. Public expenditure programs were to be prepared for education, health, agriculture and transport for 1989-91 and 1990-92. A transitional unified budget was to be assembled for 1989 and 1990, and a complete unified budget for 1991. The Planning and Finance Ministries were to be strengthened, while sectoral projects were to reinforce the planning and programming capacities of the technical ministries. A strategy to improve the efficiency of civil service reform was also to be designed during SAL II. Public Enterprise Reform 19. Many of the PE reform measures initiated but only partially implemented during the first SAL, were included in SAL II: (a) the four liquidations started during SAL I were to be completed during SAL II; (b) performance contracts were to be signed for thirteen enterprises; (c) a privatization program was to be agreed upon; and (d) the SCEP was to be strengthened. In addition, a study on cross debts and financial flows between the state and the DEs was ordered for SAL II. - 18 - Trade. Industrial and Credit Policies 20. Similarly, the trade reforms were to build-on those initiated under SAL I through: (a) additional tariff reform; (b) the extension of import liberalization (elimination of remaining quantitative restrictions) to products manufactured locally; (c) increasing the ceiling on import licenses granted by commercial banks; and (d) requiring interest on the FBu 10 n I1ion that foreign importers are obliged to deposit at the Central Bank-BRB (unless the importer had invested FBu 20 million in productive activities). Measures to promote exports included the adoption of simplified drawback procedures for import taxes, authorizing the deduction of marketing expenses incurred abroad and simplifying administrative procedures for businessmen travelling abroad. An office for weights and measures was to be set up and a study on potential exports was to be carried out. To promote credit activities, SAL II called for the liberalization of interest rates, the elimination of central bank approval for loans above FBu 10 million, the issue of treasury certificates, and the establishment of reserve requirements. Agriculture 21. The SAL II agricultural reform program focussed again on cash crops. A long-term strategy was to be identified for the coffee sector, and in particular, the sliding scale price system was to be revised and the marketing system improved. A study to identify regional advantages for export and principal food crops was to be carried out. The design of a long-term strategy for fertilizer marketing, improvement in SOSUMO's management and the liberalization of the rice market were also part of the second adjustment program. Labor Policy and Social Programs 22. Labor market reforms were not a central feature of SAL II conditionality. Nevertheless, the adjustment package called for the elimination of the Labor Ministry's prior approval before hiring and the reinforcement of its capacity to monitor the labor market. To promote labor-intensive technology and employment, authorization to import second hand technology was to be given and the tax system in Bujumbura was to be revised to remove its anti-employment bias. In addition, a study on a private health insurance system was to be carried out. SAL II also included the preparation of a social action and poverty alleviation program. In collaboration with UNICEF, UNDP and the World Bank, the government was to draw up an action program for poverty alleviation with programs targeting child nutrition, the role of women in development, and food security. A food and nutrition monitoring system was also to be established. HW. DESIGN AND ORGANIZATION OF THE ADJUSTMENT PROGRAMS A.SAL 1 23. SAL I was generally well-designed and comprehensive (with the exception of social policies which were not addressed). The program addressed the most important policy distortions, which were: (a) the restrictive trade regime; (b) price controls; (c) the overvalued exchange rate; and (d) the size of the investment program. The sequencing of the reforms was also appropriate, particularly in the area of trade, where imports were liberalized simultaneously with the opening-up of the importer's profession and the decontrol of import prices. 24. Nevertheless, inadequate attention was given to promoting the private sector, conditionality was often too vague (with the exception of trade liberalization and tariff reform), and the time necessary to implement some reforms was underestimated (particularly for the comprehensive three - 11 - PROGRAM COMPLETION REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-BU AND AFRICAN FACILITY CREDIT A-017-BU) June 26, 1991 )perations Division itral and Indian Ocean Department gion - 13 - PROGRAM COMPLETION REPORT BURUNDI FIRST AND SECOND STRUCTURAL ADJUSTMENT CREDITS (IDA CREDITS 1705 AND 1919-OU AND AFRICAN FACILITY CREDIT A-017-BU) PART I - PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE I. INTRODUCTION A. Background Name : Structural Adjustment Credits I and II Credit No.: Cra. 1705/A-017 and 1919-BU Region : Africa Country : Burundi Sector : Non-Project Lending 1. Burundi is a small landlocked country in Central Africa. Its per capita GDP is about US$205 (1989) and its growth rate has been consistently above average levels for Sub-Saharan Africa since the mid-1960s. With an estimated population of 5.38 million in 1990 and a population growth rate of 3.06 percent (1988-1992), Burundi has the second highest population density in Africa. About 90 percent of the population lives in rural areas and the economy is highly dependent on agriculture (more than half of GDP, 90 percent of employment and 90 percent of export earnings). Coffee accounts for 80 percent of total exports. The secondary sector (mining and manufacturing) represents only 14 percent of GDP and 6 percent of exports respectively. The private sector is active in the transport sector and in the production of export and food crops (small holder farmers), while the public sector enjoys a quasi- monopolistic position in manufacturing, energy, and construction as well as in the processing and export of primary commodities. The public sector also generates half of the country's formal employment and Burundi's economic and financial situation has been closely linked to the international price of coffee which has fluctuated widely from year to year. 2. After a period of relatively good performance during the late 1970s, Burundi's economic and financial situation took a turn for the worse in 1981-84, due to a sharp deterioration in its terms of trade, expansionary fiscal and monetary policies and adverse climatic conditions. GDP growth, which had averaged 5.1 percent per annum in real terms during 1978-81, declined to less than 1 percent per annum during 1982-84. Annual inflation reached 14 percent, leading to a rapid appreciation of the real effective exchange rate. The government responded with administrative controls aimed at containing the external deficit and protecting domestic industry. The ensuing distortions, however, only served to highlight Burundi's major structural constraints: a dominant subsistence oriented primary sector with a very narrow and poorly diversified productive base (excessive dependence on coffee exports), a rapidly growing population, very low national savings, an excessive role of the public sector with deficient public expenditure management and poorly performing public enterprises that dominated the productive sectors. 3. In recognition of the gravity of the situation, the government o 'the Second Republic, led by President Bagaza, approached the World Bank and the Fund in 685 to request their assistance in formulating an adjustment program. The adjustment program was supported by SAL I and a first-year SAP arrangement with the IMF. SAL I was fully disbursed in April 1987, shortly before a change in government. Burundi's current government (the Third Republic) is led by President Buyoya who took power in a military coup d'6tat in September 1987. SAL II was approved in June 1988, but effectiveness was delayed, in part due to the outburst of ethnic violence that occurred in August 1988. The President responded to the latter with the appointment of a national unity government with equal representation from the two main ethnic groups, the Hutu and the Tutsi. Currently, a process of democratization of political institutions is underway. The President has appointed a commission to draft a new constitution that is to be submitted to a national referendum in: 1992. - 14 - B. The Role of the Bank 4. The Bank played a major role in the design and implementation of both SALs. While government technicians contributed substantially to the preparation of SAL I, they were not very involved in the preparation of SAL II. The latter was designed soon after the new government was appointed, following the September 1987 coup d'dtat. The first three PFPs were prepared mainly by the Bank and the IMF while the fourth for 1991-94 was drafted entirely by the government. Bank supervision missions, particularly under SAL II, played a major role in explaining the adjustment program and its implications. Frequent turnover in relevant government personnel (there were three cabinet reshuffles) placed a premium on the "pedagogical" role of supervision missions. 5. A technical assistance project (Economic Management and Public Enterprises - Cr. 1795- BU) financed by the Bank was approved in early 1988 to aid the Government to implement SAL II reforms. However, the Government has not taken full advantage of these resources, and in some cases the experts hired were not effective or well used. While technical experts were financed to reinforce the government service responsible for public enterprise reform (SCEP), the lack of strong leadership within SCEP and the absence of a well-defined government privatization policy detracted from their effectiveness. Qualified technical assistance was mobilized only in 1990 (SAL II) to develop a harmonized methodology for preparing sector public expenditure programs (PEP), while assistance to develop guidelines for investment feasibility studies, has not yet been sought. The technical assistance (TA) project also provided assistance to the Planning Ministry to strengthen the project preparation and selection process, particularly in the area of expenditure programming for sectoral projects in agriculture, health, education, transport/road, water supply and energy.' 6. Despite the availability of funds for the Government under the TA project, background studies for the adjustment loans were initiated by the Bank. For the preparation of SAL I, the Bank financed a study on effective protection rates to help identify the new tariff structure, as well as a study examining methods to improve coffee processing and marketing. For SAL II, a Country Economic Memorandum covering broad issues was completed and a review of the labor market was undertaken. Economic and sector work accelerated during the second half of SAL II to prepare the third program. These studies included: a public expenditure review, a detailed study of the economic impact of SAL I and H, sectoral reports on agriculture and industry and a study of the competitiveness of the exchange rate. These reports permitted the Bank to evaluate government strategies in agriculture, health, education, transport/roads, water supply and energy. In addition, the Bank's sector operations provided an effective vehicle to implement the general principles of SAL II, in particular in the areas of PE reform, removal of pricing distortions, cost recovery and public expenditure management and project selection processes. The Bank also reviews the government's budget and public investment program (PIP) annually, which has allowed it to eliminate potential "white elephants". II. OBJECTIVES AND CONTENT OF THE ADJUSTMENT PROGRAMS 7. Recognizing the serious economic consequences of failing to correct its economic and financial imbalances, in 1985 the government embarked on an economic reform program, which was I Management capacity for public debt management was also supposed to be strengthened but a UNDP/UNCTAD project took over this component. - 15 - supported by two Bank structural adjustment credits (SAL) (1986-91) and three IMF annual SAF arrangements. The SAL programs, described below, sought to: (a) remove constraints to growth; (b) promote private investment; and (c) strengthen institutional capacity to manage the adjustment process. The objectives of the IMF stabilization program were to: (a) correct the overvalued exchange rate and pursue an adjustable exchange rate policy; (b) strengthen the balance of payments and increase foreign exchange reserves to the equivalent of least three months of imports; (c) reduce the debt service; (d) decrease the domestic financing of the budget deficit, in order to expand credit to the private sector; and (e) increase revenues and public savings. A. Objetives and Description of SAL I 8. The first SAL (US$15 million IDA, US$16.2 million SFA, US$18.8 million cofinanciers) was a two-tranche program covering the period mid-1986 to mid-1987. The program included five main areas: (a) public expenditure management; (b) public enterprise reform; (c) trade and industrial policies; (d) credit allocation; and (e) agriculture sector policy. A Technical Assistance Project (TA III Cr. 1456) was already in place to strengthen the national capacity to implement some of the objectives of the program. The objectives of SAL I were to establish a new incentive structure for the productive sector, strengthen the institutional capacity to improve public expenditure management and reorient expenditure to support private sector development. The medium-term objectives of the SAL were to diversify the economy and lay the basis for sustained growth based on the country's comparative advantage and private sector incentives. 9. A first Policy Framework Paper (PFP) for 1986-89 was prepared to provide the framework and specify the qualitative targets of the program. The main objectives were to achieve a real growth rate of at least 4 percent per annum, maintain a low inflation rate, reduce the external debt service ratio from 23 percent in 1985 to 18.5 percent in 1989 and increase the level of official reserves to at least three months starting in 1986. The external current account deficit (excluding transfers) was targeted to be 12.6 percent over the period 1987-89, while the overall budget deficit (on a commitment basis and excluding grants) was to be 4.1 percent of CDP in 1986, 6.4 percent in 1987 and remain at a level compatible with the balance of payments thereafter. Public Expenditure Management 10. SAL I sought to: (a) rationalize public expenditures to facilitate a reduction of the budget deficit in line with the stabilization program; (b) increase the efficiency of public spending; and (c) formulate a PIP compatible with available resources, while maintaining adequate funding for social sectors. The PIP was to be prepared in the context of a comprehensive three-year rolling PEP to be initiated in 1986. The size of the PIP was to be consistent with the IMF financial targets and was to be limited to 20bn FBu. Within the PIP, a core program of projects offering the highest rates of return as well as a priority non-core program were to be identified. A debt strategy was also to be prepared by the government to insure that future commitments would be on concessionary terms and that the debt service would be maintained under 20 percent between 1986-90 and under 15 percent thereafter. A PEP (including recurrent and capital expenditures) was to be prepared for each government executing agency, with the first year of the PEP corresponding to the 1986 budget. A unified budget was to replace the existing system, whereby the Planning Ministry prepares the investment budget, while the Ministry of Finance prepares the operating budget and executes both budgets. Institutional capacity building was to be supported by Bank and IMF technical assistance. The Bank-financed TA project was to have provided support for project preparation and appraisal (including the design of harmonized project criteria and guidelines) and the development of the three-year PEP. The IMF assisted the Ministry of Finance to reinforce the public finance accounting system. - 16 - Public Enterprise (PE Reform 11. The main objectives of PE reform were to limit government participation to only those enterprises providing vital public services or operating in strategic sectors and to improve their management. This required: (a) the development of a PE strategy; (b) the rehabilitation of PEs with medium-term economic viability; (c) the restructuring of others through privatization or liquidation; (d) the limitation of new PEs to economically viable activities where private investment would not be forthcoming; and (e) the establishment of a system that would enable the government to monitor the performance of the PE sector. Specifically, the PE program proposed to: (a) close four enterprises; (b) reintegrate three in the public administration; (c) rehabilitate five through performance contracts; (d) design and implement performance contracts for six; (e) review the trade and tourism sectors to identify enterprises to be rehabilitated in a second phase; and (f) prepare a diagnostic report assessing the private sector potential for PE privatization. The financing and management of the rehabilitation program was to be handled by the service in charge of public enterprises (SCEP) with support from an intervention fund located in the development bank (BNDE) and supported by a Bank-financed Technical Assistance project. A management information system (MIS) was also to be set up to monitor PE performance. Trade. Industrial and Credit Policies 12. The main objectives of trade and industrial reform were to open the economy to domestic and foreign competition by liberalizing imports and prices and by introducing a new tariff structure. Imports were to be liberalized in two phases. First, import licenses were to be automatically granted for most products, except luxury goods, cotton textiles, glass and pharmaceutical products. In addition, during the first phase, regulations governing the profession of importer were to be eased to facilitate competition. During the second phase, trade liberalization was to be extended to luxury goods. Prices were also to be liberalized at the same pace as imports (except strategic products where price ceilings could be imposed for up to four months in case of shortages and petroleum products, where a price ceiling was to reflect international price movements). A new simplified tariff structure was also to be developed that reduced the number of dut-: from 3 to 2, the number of duty rates from 57 to 5 and the spread from 50-15 in 1986, to 40-2L' in I-89 (keeping luxury goods at 100 percent). A maximum surcharge of 30 percent could be applied for up to three years to protect infant industries. 13. To promote domestic investment and competition, the investment code was to be evaluated and its capital intensive bias eliminated. In particular, import duty exemptions were to be eliminated on raw materials, intermediate products and durable goods. To promote small and medium enterprises, the authorized credit ceiling of commercial banks was increased from FBu 3 million to FBu 10 million and a guarantee fund for small and medium enterprises was established. In addition, all export taxes on locally produced manufactured goods were to be eliminated. Agricultur 14. Agricultural reforms were to concentrate on export crops, and sought to provide adequate producer incentives, increase efficiency and improve crop quality and marketing. Measures included: (a) establishing a mechanism to regularly adjust export crop prices (based on a regularly updated rural consumer price index and on the comparison of returns to labor from other crops and non-agricultural activities); (b) modifying processing techniques for coffee to improve the quality and the marketing of fully washed coffee; (c) improving SOSUMO's (sugar refinery) efficiency; and (d) reorganizing the Regional Development Companies by transferring extension, research, planning and programming activities to the regional offices of the Minitry of Agriculture. - 17 - B. Objectives and Description of SAL II 15. The second SAL (US$90 million equivalent from IDA and US$65 million equivalent in cofinancing) was a three-tranche program covering the period mid-1988 to end-1989. In addition to covering the areas included in the first SAL, reforms were also introduced regarding the financial sector, labor policies and social/poverty alleviation. The adjustment program of SAL II was concentrated on public expenditure management, public enterprise reform and interest rate deregulation, and was supported by a new Technical Assistance Project (Economic Management and Public Enterprises). The Bank program was accompanied by the second and third year of the three-year SAF arrangement from the IMF, which included the same features as the first year. 16. The adjustment program of SAL H was outlined in a second PFP, which took into account the weaker outlook for coffee prices. The main objectives were: (a) to accelerate GDP growth during the period 1988-91 (to 4.5-5.0 percent); (b) maintain the inflation rate at approximately 5-6 percent; (c) reduce the external debt service ratio from 44 p:icent in 1987 to 30 percent in 1991 (compared to 18 percent in the first PFP); (d) build-up net international reserves to 4 months of imports starting in 1988; (e) limit the overall budget deficit (on a commitment basis and excluding grants) to 5 percent of GDP in 1991; (f) increase government revenues; and (g) maintain the expansion of domestic credit in line with balance of payment objectives. 17. During the second year of SAL I (1989), a third PFP was prepared to take into account the continued weakness of the coffee market. The GDP growth objective was lowered to 4.6 percent for 1989-93 (assuming that total investment would reach 22 percent of GDP, of which 5.7 percent would be for private investment), the inflation objective was maintained at 3.5 percent for 1993, the debt service ratio objective was raised to 32 percent for 1993, and the overall fiscal deficit was targeted to be 4 percent of GDP by 1993. Public Expenditure Management 18. SAL I had concentrated on developing the PIP (although a PEP was to have been formulated) and SAL II was to follow-up by generating a full-fledged PEP. Public expenditure programs were to be prepared for education, health, agriculture and transport for 1989-91 and 1990-92. A transitional unified budget was to be assembled for 1989 and 1990, and a complete unified budget for 1991. The Planning and Finance Ministries were to be strengthened, while sectoral projects were to reinforce the planning and programming capacities of the technical ministries. A strategy to improve the efficiency of civil service reform was also to be designed during SAL II. Public Enterprise Reform 19. Many of the PE reform measures initiated but only partially implemented during the first SAL, were included in SAL 11: (a) the four liquidations started during SAL I were to be completed during SAL H; (b) performance contracts were to be signed for thirteen enterprises; (c) a privatization program was to be agreed upon; and (d) the SCEP was to be strengthened. In addition, a study on cross debts and financial flows between the state and the PEs was ordered for SAL II. - 18 - Trade. Industrial and Credit Policies 20. Similarly, the trade reforms were to build-on those initiated under SAL I through: (a) additional tariff reform; (b) the extension of import liberalization (elimination of remaining quantitative restrictions) to products manufactured locally; (c) increasing the ceiling on import licenses granted by commercial banks; and (d) requiring interest on the FBu 10 million that foreign importers are obliged to deposit at the Central Bank-BRB (unless the importer had invested FBu 20 million in productive activities). Measures to promote exports included the adoption of simplified drawback procedures for import taxes, authorizing the deduction of marketing expenses incurred abroad and simplifying administrative procedures for businessmen travelling abroad. An office for weights and measures was to be set up and a study on potential exports was to be carried out. To promote credit activities, SAL II called for the liberalization of interest rates, the elimination of central bank approval for loans above FBu 10 million, the issue of treasury certificates, and the establishment of reserve requirements. Agriculture 21. The SAL II agricultural reform program focussed again on cash crops. A long-term strategy was to be identified for the coffee sector, and in particular, the sliding scale price system was to be revised and the marketing system improved. A study to identify regional advantages for export and principal food crops was to be carried out. The design of a long-term strategy for fertilizer marketing, improvement in SOSUMO's management and the liberalization of the rice market were also part of the second adjustment program. Labor Policy and Social Programs 22. Labor market reforms were not a central feature of SAL II conditionality. Nevertheless, the adjustment package called for the elimination of the Labor Ministry's prior approval before hiring and the reinforcement of its capacity to monitor the labor market. To promote labor-intensive technology and employment, authorization to import second hand technology was to be given and the tax system in Bujumbura was to be revised to remove its anti-employment bias. In addition, a study on a private health insurance system was to be carried out. SAL H also included the preparation of a social action and poverty alleviation program. In collaboration with UNICEF, UNDP and the World Bank, the government was to draw up an action program for poverty alleviation with programs targeting child nutrition, the role of women in development, and food security. A food and nutrition monitoring system was also to be established. III. DESIGN AND ORGANIZATION OF THE ADJUSTMENT PROGRAMS A. SU 23. SAL I was generally well-designed and comprehensive (with the exception of social policies which were not addressed). The program addressed the most important policy distortions, which were: (a) the restrictive trade regime; (b) price controls; (c) the overvalued exchange rate; and (d) the size of the investment program. The sequencing of the reforms was also appropriate, particularly in the area of trade, where imports were liberalized simultaneously with the opening-up of the importer's profession and the decontrol of import prices. 24. Nevertheless, inadequate attention was given to promoting the private sector, conditionality was often too vague (with the exception of trade liberalization and tariff reform), and the time necessary to implement ome reforms was underestimated (particularly for the comprehensive three - 19 - year PEP and the unified budget). Although an increase In private investment and economic diversification were major objectives of the program, no concrete measures were included to attain these objectives. With the exception of food crop production, most sectors were dominated by public monopolies and restrictions remained to prevent entry of other firms. The conditionality for PE reform was vag-ie and centered almost exclusively on the initiation of the liquidation process and studies. Few concrete actions or mechanisms to implement the recommendations of the studies were proposed. In addition, most of the conditionality was for effectiveness, while second tranche conditions referred only to a general review of progress. B. SALM 25. In 1987, the new government team plunged rapidly into the preparation and negotiation of the second structural adjustment operation, without having the opportunity to analyze the current economic situation nor the impact of SAL I policy reforms. The negotiations occurred before the new government completed its analysis of sectoral policies and the appropriateness of the new five-year plan. As a result, the preparation of SAL II suffered from a lack of substantive participation by the Burundi administration. The situation was aggravated by the fact that under the former regime only a small number of civil servants had been privy to the contents and implementation of S. L I reforms. 26. SAL II had substantially more design problems than SAL I. The effective implementation of the program was delayed by the large number of conditions (more than 90) and the failure to take into account Burundi*: limited institutional capacity to manage and appl_, these measures, particularly for the PIP/PEP process. Conditionality was piecemeal, unclear and scattered across sectors, reflecting the absence of priorities attached to proposed actions. The PE component in particular was weak, calling for no privatizations and only four liquidations. As in SAL I, constraints to domestic competitior were also not addressed in the conditionality. Furthermore, the linkage between resources and conditionality was very weak. Disbursements were frctloaded while conditionality was backloaded. For the most part the Bank relied on the IMF to monitor the macroeconomic situation. A major sequencing problem existed in SAL II, as labor and financial market reforms did not accompany the liberalization of the goods markets, which impeded private investments. Furthermore, the SAL did not take into account the complexities of the sociopolitical situation and their impact on the pace of agricultural and PE reform. 27. The amount of resources transferred under SAL H was excessive as Burundi's financing requirements, in hindsight, were considerably overestimated. Between 1987 and 1990, imports were projected in the SAL I President's report to increase at an average annual rate of 10 percent, compared to the actual growth of 0.8 percent. As a result, by 1989, Burundi's net reserves were equivalent to 5 months of imports instead of the projected 4 months, and the larger reserve leve! has been maintained throughout the remainder of SAL II despite the fact that resources were disbursed over three years instead of the originally programmed eighteen months. IV. IMPLEMENTATION AND SUPERVISION A. Implementation Overview and General Constraints 28. Progress on the adjustment program was most pronounced in the areas of tariff reform, monetary policy, and exchange rate reforms, while progress was slowest in the areas of public expenditure rationalization, public enterprise reform, price liberalization, export promotion, agricultural policy, investment incentives (including foreign investment) and the social program. Nevertheless, SAL I - 20 - disbursements were made on time. However, disbursement of the second tranche of SAL II was delayed by about 15 months and the third tranche by 18 months, owing to the failure to implement reforms in a timely fashion, particularly regarding PE and civil service reforms as well as the liberalization of hiring regulations for the private and parastatal sectors. 29. The sociopolitical environment strongly affected the pace of the adjustment program, particularly in the areas of fiscal adjustment and PE reform. The political climate deteriorated rapidly in 1986 and 1987, leading to a breakdown in relations between President Bagaza's regime and major sociopolitical groups, the churches and certain donors. As a result, the government's commitment to implementing the program waned, while the Third Republic, instated in September 1987, had to contend with the sociopolitical tensions inherited from the previous regime. 30. Constraints precluding the full internalization of the program caused implementation delays. The lack of awareness of the general public and civil servants regarding the objectives and likely implications of the adjustment program, combined with the eruption of ethnic violence in August 1988, created a climate of uncertainty and cast doubts on the program's durability. In retrospect, the government's general preference for the gradual implementation of the program explains why the public was not informed of the Structural Adjustment Program (SAP) measures (i.e., importers were not alerted to the automatic granting of import licenses; the change in the transactions tax and price liberalization was not announced, even though most of the proposed prices were accepted). In an effort to rectify the situation, the government expanded the Monitoring Committee of the SAP to include other ministries (i.e., Labor, Civil Service). However, Bank suggestions that the Chamber of Commerce also be included, along with business and worker representatives were not accepted. Nevertheless, reflecting the need to inform the population of the program, since 1989, the government has organized seminars for the private sector, civil servants, university students and faculty and donors. A countrywide informational campaign has also been organized. Public Resource Management 31. The rationalization of expenditures was delayed by difficulties in developing the PEPs. The latter were prepared by Bank staff and resident technical advisors in 1989 and 1990, as a national preparation system was not installed until 1991, reflecting difficulties identifying appropriate technical assistance. The budget reform process, despite its complexity, did progress satisfactorily as soon as an IMF advisor was provided in July 1989. While the size and structure of the investment program (PIP) evolved in an acceptable fashion, the project selection process still requires strengthening. The three-year rolling PIP has become an official implementation tool for investment programming and is adopted every year by the Council of Ministers. However, institutional strengthening in the Ministries of Finance and Planning has been only partial, due to the failure of technical assistance to transfer the appropriate methodology and the high staff turnover in these ministries. 32. Government expenditures were not restructured satisfactorily, reflecting weak government commitment to decreasing public expenditure and poor management of SAL II's counterpart funds. The wage bill became excessive in relation to expenditures on goods and services, which compromised the quality of the rapidly expanding public services. The accumulation of large counterpart funds by the public sector undermined one of the principal goals of the program, which was to reduce the role of the state in the economy while promoting private sector development. The counterpart funds replaced local financing of development projects, permitting the government to allocate local resources to finance PE subsidies and military expenditures, which continued to rise. - 21 - 33. Tariffs for many public services were maintained below long-run marginal costs, in part due to the large amount of external resources available to finance PE working capital and the budget deficit. As a result of government subsidization of these services, private sector entry was prevented. However, some public service tariffs (water, electricity, transportation) were adjusted at the end of 1989 and 1990. Reflecting past policies, the government's debt service burden became very large over the period, despite a prudent strategy that permitted borrowing only on concessional terms. Public Enterprise RefQrm 34. The program was designed to reduce the burden imposed by unprofitable enterprises on the national budget and to introduce full cost pricing. On the whole, the reforms did not fully achieve their objectives, due to their weak design by the World Bank (primarily an overreliance on rehabilitation as a reform instrument) and their partial implementation by the government. The constraints normally encountered in formulating and implementing the privatization program were aggravated by inadequate analysis and reliable accounts from PEs, low national savings, a narrow and unsuitable financial system, uncertainty about the viability of a number of enterprises, and the absence of a strong indigeneous private sector capable of buying PE's assets. Preparation of a medium-term program for restructuring PEs, a diagnostic study on the private sector's capacity to absorb the privatization of PEs and sectoral studies were not completed during SAL I. 35. While not complete, during SAL H progress was apparent in the following areas: (a) strengthening of the SCEP (the agency responsible for monitoring public enterprise reform) (b) improvement in the availability of PE data; (c) establishment of performance contracts for enterprises to be rehabilitated; (d) liquidation of non-viable enterprises; (e) increased recovery of onlent funds to PEs; (f) collection of dividends and taxes; and (g) staff cuts in two enterprises to improve efficiency. 36. Progress has been lacking in the following components: (a' improving the PEs' financial management and efficiency (except for one or two enterprises); (b) setting up effective management teams; (c) instituting an appropriate employment policy based on productivity criteria; and (d) opening PE sectors to private investors. The government has continued to acquire shares in PEs, and to create new PEs (17 since 1986). Furthermore, even though diagnostic studies were completed for some enterprises and contracts signed, many measures recommended for rehabilitation were only partially implemented. It was not until January 1991 that the government adopted a sector policy document that determined which PEs were to be liquidated, rehabilitated or priva.ized (in terms of management or capital). 37. The budgetary cost of the PE sector rose during the program in the form of capital grants, operating and equipment subsidies, tax and customs exemptions, as well as the non-repayment of dividends and funds onlent by the government. In 1989, during the preparation of the 1989- 1 and 1990- 92 public expenditure programs, the government significantly reduced direct subsidies to the PEs, but indirect subsidies remained substantial. Nevertheless, with the support of the IMF program, the government collected FBu 3 billion in dividends from PEs. The fact that the stabilization program did not set limits on resource flows from the government to PEs partially explains the disappointing fiscal results. - 22 - Trade. Industrial and Credit Policies 38. Import liberalization objectives were only partially achieved (licensing still exists) as deteriorating export receipts prompted the government to tighten de facto control of imports in 1989 and the first half of 1990. However, replacement of import licensing with an open general licensing (OGL) was not recommended under either SAL. Therefore, controls are applied by the Central Bank whose prior approval is required to grant significant import licenses. The use of discretionary intervention through import licensing, rather than greater reliance on exchange rate adjustments to balance supply and demand contradicted the liberalization program. However, quantitative restrictions were abolished as scheduled in August 1990. Furthermore, the reduction of customs tariff rates and the simplificazon of regulations governing the professio- of importer led to a rise in the number of importers and a decrease in their margins. 39. There were delays in implementing export promotion measures, particularly the simplified drawback mechanism, which was not operational until late 1990. Delays were also encountered in facilitating travel abroad by Burundi businessmen and the granting of tax breaks for exporting firms. The weights and measures office which was to be set up under SAL U in consultation with the Association Frangaise de Normalisation (AFNOR) was not established. Some changes were made in the investment code, but little was done to encourage direct foreign investment and the bias towards capital-intensive investment persisted. 40. Price liberalization was also aot carried out completely. Many prices are still set directly or indirectly by the government (e.g., agricultural producer and input prices). SAL I concentrated more on price liberalization for imported products and SAL U dealt only marginally with the question of price liberalization, attempting instead to improve transparency in administered price systems. Financial Sector Reforms 41. SAL I measures were applied as scheduled. In the case of SAL 1, the government progressively introduced a more flexible interest rate policy. The Central Bank amended its regulations so that interest rates would be linked to the rates obtained during the Treasury certificate auctions. Denominations of these certificates were reduced, and the Central Bank refinances them at more attractive rates than its rediscount rate. Interest rates on term and savings deposits are no longer fixed. However, price fixing agreements among banks has undermined the sector's reforms. Real term deposit rates fluctuated yearly with the inflation rate, but were not systematically adjusted to maintain a positive rate. Nevertheless, the rate structure has adjusted itself to the extent that long-term deposit rates rose while short-term rates fell. A reserve requirement for banks to permit effective, but indirect control of credit expansion, was not implemented, as the BRB felt that there was no problem of excess liquidity in the banking sector. Agricultr 42. Agricultural policy reforms under the program were only partially implemented. Export products continue to be dominated jy PEs. Both SALs emphasized tbe need for competitive producer prices for export products; however, these either stagnated or declined in real terms during the period, as the gdns from the devaluation were concentrated downstream. Although measures to improve quality (coffee, tea, cotton) and increase quantity (tea) were somewhat successful, progress on improving international marketing lagged seriously. The planned studies to determine regional comparative advantages fell far behind schedule but have now been completed. The formulation of a long-term - 23 - fertilizer policy planned under SAL H was not implemented. Timid diversification is being undertaken by the private sector, but with very little support from the government or donors. The Labor Market and Social Action Plan 43. On the whole, the limited employment measures contained in SAL II were implemented, either fully, in the case of fiscal measures, or partly, as with the institutional strengthening of the Ministry of Labor, which was a disbursement condition for the second SAL II tranche. However, the Ministry of Labor remains control-oriented, and still has not developed an employment policy, which has impeded the effective liberalization of the labor market. While hiring by private enterprises is now fully liberalized, hiring in the PE sector and for international public agencies must be approved by the Labor Ministry. The adjustment program did not include measures to offset potential social costs. However, the government, on its own initiative, introduced subsidized tariffs for low-income users of public services and has generally protected social expenditures. B. Monitoring of the Program 44. It was only at the beginning of SAL H that ministerial and technical committees and a Permanent Secretariat were established to monitor the adjustment program. The Secretariat was to work in close coordination with the World Bank's Resident Mission to facilitate the joint monitoring of program implementation. The ministerial Monitoring Committee was given a mandate to review all structural adjustment issues and take implementation decisions. The Technical Committee never became fully operational. This may reflect: (a) the lack of availability of representatives from sectoral ministries; and (b) the breakdown of communications between the Permanent Secretariat (responsible for organizing technical-level meetings) and the sectoral ministries. As a result, the Secretariat has handled most issues itself, even though it lacks the necessary technical capability. 45. The Secretariat attempted to duplicate certain tasks that fell within the competence of the Planning Ministry's macroeconomics unit. This caused confusion with the generation of different projections and diverging analyses of the data. There was also inadequate coordination between the Secretariat and the Resident Mission. Although regular meetings (no less frequently than one per month) were supposed to take place, they did not materialize. Moreover, the Secretariat, like the SCEP, seems to have played both a political and a technical role. The data and analyses prepared by the World Bank were summarized by the Secretariat foc the Monitoring Committee in a very subjective manner. In March 1991, the Head of the Secretariat was changed and relations both with the Bank and sectoral ministries have improved. C. Auditing and Procurement 46. The audit of SAL I was completed with a delay of 30 months for the first tranche and 18 months for the second tranche. However, the results were fully satisfactory. An audit of the first tranche of SAL II was completed with six months' delay. Disbursement of the second tranche of SAL H was delayed owing to the large amount of import financing available from other donors. D. Bank Supervision 47. The frequency of Bank supervision missions was the same for SAL I and II, and has averaged three per year. In addition, under SAL II, there were three implementation reviews which took place in Washington (two in 1990 and one in 1991). In March 1991, the Resident Mission conducted an official supervision mission for the Bank in preparation for a Burundi delegation's visit to Washington - 24 - in April. Despite fairly intensive supervision, both tranche releases were delayed. Supervision missions brought areas of difficulties to the attention of the authorities, but government decision-making was slow. 48. Bank supervision for SAL II was generally complicated by the design of the SAL. The large number of conditions and their dispersion across sectors and areas of expertise made for large numbers of people (6-10) participating in missions. The lack of Bank expertise to supervise certain components of the SAL (particularly the public enterprise and civil service reforms as well as the social action program) required the use of many consultants whose advice was sometimes contradictory. The early stages of supervision were difficult for SAL U, particularly since the task manager changed immediately following Board presentation and the 'overnment was also new. Supervision missions for SAL II played a role in explaining the reform program to the government. A seminar was organized by the Bank in September 1989 to discuss the adjustment program with participants from the public and private sectors, the army and the church. 49. The role of the Resident Mission in the monitoring process was not clearly defined (no specific terms of reference, no clear division of work between the Resident Mission and headquarters, no regular progress reporting by the Resident Mission). Understaffing at the Resident Mission until 1989 also undermined supervision efforts. Since 1990, with the hiring of a local economist, the Resident Mission has played a much larger role in supervision. E. Donor Coordination 50. The Bank played an effective role in mobilizing cofinancing for Burundi's adjustment operations. The first SAL included mostly joint financing through the SFA. The joint financing arrangement facilitated the task of donor coordination. Under SAL II, however, most of the cofinancing was parallel, requiring a much greater effort from Bank staff in order to coordinate. The Special Program of Assistance for Africa (SPA) played an important role in catalyzing financing and transmitting regular information to donors on the overall progress of the program. The Resident Mission has been very active in encouraging the creation of a local economists' group with most of the cofinanciers represented. 51. Donor coordination suffered from a lack of government enthusiasm. The government did not regularly discuss the PIP or PEP with other donors until early 1991. As a result, project design and financing has remained largely "supply driven" and in some cases inconsistent with key macro or sectoral objectives. Furthermore, throughout the period, donors either continued, or in some cases increased, their financing of public projects in productive sectors. Approval of a PIP acceptable to IDA has been an iterative process, which has not sufficiently involved the other donors, some of whom have seen their projects questioned or scaled-down as a result. 52. Coordination between the IMF and the Bank has not always been adequate. For example, during the preparation of SAL li, the macro framework proposed by the Bank was rejected as being too optimistic by the Fund. Potential trade-offs betvem stabilization and structural adjustment measures were not always adequately discussed. For example, the IMF's emphasis on revenue enhancement sometimes had a perverse impact on the private sector, and the reform of the transactions tax did not take fully into account tariff reforms. Fund monitoring of the program ceased at the end of the three-year arrangement in December 1989, which has also contributed to fiscal and exchange rate policy slippages. The rapid turnover of personnel on Fund missions has also neen a problem. - 25 - V. IMPACT OF THE PROGRAM A. Ihe Stabilization Program 53. Although a large number of measures supported by the three annual SAF arrangements were implemented, the principal objectives of the program were not attained. This was partly due to a deterioration in Burundi's terms of trade between 1986 and 1990, an outbreak of civil disturbances in 1988 and adverse weather conditions in 1989. Equally important is the delay in the implementation of key structural reforms. In 1986 and 1987, none of the quantitative benchmarks established in the SAF programs were observed. In the final year the benchmarks for total domestic credit, net credit to the government, reduction in domestic arrears and the level of official reserves were not met. 54. The budget deficit continued to exceed targets under the stabilization program, remaining a major constraint to the restructuring of the economy. The overall fiscal deficit averaged 12.5 percent of GDP in 1989-90, compared to the target of less than 10 percent. Efforts to collect direct taxes were thwarted by the passivity of the administration and institutional limitations. Moreover, the small tax base made it necessary to maintain an almost confiscatory level of taxation on taxpayers, thus encouraging enterprises to escape the tax net and discouraging entry into the formal sector. The public enterprise sector continued to benefit from direct and indirect subsidies equivalent to about 5 percent of GDP. Exemptions were not reduced as quickly as projected nor was the repayment of funds to the PEs enforced. Payment of direct taxes and dividends also fell short of expectations. Taking advantage of the change in the legal framework made in 1988 authorizing government to claim dividends from PEs for the first time, a substantial effort was made in 1989 to improve their collection from the PEs. B. Impact of SAL I and H 55. There has not yet been a significant supply response to the adjustment program. Neither has there been a substantial increase in investment or significant export diversification. As a result, real GDP growth decelerated during the adjustment period from 5 percent in 1980-85 to 3.8 percent in 1986- 90 compared to the targeted 5 percent. Nevertheless, it was still slightly positive in per capita terms and compared favorably to low-income Sub-Saharan Africa that underwent an average decline of 0.4 percent in 1980-87. Also, the economy remains highly dependent on the international price of coffee, which helps explain the fact that the ratio of exports to imports declined over the adjustment period from 54 percent in 1986 to 38 percent in 1989. 56. Even though the elaborate system of economic controls was significantly reduced under SAL I and I, the government's direct role in productive activities through the PE sector remained basically unchanged. PEs still control, directly or indirectly, all of Burundi's cash crops and 60 percent of its formal manufacturing. While Burundi pursued an active devaluation policy during the adjustment period, increased export earnings in local currency terms were almost totally absorbed by the agro- industrial PEs. As a result, real producer prices and, consequently, production of Burundi's principal export crops, stagnated or declined over the adjustment period. The increased level of competition in the economy due to the trade liberalization, forced traders to lower their profit margins, partially offsetting the expected decline in consumer imports due to the devaluation. 57. Overall, import liberalization proceeded more slowly and was less far-reaching than had been planned. As a result, the constraints on and the harassing of importers by the administration persisted, precluding private sector initiatives. Nevertheless, installation of the tariff reform and the changeover from quotas to tariffs (lowering maximum tariffs, narrowing their range and reducing their number) proceeded as planned. The quota system has, in principle, been completely removed since the - 26 - abolition of quotas on flour, textiles, pharmaceuticals and glass products in 1990, making Burundi's trade regime's one of the most liberalized of the region. 58. The exchange rate adjustments of the late 1980s affected the composition and the quantity of Burundi's imports. Between 1986 and 1989, imports fell by 20 percent, while the share of consumer goods dropped from 40 to 29 percent, reflecting increases in the relative shares of intermediate (including raw materials) and especially capital goods. The effect of the devaluation on intermediate and capital good imports was undermined by the absence of domestically produced substitutes and increased economic competition, from the concomitant trade liberalization reforms (which raised investment and capacity utilization rates). 59. Overall, fiscal and monetary policy did not promote the program's growth objectives. While revenues rose significantly in response to additional fiscal measures, the taxes were not used to stimulate production or productivity. For example, the increase in indirect tax receipts partly nullified structural transformation objectives of the tariff reforms. The objectives of monetary policy were to strengthen the external equilibrium, keep inflation low, mobilize savings through market interest rates, and increase lending to the private sector. Financial savings did rise, owing in part to de-control of interest rates.' However, during the adjustment period the government applied a fairly restrictive monetary policy, which was not periodically adjusted to respond to the financing needs of the economy. In addition, the maintenance of high government debt levels limited the possibilities for expanding private sector lending. Credit to the private sector was overestimated as loans to the public enterprises were classified as private sector credit under the program. Despite measures to liberalize the banking sector, which were largely implemented on schedule, and the creation of two new banks, the sector is still not very competitive or interested in lending for private sector investment. Finally, informal financial arrangements (e.g., tontines) appear to be poorly developed in Burundi and the COOPECs cover only part of the country and have not yet begun extending significant amounts of credit. Most of their credit operations have been for real estate and trade investments by civil servants and 'ttle has been provided to rural agricultural producers. 60. Negative social effects of the adjustment program seem to have been fairly marginal in Burundi. Unlike many countries with an adjustment/stabilization program, Burundi has kept social spending (health, education) as a priority. Social concerns were introduced during the implementation of certain reforms in order to counteract the potentially negative effects. For example, on the occasion of adjustment of tariffs (i.e., electricity, water, transportation), "social" (low-cost) tariffs were instituted for the low income users. In addition, the terms of trade of agriculture impruved slightly in relation to the modem sector, owing essentially to the fall in real incomes in the urban (essentially public) sector. However, the stabilization program caused a decline in employment generation in the public sector, and absorption of labor by the non-agricultural (informal/formal) sector was slow, owing to rigidities caused by excessive regulations and direct government intervention in various productive sectors. 2 Term deposits rose by 143 percent between 1986 and 1989, compared with 22 percent in 1982-86. The most significant financial savings operation was the mobilization of rural savings through the COOPECs (saving and credit cooperatives): deposits increased by nearly 600 percent between 1986 and 1988, though from a very low starting base. - 27 - VI. CONCLUSIONS AND LESSONS LEARNED 61. The mixed performance of the adjustment program can be attributed to: (a) Implementation delays linked to vacillating government commitment, which itself was linked to political instability and inadequate national capacity building; (b) external shocks (international oil and coffee market fluctuations); (c) the ambitious design of the program, particularly for SAL II (e.g., public expenditure reform); and (d) weak linkages between macro reforms and micro/sectoral policies. 62. The Bank underestimated the power of various interest groups and did not sufficiently take into account the precarious political situation when determining the reform schedule. The transition from a strong state-controlled system toward more indirect macro management based on market signals required a profound change of attitude. This began to take place only after a widespread public information campaign to improve the internalization of the program was launched in 1989. In January 1991, key ministers (Labor and Industry and Commerce) and senior civil servants (Planning, Monitoring Secretariat of the SAL, SCEP) who had previously undermined the reform process were replaced. Furthermore, the Prime Minister, during his June 1991 visit to Washington, met with senior management of the Bank and Fund and reassured them of the government's commitment to reform and confirmed its intention to take tough actions, including a further devaluation and the acceleration of PE reform. 63. Problems associated with technical assistance also delayed institution building activities. The choice of technical assistance was often supply driven by donors and not integrated into the government's work program. The greater recourse to local consultants now being pursued should be more effective in capacity building. 64. As with many of the Bank's early SALs, there was an excessive number of conditions of varying importance, which distracted attention from the essential ones and delayed the pace of reforms. The government did implement many of the measures, but not always the most critical ones. Furthermore, key reforms, including the introduction of an OGL and liberalization of the current account and of factor markets were not included in the adjustment package. In the future, conditionality should focus only on key constraints and should be complemented by a realistic and detailed implementation plan for each reform. 65. The SALs concentrated on macro issues and did not sufficiently emphasize micro or sectoral linkages, particularly the importance of PE reform and agricultural sector reforms. Despite successive devaluations, real producer prices stagnated or declined as the increased profit of traditional export crops went to the processing and marketing PEs. Likewise, strong government involvement in productive activities permitted it to protect the inefficient public sector from the expenditure reductions required by the adjustment program. Although the design of the SALs had foreseen supporting sectoral operations, such projects were not forthcoming until late 1989. 66. Despite uneven commitment from the government, design problems and implementation delays, an increasing number of people in Burundi are convinced that the current economic situation would have been more serious without the program. Over the past five years, the Bank and the government have acquired vital experience for improving the effectiveness of the next phase of adjustment and both parties now agree on the major obstacles to growth. 67. The experience of neighboring Rwanda offers insight into what might have occurred if Burundi had not introduced its adjustment program. Up until the mid 1980s, Burundi and Rwanda experienced similar growth rates and economic problems. However, Rwanda did not undertake an adjustment program until mid-1991. The result was : (a) a serious deterioration of food security (Rwanda's index - 28 - of per capita food production is 82 compared to Burundi's 100 for 1986-88); (b) a depletion of foreign exchange reserves (Rwanda has less than one month of net reserves compared to Burundi's 5); (c) the reduction of nominal producer prices for coffee; and (d) a sharp decline in agricultural productivity (Rwanda's primary sector grew at an average annual rate of 0.3 compared to Burundi's 3.1 percent for period 1980-88). This suggests that while Burundi's adjustment program did not meet all of its objectives, it did permit the country to avoid the significant economic crisis that now faces Rwanda. PART II - BORROWER'S ASSESSMENT OF PROGRAM IMPLEMENTATION 68. The government's assessment of SALs I and H is available from the Africa Information Center (in French). It includes: (a) a review of macroeconomic and sectoral performance compared to the quantitative targets of the program; (b) an assessment of the social impact of the adjustment program; (c) an evaluation of the monitoring and internalization of the program; and (d) an identification of the constraints encountered in implementing the program. On the whole, the government's assessment of SALs I and I is consistent with the Bank's findings. The government notes that public finance targets were not met because of rising expenditures on wages and salaries, as well as continued high rates of public investment. Revenues were lower than targeted, primarily due to falling coffee prices and the lack of revenue from PE dividends to offset the shortfall. The government attributes the persistently high current account deficit to the decline in coffee prices and the lack of export diversification to delays in establishing an appropriate incentive framework. Nevertheless, exchange rate adjustments and price liberalization helped to contain the growth of imports and large amounts of foreign aid helped absorb the external shocks. 69. The implementation of financial sector reforms was on schedule, however, the oligopolistic nature of the sector interfered with the liberalization program. Slow growth of the money supply facilitated the maintenance of a low inflation rate. Although the reduction of government borrowing was slower than targeted, its share of total credit decreased substantially, allowing credit to the rest of the economy to increase. However, only a very small percentage of credit was extended for productive activities, and most of it was allocated for short-term purposes (e.g., trade financing) and housing. PE reform was behind schedule because of the large number of interlocutors involred on the government side (supervisory ministries, SCEP, PE managers) and in the Bank. The sectoral studies, programmed under SAL H, were completed with the exception of the cross-debt analysis, which was delayed because the Bank was unable to decide whether the Ministry of Finance or the SCEP should be responsible for its execution (in the end, the SCEP was chosen). The public enterprise sector absorbed about 40 percent of fixed capital formation and its performance has been weak. Although turnover increased, net profits were negative because of foreign exchange losses incurred on external debt. The return on investments fell drastically from 6 percent in 1986 to a negative 9 percent in 1988. PE debt represents more than 50 percent of the outstanding stock of public debt. 70. Export crop performance (coffee, tea, cotton) was disappointing, except for the improvement in the quality of coffee. This is because more emphasis was placed on new investments than on increasing producer prices as a means to increase quantities and improve quality. Industrial sector performance has also been mixed, while its growth rates were slightly higher than in the early 1980s, exports declined substantially in 1988-89. The industrial sector remains small because of: (a) the limited size of the domestic market; (b) an inadequate regulatory framework; (c) rigidities in the banking system; (d) the landlocked location of the country; (e) the monopoly position of public enterprises in the productive sectors; (t) the extension of the transactions tax to include capital goods imports; and (g) the slow implementation of promotional measures. Weak performance of manufacturing exports has been linked to the loss of the Ugandan market, but also reflects the lack of initiative on the part of private -29 - businessmen, delays in the implementation of the drawback, and tariff and non-tariff barriers in regional markets. Effective protection rates decreased during the adjustment period: as the share of products which benefitted from less than 25 percent protection increased from 30 percent in 1985 to 40 percent in 1989, and only 11 percent of products benefitted from 200 percent protection compared to 26 percent before adjustment. The share of enterprises with a profit margin exceeding 20 percent decreased from 44 percent in 1985 to 14 percent in 1988. A recent government survey of businessmen shows that, on the whole, they are satisfied with the structural adjustment program. 71. Budgetary allocations to the health and education sectors continued to increase and the decentralization of revenue generation and budget planning to the commune level has been instrumental in maintaining the momentum in these areas. Unemployment increased as the supply response did not materialize in the private sector, recruitment slowed in the public administration and lay-offs occurred in the PE sector. Civil service salaries declined by 1.3 percent in real terms during the adjustment period, while real producer prices for coffee increased by 3.7 percent and producers' earnings from food crops increased by 5.6 percent. However, real producer prices for tea and cotton decreased by 5 percent (these prices were increased in 1990). The vaccination rate increased from 62 percent in 1985 to 86 percent in 1989. Access to potable water increased from 30 percent in 1987 to 45 percent in 1989 and from 2 percent to 3 percent for electricity. 72. The program was monitored by a ministerial committee supported by a permanent secretariat and a technical committee, which became operational in 1989. Various working groups of the technical committee have been very active, in particular the working group responsible for regularly updating the macroeconomic framework. Other groups assessed the impact of the adjustment program on the industrial sector, and contributed to the formulation of the social dimensions strategy for the program. The monitoring of the program was also insured by the Bank's Resident Mission and various supervision missions from headquarters. The internalization of the program was handled by the Monitoring Committee through an information campaign explaining the program to provincial administrations, high-ranked civil servants, the army, economic agents, labor union, etc. These campaigns took place in 1989 and 1990. Seminars were also organized by the donor community. 73. Constraints encountered in managing and implementing the program included: (a) the unrealistic timetable and large number of reforms, which did not take into account the magnitude of Burundi's structural problems and rigidities of the state-administered economy; (b) the lack of consistency between certain reform measures (i.e., differences between the IMF and the Bank regarding the transactions tax reform and its negative impact on tariff reform and the competitiveness of the productive sector); (c) the high turnover of Bank experts, and the lack of consistency in their recommendations; and (d) difficulty in identifying effective technical assistance to implement PE and public expenditure reforms; (e) the fact that the Bank's aide-m6moires reflected predominantly the positions of consultants or Bank staff, rather than the outcome of discussions held with the government, which undermined the government's commitment to the conclusions of the aide-mdmoires. It was only in November 1990 that the Bank accepted the principle of co-signed aide-mdmoires with the government, although this principle had already been applied to government missions visiting Washington; (f) the lack of dialogue between those who proposed, implemented and were affected by reforms; and (g) exogenous shocks, such as unfavorable weather conditions and changes in coffee prices. - 30 - PART III - STATST L DATA IMUI: 10Y Ma41InNtC tI1CATaS AtaL Est. 158 1581 1%. 1% 158 1% 16 1587 158 1589 1990 REAL ~1mi RAES: aOa tic Prgd t (CP) 3.6 12.2 -1.1 3.7 0.2 11.8 3.3 5.5 4.9 1.5 3.4 Grom Danstic Irm (MY) 1.5 7.4 -1.2 5.7 1.3 10.7 6.8 1.7 6.0 -0.5 1.1 Eprt (G1fs) -36.3 59.0 8.0 -10.0 14.4 12.6 -13.1 6.8 10.5 -2.9 -2.0 Inpru ¯ -13.7 - -3.6 21.8 9.0 -3.1 -3.8 8.1 6.9 -1.1 -15.1 9.1 REMAL/CPITA GOl MI Cr~as Damastic PD~1 t 0.9 9.2 -3.8 0.7 •2.5 8.5 0.3 2.6 1.8 -2.8 0.3 - roas Dastic fin=m -1.2 4.6 -3.9 2.6 -1.4 7.4 3.7 -1.2 2.9 -12.8 -1.9 Total Canaipttin 2.9 0.3 2.2 -5.0 -1.3 9.3 6.7 -5.5 6.7 -7.2 1.7 Prite Car~uipton 4.1 -2.1 3.9 -4.9 -2.2 9.4 5.4 -6.0 9.0 -6.9 0.6 CEBT: 1. Dbt Service, tota, (M M) 6.6 9.6 11.0 12.1 18.8 29.5 36.6 47.1 47.1 49.7 45.7 . avt Servic/prts (GIFS) 8.2 10.9 10.7 12.5 16.7 24.4 24.5 42.7 34.6 45.8 51.9 -Det Srvice/SP 0.7 1.0 1.1 1.1 1.9 2.6 3.0 4.2 4.3 4.5 4.1 2. Interst Pald (M M) 1.8 5.4 6.5 5.8 9.7 13.3 17.4 16.8 18.2 19.2 18.4 -lntarlstExports (GFS) 2.2 6.2 6.4 6.0 8.6 11.0 11.7 15.2 13.3 17.7 20.9 •Interet/~ 0.2 0.6 0.6 0.5~ U.- 1.2 1.5 1.5 1.7 1.8 1.7 3. = (cS m) 123 134 181 276 329 420 527 72 Um 878 818 -DO/~ 13.3 13.8 17.9 32.2 34.8 35.9 47.7 60.4 79.6 80.1 79.5 RATIOS: Dmstic Swr/P -0.9 3.8 -1.9 6.6 6.7 3.8 1.2 6.9 1.6 4.4 0.8 atcat Smire/®P 3.8 10.7 3.5 11.0 10.4 6.8 5.3 11.5 6.1 12.2 7.8 Irmtm P 13.9 17.0 14.3 22.8 18.2 13.9 11.6 22.7 15.0 16.8 16.2 Exprts (~1>/wP 8.8 9.1 10.0 8.9 11.3 10.5 12.4 9.8 12.5 9.9 9.4 Maprt ~ Gufs>/®P 25.6 22.3 27.1 25.2 23.7 20.5 22.9 25.6 26.0 22.3 25.5 &aLmE OF PAmIS: 1/ Ras Balan=e -136.0 -13.1 -174.0 -176.1 -123.9 -115.2 -126.2 -178.3 -145.8 -13.5 -200.5 -4 of wP -14.8 -13.2 -17.2 -16.3 -12.5 -10.0 -10.5 -15.8 -13.4 -12.4 -18.2 ormnt Am blane -129.4 -124.8 -174.3 -179.5 -130.6 -127.1 -142.6 -199.6 -158.2 -141.1 -207.8 -A of wP -14.1 -12.9 -17.2 -16.6 -13.2 -11.1 -11.9 -17.7 -14.6 -12.9 -18.8 RAni~m® 2/ 12.0 10.8 12.6 11.1 12.6 13.2 16.0 12.8 16.4 18.2 15.2 End'tue/ P 31/ 5.5 25.9 24.6 30.4 29.0 32.1 26.5 29.6 26.7 27.9 3.6 DefIcit/®P 4/ -13.5 -13.1 -12.0 -19.3 -16.3 -11.9 -8.5 -16.8 -10.3 -9.7 -13.4 iAN RATSS: s 1. Naket mat: -MUnal m~ 90 90 90 93 120 121 114 124 140 159 171 --d of y 90 90 90 117 125 112 124 114 150 175 165 2. ~r anral Eff.(1~1I) 77 91 106 111 96 1® 88 73 64 61 52 3. Inxd Rat Eff. (19100) 74 89 98 106 8 1m 86 74 65 67 57 OME: caur pra Ind (% ch-e) 9 13 6 8 14 4 2 7 5 12 7 ®P (m M, arn prHcM) 920 969 1,21 1,03 996 1,150 1,22 1,129 1,06 1,096 1,106 1/ =S mi tiens; cifrg pWic traufä ud capital grmt. 21 Exc~ilu rn. 3/ E rad s ud net ~ediru. 4/ (h a ca mut buas rd coLirV grats. 51 Iw cht. - 31 - ~IUI: NATIon L xu.TS Page 1 of 3 1988 Per Capite GP in USS: 28 Part A: Current Price Data Mifd190 Pepulattin (mIL): 5.13 (mitlion of local aurrny units) Actusl Est. 190 1986 1987 1m 1989 1990 Gross Dwmestic Prdjt 82,775 137,195 139,507 152,456 173,857 ý' 112 Net Irdirect Taxes 6,220 14,078 11,555 16,891 20,488 1.,131 ODP at Factor Oost 76,555 123,117 127,952 135,55 153,370 171,901 Inports (GIFS) 1/ 19,528 31,419 35,670 39,603 38,713 49,420 Eports (GNFS) 1/ 7,292 17,016 13,636 19,134 17,225 15,070 Resaoe Balan -12,236 -14,403 -22,05 -20,469 -21,489 -34,30 Total Epditures 95,012 151,599 161,542 172,925 195,346 23,462 Total Cwe option 83,518 135,623 129,929 150,077 166,249 188,111 Goernnt 10,877 21,197 22,136 23,628 24,501 28,366 Private 72,641 114,426 107,7% 126,449 141,748 159,745 Gross Domstic Inwestmnt 11,493 15,976 31,612 22,847 29,096 35,351 Gwernt 2/ 10,569 15,68 22,937 20,419 23,747 2,539 Private 3/ 925 348 8,675 2,428 5,351 6,812 Mecranda Items: Grass Damstic Savirgs -743 1,572 9,578 2,379 7,09 1,001 Net Factor Inme -635 -2,400 -3,511 -3,146 -2,262 -2,92 Net C.rrnt Transfers 4,517 8,087 1,2 10,046 15,829 16,870 Natioal Savrg 3,139 7,260 7,089 9,279 21,176 14,88 Part B: Constant Price Data (millions of local currncy uits, 1987=100) Actual Eet. 19w 19e6 1907 198 19 1990 Gross Dotic Prdat 99,381 132,234 139,507 146,336 148,465 153,509 Inports (GIS) 1/ 25,875 33,357 35,670 35,285 29,962 32,69 E~ports (GFS) 1/ 7,379 12,765 13,d36 15,069 14,636 14,343 Rescoe Balwnce -18,4% -20,592 -22,05 -20,219 -15,326 -18,345 Total Epnditures 117,877 152,826 161,542 166,555 163,791 171,ff5 Total C~noption: 100,573 133,d31 129,929 142,740 138,280 144,W GMMe"~t 13,098 20,886 22,136 22,473 20,58 22,295 Private 87,475 112,745 107,794 120,267 118,22 122,692 Total Trnestment 16,688 17,073 31,612 21,912 24,650 26,099 GoAnwnt 15,346 16,701 22,937 19,585 20,117 .. Private 1,343 372 8,675 2,329 4,5ZS .. Tems of Tade (TT) Effect 2,23 5,300 -0 1,980 -1,310 -1,288 Gras Domestic InCa. 101,664 137,534 139,507 148,316 147,155 152,221 D~mestic Svirs (TT Adj.) 1,091 3,905 9,578 5,576 8,875 7,235 1/ God ad nmfactor services. 2/ G~s dwestic fixed invstt. 3/ Residal; includes changes in stcks. - 32 - BUI: NATIMAL ACCMTS Page 2 of 3 Part C: VaLe Ad:ed by Sector (%) (sectoraL shares in percent) Actual Est. 190 1986 1987 1988 1989 1990 1. Agriculte 62 59 55 54 56 56 2. Secondary, of Aich: 13 14 17 17 16 15 Mining 0 1 1 1 1 1 Merufactrfrg 7 9 11 12 11 10 3. Servicos 2 28 28 29 28 29 Total: 100 100 100 100 100 100 Note: Historical shares are caLculated fran current price data. Projected data are fran constant price data. Part D: Lang-Tenm Growth Rates (Average arnal growth rates fron corstant price data) Actual Est. 1965-73 1973-80 1980-88 1989 1990 Gross Domestic Prackdt m.p. 5.2 3.7 5.1 1.5 3.4 Agricutue 4.7 1.6 3.9 -2.2 5.2 Seconchry, of ich: 10.0 9.6 5.3 0.7 5.1 Ninfrg .. 8.9 27.8 -1.1 -5.1 Manufactuiri 10.5 4.6 6.0 -2.1 5.2 Sevices 1.5 4.7 5.9 3.9 10.3 Eports of GNFS 4.5 0.8 11.0 -2.9 -2.0 Inports of GFS 5.4 9.5 4.3 -15.1 9.1 Total Expenditurms 5.0 5.3 4.4 -1.4 7.0 Total Canvuptian 5.2 4.3 4.6 -3.1 4.9 Governt 7.3 5.0 5.8 -5.3 10.0 Private 3.8 4.1 4.5 -2.8 3.9 Gross Danestic Irestnent -1.4 18.5 10.4 12.5 5.9 Goverwrent Private .. .. Cpctty to Iaport 3.9 3.7 8.6 -21.8 -25.2 Gross Danestic Inca e 4.9 4.0 4.8 -0.5 1.1 Gross Nationat Image 5.0 4.2 4.9 1.9 0.9 Gross Natiaret Procet 6.0 3.9 4.9 1.9 3.2 Grass Damstic Savirs .. .. 22.0 59.2 Gross Nationat Savirs .. .. 21.0 36.0 Population 1.7 2.0 2.8 3.1 3.1 Labor Force .. .. .. 1.7 GDP per Capita 3.3 1.6 1.8 3.3 0.3 - 33 - Sun I: NATIOX ACm S Page 3 of 3 Part E: ArnaL Grawth Rates (Arnal growth rates calculated fran constant Ace data) Actutl Est. 1980 1986 1987 19M 1989 1990 Gross Dan. Precket, mp. 3.7 3.3 5.5 4.9 1.5 3.4 AgricuLtue 1.7 4.1 5.2 1.6 -2.2 5.2 Secrbry 10.5 1.3 7.4 0.6 0.7 5.1 Services 5.7 2.8 2.3 2.8 3.9 10.3 Gross Daestic Inoane 2.4 6.8 1.7 6.0 -0.5 1.1 Gross Daestic Irwestnnt -4.4 -18.5 85.3 -30.7 12.5 5.9 Totpl Caurpian 5.8 9.8 -2.8 9.9 -3.1 4.9 Paputatim 2.2 2.9 2.9 3.0 3.1 3.1 Per Capita Growth Rates: Gross Dan. Prod., m.p. 0.9 0.3 2.6 1.8 -2.8 0.3 Total Caaumption 2.9 6.7 -5.5 6.7 -7.2 1.7 Private Canmption 4.1 5.4 -6.0 9.0 -6.9 0.9 Part F: Price Irdices (NationaL accouits deflators; 1987=100) Actual Est. 198 1986 1987 1988 1%9 1990 Gross Daestic Pradct 83.3 103.8 100.0 104.2 117.1 123.2 Inport CGNFS) 75.5 94.2 100.0 112.2 129.2 151.2 Export (GNFS) 96.8 133.3 100.0 127.0 117.7 105.1 Total Ependitures 80.6 99.2 100.0 103.8 119.3 130.0 CarAption 83.0 101.5 100.0 105.1 120.2 129.7 IrmAstment 68.9 93.6 100.0 104.3 118.0 135.4 Agricultre 88.7 107.3 100.0 102.0 122.8 13.8 Secondary, of Aich: 66.6 82.5 100.0 107.4 109.8 118.6 Mining 87.8 95.8 100.0 86.5 91.9 99.2 mrufdatm-irg - 61.3 81.7 100.0 110.9 112.8 121.8 Services 83.0 98.9 100.0 106.5 112.9 121.9 Part G: Other Ecoanic Irdicators 1973-80 1980-89 1973 1980 1989 1990 Inport Elasticity based on Inports (GNFS) 2.6 0.1 -0.2 -3.8 -10.4 2.7 Marginal Savir Rates Gross DaTestic Savirgs -11.5 8.8 .. Gross National Savirss -1.9 12.0 .. . . IR (period averages) .. 4.2 .. .. . Labor Force (%) AgricLture 93.3 93.3 93.3 92.7 80.9 Irdstry 2.3 .. 2.2 2.4 . TotaL: 100.0 100.0 100.0 100.0 100.0 .. - 34 - Page I of 2 I~DI: GAÅAN øf PAWENTS (US mit i kns at crint prices) Actuaml Est. 1980 196 1982 1963 19e4 19 1966 1987 198B 1969 1990 A. Eprts of GNFS 81.0 87.7 102.6 96.7 112.3 120.9 149.0 110.4 136.3 108.6 88.3 1. Merchandise (FC) 66.3 74.9 87.8 80.6 96.8 111.5 125.3 98.3 124.4 93.2 72.3 2. N~n-factor Se~ices 14.7 12.8 14.9 16.1 13.5 9.3 23.8 12.0 11.9 15.3 15.7 B. Iports af GNFS 217.0 215.8 276.6 272.9 236.1 236.1 275.2 28B.7 282.1 244.0 288.5 1. Mrwaise (FC) 167.9 161.2 214.2 153.7 187.0 188.5 203.2 160.0 166.1 151.4 182.9 2. N~nfactor Se m 49.1 54.6 62.4 89.1 49.2 47.6 72.0 12s.6 116.0 92.6 105.6 C. Resa: B@a -136.0 -128.1 -174.0 -176.1 -123.9 -115.2 -126.2 -178.3 -145.8 -135.4 -200.2 D. Net Factr Incane 3.5 -2.9 -7.7 -9.3 -13.0 -19.6 -21.0 -28.4 -22.4 -14.3 -17.4 1. Factar Rocelpts 11.0 9.3 5.5 1.9 1.5 1.5 2.0 2.9 2.9 8.9 8.2 2. Factor Pymnts 7.5 12.2 13.2 11.2 14.5 21.1 23.0 31.3 25.3 23.1 25.6 a. Total Interest 1.8 1.8 2.5 4.1 7.6 10.5 12.8 16.7 17.0 14.3 16.8 b. Interest Arruars .. .. .. .. .. .. .. .. . c. Other Factor Paymn~. . . . . . . . . . . E. Net Oxrent Trasfers 47.1 63.7 55.6 51.6 44.4 46.3 66.3 81.0 71.5 99.8 96.5 1. O ~rrit Receipts 53.5 73.0 61.6 58.2 48.3 50.4 72.4 86.t 77.8 101.5 100.2 a. Wrkrs rømittanes .. .. .. .. .. .. .. .. b. Oder cmr. trnsfers .. .. .. .. .. .. .. .. 2. erit P&ents 6.4 9.3 6.0 6.6 3.9 4.2 6.1 5.4 4.2 1.7 1.7 a. Wrkrs remittwies .. .. .. .. .. .. .. .. b. Other cur. trensfew .. .. .. .. .. .. .. .. . F. Oxrint Acci~t Balae 1. Befo~ off. transfers -129.0 -120.9 -174.3 -179.5 -130.6 -127.1 -142.6 -199.6 -158.2 -141.1 -207.5 2. Official transfers 44.0 -32.5 -72.0 -102.5 -58.4 -15.3 62.0 76.0 £6.0 91.2 88.4 3. After off. trasfers -W.0 -153.4 -246.3 -282.0 -189.0 -142.4 -80.6 -123.6 -92.2 -49.9 -119.1 G. LT Cepital InfLow 36.2 d5.6 92.6 151.2 123.0 97.3 121.5 159.7 110.7 94.9 123.5 1. Dfret inwestme 1.1 0.6 1.5 0.4 0.9 1.6 1.5 1.4 1.2 0.5 1.2 2. Official Capital Grants 35.2 38.5 40.1 40.0 39.8 39.8 39.8 33.8 25.6 44.0 58.6 3. Net LT Bordr .. 26.5 51.0 110.7 82.3 55.9 80.2 124.5 83.9 52.3 65.6 a. Dirs mnts .. .. .. 117.0 91.4 72.2 99.3 154.8 113.2 87.7 92.9 b. Rep"~ets .. .. .. -6.2 -9.1 -16.2 -19.1 -30.3 -29.2 -35.4 -27.3 4. Other LT Infows .. .. .. .. .. .. .. .. .. -1.9 -1.9 H. Total Other Ite. (nt> 35.3 -74.9 25.0 -8.3 -25.8 -34.5 -88.0 -76.9 -46.1 -102.4 -18.9 1. Net S-T Cepital 12.8 12.4 14.5 20.4 -1.8 1.7 -0.6 19.3 4.9 0.4 1.1 a. Interest Arrers .. .. .. .. .. .. .. .. b. Other Net ST Cpital .. .. .. .. .. .. .. .. 2. Capital FLoa n.e.I. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -6-1 -11.0 3. Errors & Onissions -1.0 -37.4 -6.1 -23.2 -6.8 -13.2 -28.8 -44.9 -20.3 -30.5 0.0 I. dages in Net Rsr~ 6.8 31.0 35.4 -14.5 -21.9 2.8 -11.3 1.7 7.1 -21.9 6.2 1. Net Credit Fran IMF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17.2 10.9 0.0 2. Reserw anes n.e.l. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17.2 -32.8 6.2 3. Escrc A~nt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -35 - Page 2 of 2 9JUDI: Ba*~ of PA~MGNTS (US0 mittens at rrent pricas) Actuat Est. 1980 1981 192 195 1984 19 1986 197 19 199 1990 J. As share of GP (ar.LU) 1. Resorce Balnc -14.8 -13.2 -17.2 -16.3 -12.5 -10.0 -10.5 -15.8 -13.4 -12.4 -18.1 2. Interest Py~nts CLTIMF+ST) 0.2 0.2 0.3 0.4 0.8 0.9 1.1 1.5 1.6 1.3 1.5 3. OLrr. Acc. BaL. (See F.1.) -14.0 -12.5 -17.2 -10.6 -13.2 -11.1 -11.9 -17.7 -14.6 -12.9 -18.8 4. LT CapftaL Inflow (F.2.+ G) 8.7 3.4 2.0 4.5 6.5 7.1 15.3 20.9 16.3 17.0 19.2 5. Net Credit fnn INF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.6 1.0 0.0 K. Foreigi Exd~ge Renes: 1. Net Rosen~ (exwid. gäld) . . . . . . . . . . . 2. Gold (erd-Yr Lada Price) .. .. .. .. .. .. .. . 3. Gr~s Res. (Ondd. gc>Ld) . . . . . . . . . . . 4. Gr.Res.(ininths inports) .. .. .. .. .. .. .. L. Exchange Rates (LOUSS): 1.Nan. Off. Exch. Rate a. ~rraI reg e 90.0 90.0 90.0 92.9 119.7 120.7 114.2 125.6 140.4 158.7 171.3 b. End-of-year 90.0 90.0 90.0 117.4 125.0 112.0 124.2 114.5 149.9 175.4 165.4 2.ReL Eff.X-Rate(19M100) a. N/PA esti~ae. . . . . . . . . . . b. Irdex ru Exch. rate .. .. .. .. .. .. 3. X-Rate for GP Conersion .. .. .. .. .. .. .. .. M. Memran Itun: DP (caetUS mIlaw) 920 99 1,013 1,085 907 1,150 1,202 1,129 1,06 1,096 1,104 - 36 - Page 1 of 2 A: Vetun, Value, ard Pricus Actl Est. 190 196 1987 1988 19W 1990 VoluM Irdices 19100 Merdi eports Coffe 60.2 119.2 100.0 113.9 104.9 104.6 Te 33.8 92.1 100.0 94.5 80.1 99.7 Hides 27.2 100.5 100.0 117.6 151.7 136.5 Cotta 253.0 4.4 100.0 16.0 4.7 3.2 Mufactures 9.8 61.9 100.0 0.6 32.2 26.1 Other ~bports 78.8 104.5 100.0 348.6 424.9 Total M~rch. Eprts (B> 42.9 94.9 100.0 102.7 5.2 83.7 Curett Prfces (US M.) Mer~hese Exports X.ev.Coffe 58.2 109.0 69.8 105.0 74.8 54.8 X.ev.Tea 1.5 4.5 5.2 5.6 5.6 7.3 X.Hides 0.6 1.3 1.5 2.2 3.2 2.9 X.Cott n 1.1 0.2 4.1 0.8 0.2 0.1 Xarufia-fs 1.1 7.0 12.9 7.3 4.2 3.2 Other Eports 3.8 4.2 5.0 5.6 5.2 3.6 Totat M~r:. ERprs (C) 66.3 125.2 98.3 124.4 93.2 71.9 Volum Idices, 1W100 Merhanse 1rts Food 67.9 106.2 M.0 70.4 54.7 76.4 Other Cnaur onde 104.9 107.1 100.0 108.2 111.1 115.1 PM ad Other Energy 66.9 90.6 100.0 101.7 88.9 119.2 Intmniate G~d n.e.I 72.7 1CS.4 100.0 101.5 101.4 107.7 Prmr Gd .. .. .. .. Copital Gd 45.2 90.9 100.0 84.8 72.5 73.5 Total Mrd. Iports (CIF) 70.8 101.5 100.0 95.4 89.1 96.9 Orrt Prica (USmitt.) M ~rdndise ~nprts Food 17.6 16.2 12.4 14.5 10.3 15.3 Other Ca~ar GCd 52.9 50.4 43.6 45.1 44.2 48.6 Pa ond Other Ener 24.7 26.8 29.2 26.1 20.4 5.5 Inten~Miat. G~d - 39.9 52.9 47.7 50.2 48.2 54.4 Pri~ryGod .. .. .. . . Merufact~d Go 39.9 52.9 47.7 50.2 48.2 54.4 Cepital Gods 32.8 57.0 73.3 69.8 65.4 70.5 Total Merch. Inports (CIF) 167.9 35.2 206.1 5.7 188.5 224.4 USS Price Irdico, 19CM00 Tern of Trade Merchadis Exports Prica M.8 133.3 1M.0 127.0 117.6 100.3 Merd rise lnports Pris 75.5 94.2 1M.0 112.2 129.2 156.8 Mer:sdise Tennw of Trde 13.9 141.5 100.0 113.1 91.0 63.9 - 37 - Page 2 of 2 B: 9^ares of Total ard r4h Rates hae of Mer:h~ise Exports E «dt an inprt Volune Gr~th Rates frd lports (in carrnt pricfs) (fran stant price dta) tral ActuML 190 19 18-88 199 Merhdise Enports (M X.Bev.Coffee 87.7 e0.3 8.3 -7.9 X~.Tef 2.3 6.0 13.7 -15.2 X.Hides 0.9 3.4 20.1 29.0 X.Cottan 1.7 0.2 -4.5 -70.5 Mafnactu 1.7 4.5 30.1 -60.1 Other Exports 5.7 5.6 20.4 21.9 Total Merh. Eprts (FCB) 100 10 11.5 -7.9 N~rdiadise ports (M) Food 10.5 5.5 0.4 22.3 Other Cauffi r Good 31.5 25.4 0.4 2.7 POL ad Other Enurw 14.7 10.8 5.4 -12.6 Inten~diate Good n.e.i: 23.8 25.6 4.3 -0.1 Priauryoods .. Mnufacted God 23.8 25.6 4.3 -0.1 Capital God 19.5 34.7 8.2 -14.6 Total Merch. Inports (CIF) 10 100 3.8 -6.6 C: Trnd in Nmfator Services Actul Est. 190 19e6 197 1 1989 1990 Volune Irdices, 197100 Exprts of Nnfactor Services 106.9 176.1 100.0 108.4 139.7 134.8 luarts of N ~nfector Services 34.3 56.8 100.0 95.5 6.4 95.3 uss Price Irdices, 19m=100 Exprts of Nnfector Services 83.3 103.8 1M.0 104.0 117.1 134.4 lprts of Nnfactor Services 81.0 91.0 1M.0 107.3 106.9 119.4 - 38 - Page 1 of 4 JUDI: EXTERNAL CAPITAL MD DEBT MJSS niLt tis at corn prices) ActuL Est. 19w 198 1987 19w 1989 1990 A. DISKRSEBTS Pi(lc & PUblicly ar. LT 39.0 94.0 141.0 99.0 88.0 93.0 1. Official Creditors: 39.0 94.0 141.0 93.0 88.0 93.0 a. MuliltLateraL- 21.0 76.0 97.0 74.0 64.0 77.0 of bbich: IDA 12.0 44.0 43.0 45.0 45.0 62.0 of bh.di: IBR 0.0 0.0 0.0 0.0 0.0 0.0 b. Bilateral 18.0 19.0 44.0 18.0 24.0 16.0 Conessial 18.0 19.0 44.0 18.0 24.0 16.0 NaconessfnaL 1.0 0.0 0.0 0.0 0.0 0.0 2. Privte Creditors 0.0 0.0 0.0 6.0 0.0 0.0 a. ~ad 0.0 0.0 0.0 0.0 0.0 0.0 b. Cam~rcial Bans 0.0 0.0 0.0 0.0 0.0 0.0 c. Other Private 0.0 0.0 0.0 5.0 0.0 0.0 Private Nwgranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total frn LT lans 39.0 94.0 141.0 99.0 88.0 93.0 1W Purdases 6.0 10.0 0.0 17.0 11.0 0.0 Net ~hort-Ten Capital .. .. .. .. .. 1.0 Total Disb. (LT+UMF+ST) 1/ 45.0 104.0 141.0 116.0 99.0 94.0 B. REPAWENTS PblIc & Plicly Guar. LT 4.0 15.0 20.0 19.0 35.0 27.0 1. Official Creditors: 1.0 9.0 12.0 12.0 29.0 21.0 a. MultilateraL 0.0 4.0 6.0 7.0 9.0 12.0 of báich: IDA 0.0 1.0 2.0 1.0 1.0 1.0 of bich: IEED 0.0 0.0 0.0 0.0 0.0 0.0 b. Bilateral 1.0 5.0 7.0 5.0 21.0 8.0 C«ncssal 1.0 4.0 5.0 4.0 21.0 8.0 NancnesslonaL 0.0 1.0 1.0 1.0 0.0 0.0 2. Privte Creditors 3.0 6.0 8.0 7.0 6.0 7.0 a. Bn 0.0 0.0 0.0 0.0 0.0 0.0 b. Camercial Bans 2.0 6.0 7.0 6.0 5.0 6.0 c. Other Private 0.0 0.0 1.0 1.0 1.0 1.0 Private Nrgaranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total frem LT Uao 4.0 15.0 20.0 19.0 35.0 27.0 MF Purdiases 0.0 4.0 5.0 4.0 0.0 0.0 Total Rqep ~ts 4.0 19.0 25.0 23.0 30.0 27.0 1/ LT dmntes ln tenM, ST deotes shart tern. Page 2 of 4 - 39 - MIDI: EXTERNAL CAPITAL AND DEBT (tJSS mittions at current prices) Actual Est. 19M0 1986 1967 1988 1989 1990 C. NET DISASBIENTS Ptic & Ptblicly Maer. LT 35.0 79.0 121.0 80.0 53.0 66.0 1. Official Creditors: 38.0 85.0 129.0 81.0 59.0 72.0 a. iLtilaterat 20.0 71.0 92.0 67.0 55.0 65.0 of Ach: IDA 12.0 43.0 41.0 44.0 44.0 61.0 of iich: IAD 0.0 0.0 0.0 0.0 0.0 0.0 b. BiLateral 17.0 14.0 38.0 13.0 3.0 8.0 Cacessional 17.0 15.0 39.0 14.0 3.0 8.0 Nancessioal 0.0 *1.0 -1.0 -1.0 0.0 0.0 2. Private Creditors -3.0 -6.0 -8.0 -1.0 -6.0 -7.0 a. Banch 0.0 0.0 0.0 0.0 0.0 0.0 b. Camrcial Baks -1.0 -6.0 -7.0 -6.0 -5.0 -6.0 c. Other Private 0.0 0.0 -1.0 3.0 -1.0 -1.0 Private Naruaranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total fran LT Ions 35.0 79.0 121.0 80.0 53.0 66.0 IW Agreements 6.0 6.0 -5.0 13.0 11.0 0.0 D. INTEREST Ptblic & Plfcty uar. LT 2.0 12.0 15.0 17.0 14.0 17.0 1. Official Creditors: 1.0 10.0 13.0 15.0 13.0 16.0 a. MuLtiLateral 1.0 6.0 7.0 9.0 9.0 9.0 of Wich: IDA 0.0 2.0 2.0 2.0 2.0 3.0 of Aich: IBRD 0.0 0.0 0.0 0.0 0.0 0.0 b. Bitateral 0.0 4.0 5.0 6.0 4.0 7.0 Ccessionet 0.0 4.0 5.0 6.0 4.0 7.0 NonconcessioaL 0.0 0.0 0.0 0.0 0.0 0.0 2. Private Creditors 1.0 2.0 3.0 2.0 1.0 1.0 a. BaVb 0.0 0.0 0.0 0.0 0.0 0.0 b. Camarcial Bes 1.0 2.0 1.0 2.0 1.0 0.0 c. Other Private 0.0 0.0 1.0 0.0 0.0 1.0 Private Nrwaranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total on LT Loes 2.0 12.0 15.0 17.0 14.0 17.0 IW Service darges 1.0 0.0 0.0 0.0 2.0 2.0 Net Short-Ten Capital 2.0 2.0 2.0 2.0 0.0 0.0 Total Interest (LT+IMF#ST) 5.0 14.0 17.0 19.0 16.0 19.0 Page 3 of 4 - 40 - alI: EXTERNAL CAPITAL AWD DET (US mi(Lien at aurnt prices) Act~L Est. 190 1986 1987 1988 1989 1990 E. EXTERNAL DEBT (0D) PLbLic & PLblicty Gar. LT 118.0 509.0 705.0 748.0 863.0 877.0 1. Official Creditors: 110.0 482.0 681.0 728.0 795.0 870.0 a. MAjtilateraL 59.0 332.0 472.0 521.0 570.0 648.0 of kfich: IDA 37.0 15.0 252.0 288.0 328.0 389.0 of shich: IBMD 0.0 0.0 0.0 0.0 0.0 0.0 b. Bilateral 51.0 150.0 209.0 207.0 225.0 221.0 Conessicml 49.0 146.0 206.0 206.0 224.0 220.0 Ncencessonal 1.0 4.0 3.0 2.0 1.0 1.0 2. Private Creditors 8.0 27.0 24.0 20.0 14.0 8.0 a. B~nh 0.0 0.0 0.0 0.0 0.0 0.0 b. Ccmrciel Bans 5.0 21.0 18.0 11.0 6.0 1.0 c. Other Private 0.0 5.0 5.0 7.0 6.0 7.0 Private Noguaranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total L~re-tenn D® 118.0 509.0 705.0 748.0 863.0 877.0 1w Credit 36.0 22.0 21.0 33.0 0.0 0.0 Net Short-Tenn Capitat 12.0 24.0 37.0 13.0 17.0 1.0 Total OD (LT+IMF+ST) 166.0 555.0 763.0 794.0 80.0 878.0 F. AS SHARE OF TOTAL D® (M) Rblic & RtAicLy Ouar. LT 71.2 91.7 92.4 94.2 98.1 99.9 1. Official Creditors: 66.3 86.8 89.3 91.7 90.3 99.1 a. MultiLateral 35.7 59.8 61.9 65.6 64.8 73.8 of khich: IDA 22.3 33.4 33.0 36.3 37.3 44.3 of Wilch: IBW 0.0 0.0 0.0 0.0 - 0.0 b. Bilateral 30.5 27.1 27.4 26.1 25.o 25.2 Cnesial 29.7 26.3 27.0 25.9 25.5 25.1 Nancessanal 0.8 0.8 0.4 0.3 0.1 0.1 2. Private Creditons 5.0 4.8 3.2 2.5 1.6 0.9 a. Bwr 0.0 0.0 0.0 0.0 0.0 0.0 b. Carzcial Bas 2.8 3.8 2.4 1.4 0.7 0.1 c. Other Private 0.0 0.9 0.6 0.9 0.7 0.8 Private Noguaranteed 0.0 0.0 0.0 0.0 0.0 0.0 Total Larg-ten DD 71.2 91.7 92.4 94.2 98.1 99.9 IMF Credit 21.5 4.0 2.7 4.2 0.0 0.0 Net ~hort-Tenn Capitat 7.2 4.3 4.9 1.6 1.9 0.1 Total D® (LT+]MFST) 100.0 100.0 100.0 100.0 100.0 100.0 Page 4 of 4 - 41 - MUDI: EXTERNAL CAPITAL AM DEBT (US% mtirs at currant prices) Actut Est. 1980 1986 1987 1988 1989 1990 G. PERCENT OF TOTAL PPG (DCOD) On Cacessiaml Tenms 87.9 86.1 88.4 89.8 91.7 With Varfabte Int. Rates 0.0 1.3 0.7 0.3 0.2 H. ISA AND RELATED RATIOS IM Debt Service/Exports IBw Debt Service/PLMic DS Pref Creditor DS/Ptic DS Share of ISB Portfolio I. DOD-TD-ECRTS RATIOS /a Lan-Term Debt/E orts 128.3 356.2 623.2 537.8 735.1 911.9 IF CreditlEorts 38.8 15.5 18.1 23.4 0.0 0.0 ghort-Term Debt/Eqorts 13.0 16.9 33.0 9.3 14.5 1.0 LT+IMF+ST DW/Exports 180.1 388.5 674.4 570.5 749.6 912.9 J. OD-T0-GDP RATIOS Lar-Tenn Debt/GDP 12.8 41.3 62.0 68.4 78.8 79 4 IW Credit/GDP 3.9 1.8 1.8 3.0 0.0 0.0 Short-Tenn Deb*/)P 1.3 2.0 3.3 1.2 1.6 0.1 LT+INF+ST OD/COP 18.0 45.0 67.1 72.6 80.3 79.5 K. DT SER. TO LORTS RATIOS PUtgfc & Ourateed LT 6.7 18.8 31.1 25.5 41.7 45.7 Private NM-guariteed LT 0.0 0.0 0.0 0.0 0.0 0.0 Total Lar-Tenn Debt Servic 6.7 18.8 31.1 25.5 41.7 45.7 Iw Rqurchases+Serv. Os. 0.8 3.1 4.3 3.2 1.7 2.1 Interest anty an ST Debt 2.0 1.3 1.9 - 1.2 0.0 0.0 TotaL (LT+INF+ST Int.) 9.5 23.2 37.4 29.9 39.2 47.8 L. INEREST BLDE RATIOS Total Interest/OP 0.2 1.0 1.3 1.5 1.5 1.7 TotaL Interest/E*ports /a 2.1 8.4 13.3 11.9 13.6 19.8 /a Exports include unrd$erdise exports and receipts fran rarfactor services, factor services ad workers renittances. - 42 - BURUNDI: Public Finance (millions of F8u) 1980 1985 1986 1987 1988 1989 1990 Receipts and Grants 14,668 28,080 26,840 25,080 27,160 43,810 44,270 Receipts 11,808 18,280 21,980 19,540 23,600 31,660 28,650 1. Fiscal receipts 10,597 17,440 19,810 17,530 21,720 25,790 25,280 Income and profits taxes 2,220 4,120 4,650 4,270 4,620 4,978 6,448 Transaction taxes 686 2,856 8,235 8,490 3,822 5,084 6,427 Excise taxes 2,772 8,982 3,977 4,028 4,808 4,889 5,443 Import duties 8,205 8,882 4,281 4,380 4,390 5,840 6,188 Oil products 170 884 1,022 1,180 1,100 1,3880 1,230 Other imports 8,085 2,748 8,269 8,200 8,290 4,510 5,606 Coffee export taxes 1,359 8,490 4,600 613 3,610 8,819 0 Other fiscal receipts 855 1,080 850 500 300 820 420 2. Nonfiscal receipts 1,006 840 2,170 2,010 1,780 5,872 3,870 3. Grants 3,0680 4,800 4,880 5,5860 8,660 12,150 15,820 --SA'. 130 1,490 s 900 5,430 Expenditure and Net Lending 20,898 82,483 83,650 43,040 40,576 49,030 54,060 Current Expenditure 9,668 14,888 17,810 18,490 22,660 28,190 29,280 Wages and Salaries 4,797 7,079 7,813 8,490 9,710 11,2860 12,890 Other goods and services 2,778 8,788 5,640 4,900 8,560 6,740 7,9560 Transfers and subsidies 1,081 1,796 2,086 2,150 8,280 4,380 4,610 Interest on public debt 197 1,988 2,225 2,790 8,120 3,810 3,830 External 155 1,199 1,358 1,770 2,170 2,640 2,400 Domestic 42 784 889 1,010 980 1,180 1,420 Other 826 190 50 150 10 0 0 Capital Expenditure and Net Loans 11,280 17,6830 15,850 24,540 17,920 22,840 24,780 Financed from domestic resources 4,180 4,170 8,110 4,840 3,710 6,630 10,740 Financed from external resorces 7,060 Is,: t2,740 - 19,700 14,210 18,210 13,180 Current balance (excl grants) 1,985 3,440 4,180 1,050 840 5,470 -680 Overall balance (Incl. donations) -6,236 -7,830 -6,810 -17,980 -18,420 -5,230 -9,800 Overall balance (excl. donations) -9,295 -14,190 -11,670 -23,490 -17,070 -17,370 -25,410 Change in arrears 900 -1,580 -1,870 2,180 -2,360 -1,720 -700 Overall balance (cash basis) -5,385 -9,390 -8,180 -15,780 -15,780 -8,960 -10,500 Financing 5,835 9,890 8,180 15,786 15,780 8,950 10,496 External (net) 8,190 7,270 8,010 18,720 12,720 11,490 10,500 Disbursements 8,590 8,670 10,006 19,060 15,890 15,220 14,510 Of which: SAC *** --- 1,676 3,530 3,140 8,990 4,160 Repayments -400 -1,400 -1,990 -2,340 -3,170 -3,730 -4,016 Domestic 2,140 2,270 176 -940 3,0860 -4,530 -to Banking Sector 778 1,486 -1,778 1,200 -2,030 -2,040 -2,0:,0 Other 1,362 790 1,9560 -2,140 6,090 -1,040 790 -------------- ------------------------------------------------ ---- __ Nominal GDP 85,820 141,847 137,200 139,540 152,200 173,80 188,730 .-.- ..*.**** --- ---- -------------------------------------------------------- ---------- BURUNDI: Money and Credit (millions of FBu) - ------- ----------------------------------------- 1985 1986 1987 1988 1989 1996 - - ------------ ---- ----------------- ----- - Foreign Assets, net 2,784 5,780 5,019 1,881 10,841 9,487 Domestic Credits 28,297 27,514 28,987 81,220 82,545 85,498 Claims of govt (net) 15,619 18,790 14,998 11,894 8,469 6,698 Claims on rest of economy 12,678 13,724 13,994 19,826 24,076 29,406 --commercial banks 7,526 9,857 9,920 14,636 19,072 24,665 Money and Quasi-Money 24,011 25,107 26,461 26,849 80,096 83,586 Coffee Stabilization Fund 86 1,190 527 1,143 596 1 Other Items (net) 1/ 8,770 8,997 6,713 8,113 12,200 11,899 1/ Includes medium A long-term foreign liabilities, SDR allocation and other (net) - 43 - Annex I Page 1 of 2 BURUNDI FIRST STRUCTURAL ADJUSTMENT CREDIT CONDITIONALITY SECTION I: SPECIAL CONDMONS OF EFFECTIVENESS (a) Implementation of the new trade regime (para. 60); (b) Deregulation of prices for products for which imports have been liberalized (para. 63); (c) Revision of the Investment Code (para. 68); (d) Increase in the credit limits above which the commercial banks need approval from the Central Bank to FBu 10 million (para. 74 (a)); and (e) Initiation of liquidation procedures for four public enterprises (para. 46). SECTION II: SPECIAL CONDITIONS OF THE CREDIT Regarding the SOSUMO sugar project, the Government will: (a) Not enter into any new commitment with respect to the project until it has carried out a detailed analysis of the proposed investment and following consultation between the government and the Association; (b) Contract with a reputable management firm, with terms of reference and qualifications acceptable to IDA, for the management of the plantation and of the factory taking ino account existing requirements of other donors; (c) Ensure that the full cost of production will be borne by the consumer and that there will be no operating subsidies to the sugar project from the budget; and (d) Ensure that SOSUMO will be audited annually by an independent and reputable firm with terms of reference and qualifications acceptable to the Association, and that the audit will be submitted to IDA for review and comments within six months of the end of each fiscal year. SECTION M: CONDITIONS OF DISBURSEMENT OF THE SECOND TRANCHE (a) Preparation of the macroeconomic scenario for 1987-89, including level and consumption of public investment and public expenditure program (para. 35); (b) Review of the import controls still remaining on luxury consumer goods and on three groups of imported goods competing with local manufactures (para. 60 (i)); - 44 - Page 2 of 2 (c) Completion of surveys on rural consumption and revenue patterns, estimation in consultation with IDA, of the level of producer prices of main export crops for the 1987/88 campaign (paras. 50 and 51); (d) Initiation of preparation of rehabilitation plans for the five public onterprises to be rehabilitated in priority (first phase of the PB rehabilitation program (para. 46); and (e) Identification of public enterprises to be rehabilitated in Phase II (para. 46). An45 - Page 1 of 2 BURUNDI SECOND STRUCTURAL ADJUSTMENT CREDIT CONDITINALITY SECTION 1: CONDITIONS OF EFFECTIVENESS (a) Agreement on the definitive PIP for 1988-89, including reserve projects; (b) Agreement on calendar for progressive elimination of CADEBU's monopoly on compulsory savings; (c) Promulgation of the decree liquidating SOGESA; (d) Submission of the revised labor legislation for approval of the National Labor Council; and (e) Adoption of internal procedures for the Guarantee Fund. SECTION II: CONDITIONS OF DISBURSEMENT FOR THE SECOND TRANCHE (a) Agreement on macroeconomic framework including fiscal deficit, 1989-91 PEP, and 1989 transitional unified budget; (b) Implementation of third phase of tariff reform, including revision of nomenclature; (c) Signature of performance contracts with VERRUNDI and REGIDESO; agreement on timetable for liberalization of imports competing with VERRUNDI production; and agreement on action program for SOSUMO during 1989. (d) Agreement of coffee pricing structure for 1989/90 season; (e) Liberalization of rice marketing and allowing RDC Imbo to fix paddy producer prices for 1989/90 campaign; (f) Reduction of rediscount rates from 3 to 2 and implementation of all other measures included in the second and third stages of credit reform. (g) Agreement on action plan for poverty alleviation; and (h) Agreement on action plan to reinforce the Ministry of Labor and its agencies in charge of employment promotion. - 46 - Annex II Page 2 of 2 SECTION : CONDITIONS OF DISBURSEMENT OF THE THIRD TRANCHE (a) Agreement on macroeconomic framework for 1990-92, including fiscal deficit, and 1990 transitional unified budget; (b) Satisfactory implementation of action plan for SOSUMO (para. 64); (c) Completion of first phase of elimination of CADEBU's monopoly on compulsory savings (para. 51); (d) Agreement on action plan for improving civil service efficiency; (e) Agreement on action plan for privatization/liquidation of the public enterprise sector on the basis of studies to be carried out during 1988/1989; and (t) Launching second phase of labor market liberalization and extending it to the parastatal sector. I uB. h Id 1la .5§ 1 ~ ; ~ n 11$u1hl' ,11 ''f 1u iii Ffi Ii f111 11111 IIII111 = _______________ - 48 - ______________ ADRÉLJIL. 1' _______ ~ Pago2ofS _______ ________ ii' - 1 ii ~. ~h iii ~h fil 11 j.Iu titjil iii Il I~iIt il ___________ titilidilt IidJJutJii 1 till jj~I ~ ij gi ~ lit flit ,~ 111 Jj 1- ___________ ___________ i11 Iii dl 11 1 1i1itIIIiI 1 1'1 ~ iiitiiiitii ____________ _____________ 1 1 il ~ 'ljii. liii Ii iii 111111 liii iit il" 81 ___________ 11111$ flIt ~fiit - 49 - - ABEÉLflL 1 Page 3 of 8 III il 1~ fl il 1 illi ~ 1 ~I iI~*Ih 1'I Ifl.UI '1 ~ 1 ~ ffi.' ~9 ~alts!I ~ g. t'jII ~IIIiIj ~1i~ Ni II' 9 I.~I .1 ~ih ~ 1 i 1 J~fl1*. Ii III ____________________ ______ 1ll~ I~u il 1 ~ ~iI i II~u ~ 1!~I ' Jitt1~ Ilti Iti'~ __________ hill 1[iLI ___________ ~ iJ~ ~1I~1~ 1 Iii liii il 111 ii ~iiII ildi 1 _______________ 50 In 1 Page 4of 8 ma lisegi I I-ilii 1 iIi' Mol iii Pag 51 of 1,11j j gem-of ~1 I-Bill] 21 ~ _______ 4I gäl8 ~ j iiieja - __________-52 - ma~in~ Page 6 of 8 _ _ _ _ _ _ _ _ _ __t1al1 1 1 Ila, ________ _______ 1 fl dilla 1 huemmmngnee1m -53 Ane 1 1 ~Page 7of 8 12 ilei l iis 1 u il"; ill11 -54 - Annex III = - Page 8f 8 b.> Ii 1 9 Ü 9 lic z- ii3 1 éti 1* if imi 14 __ _ _ _ __ _ _ _ __ _f; - 55 - Attachment 1 Comments Received from the Saudi Fund for Development (Translation of Incoming Telex) April 9, 1992 Attn: Mr. Mark Baird, Chief Country Policy, Industry and Finance Division Subject: Report on the Structural Adjustment Program in Burundi We thank you for sending us the report on the Structural Adjustment Program in Burundi, and we want to let you know that the Saudi Fund for Development has no comments to make on the report. Yours truly, Dr. Abdulaziz M. Alturki Deputy Director General - 56 - Attachment 2 Comments Received from the Swiss Development Cooperation (Translation of Incoming Fax) April 14, 1992 Attn: Mr. Mark Baird, Chief Country Policy, Industry and Finance Division Re: BURUNDI - Performance Audit Report on Structural Adjustment Credits We have received the above-mentioned report. We have no specific comments to make, we find the report to be complete and instructive regarding the structural adjustment process in Burundi. Yours truly, 0. Hafner, Economics Section Swiss Development Cooperation