Burundi - Structural adjustment and development issues (Vol. 2 of 2) : Background papers

Report No. 6754-BU Burundi Structural Adjustment and Development Issues Background Papers January 20,1988 Division AF3CO South-Central and Indian Ocean Department Africa Region FOR OFFICIAL USE ONLY Document of the World Bank 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 withou; World Bank authorization.  Currency Equivalents and Units Currency unit = B.rundi Franc (FBu) Exchange rate = US$ 1.00 = FBu 114.17 (Annual average 1986) = FBu 123.12 (Average Jan.-Nov. 1987) = SDR 1.00 = FBu 134.08 (Annual average 1986) FBu 159.50 (Average Jan.-Nov.1987) Standards = Metric system Fiscal Year - January 1 to December 31 Glossary of Abbreviations and Acronyms ADF African Develcpment Fund BCC Burundi Coffee Company BEI Development Budget BNDE National Bank for Economic Development BO Ordinary budget BRB Bank of the Republic of BurunJi (central bank) CADEBU Burundi Savings Bank CCI Chamber of Commerce and Industry COGERCO Company for the Management of the Cotton sector COOPEC Rural Cooperative of Credit COTEBU Textile Company of Bujumbura CPI Center for Industrial Promotion EDF European Development Fund FP Family Planning FWA Fully Washed Arabica (coffee) IEC Information/Education Campaign ICA International Coffee Association IDA International Development Association IMF International Monetary Fund ISABU Agronomic Sciences Institute KAP Knowledge, Attitudes and Practices MCH Maternal and Child Care MOH Ministry of Health OCIBU Industrial Culture Office of Burundi ONAPHA National Pharmaceutical Office OTB Burundi Tea Office PE Public Enterprise PEP/PIP Public Expenditures Program/ Public Investment Program PHN Population, Health and Nutrition PTA Preferential Trade Agreement RDC Regional Development Companies SAL Structural Adjustment Lending SAP Structural Adjustment Program SCEP Service in Charge of Public Enterprises SME Small and Medium Enterprise SMIG Minimum Daily Wage SNES Service National d'Etudes Statistiques SOSUMO Sugar Production Enterprise in Mosso TRC Tanzania RaLlway Company UNFPA United Nations Fund for Population Activities WHO World Health Organization  FOR 0C USE ONLY PREFACF This report is largely based on the findings of an economic mission which visited Burundi during November/December 1986. The mission comprised Mmes. Maria E. Preire (Mission Chief), Dale Hill (agriculture), Judith Press (SMEs, consultant), Miriam Schneidman (popu>ation, health, nutrition), and Messrs. Didace Butare (industry, Residen; Mission), Jean M. Cour (urban and regional development), Martyn Kebbell (export promotion, consultant), Janvier Kpourou-Litse (employment, external debt, statistical appendix), Benoit Millot (education), and Jan Weijenberg (agriculture). Additional contributions were received from Messrs. Robert Broadfield (energy sector issues and updating), Marc Blanc and J.J. Raoul (transport sector), and Christian Schmidt (financial sector). The sections concerning the structural adjustment program reflect the work of various Bank missions which visited Burundi between May 1985 and December 1986 for the preparation and supervision of the First SAL as well as of IMF missions which have collaborated closely in discussions on the adjustment program and the joint work carried out to prepare two Policy Framework Papers (1986 and 1987) for Burundi. Ms. Lynne Sherburne-Bent (consultant) was responsible for finalizing the report following its discussion with the authorities. The report was discussed with the Government in October/November 1987. Many of the recommendations made in the report have already been adopted by the Government; others are expected to be addressed in the context of the dialogue between the Government of Burundi and the Bank. Whenever possible, a note has been inserted to that effect. The statistics used in the report are based on data provided by the Burundian Government. These generally cover the period up to December 1986. Many of the official data for the 1984-86 period used in compiling the Statistical Appendix are preliminary and subject to revision by the authorities. 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 disctosed without World Bank authorization.  COLWTRY DATA-4LRlUI AREA (Thouand sq. km.) POPULATION DENIM (1986) 27.6 4.9 miion (1986) 1S9 per square km. Rate of Growth: 2.81 210 per equare km. of arablo led. (from 1o8 to 198) POPUTIOTN CAACTERISTICS (1982-1988) HALTF (1979) Crude birth rate (per 1000) 47 Population per physician 48020 Crude doath rate (per 1000) 19 Population per hoepitol bed 7i4 (1970) Pereent urban 8 INCOIE DISTRINTION Boi CONUPiON PER CAPITA I of not;onal income, hiaheat quintile -- (Kilograma of otl equIve nt) 16 lowest quintile ACCESS TO SAFE WATER (1980) ACCESS TO ELTRICITY I of population - total 24 e of population - total = urban 9) - rural = rural 20 FOOD A JWTRITION (1t92-1985) EDUCATION (198 eolorle Intake eo i of requirement. 102.1 Adult literacy rate I 80 per capita protein Intako (ga/day) 78.1 Primary aeol enrollment 1 64 GIP PIP CAPITA IN 1988 a/: UtA240 SS; DOMESTIC PRODUCT IN 1988 ANNUAL RATE OF OROWTH (11, CONSTANT 1970 PRICES) USt S.N. 5 198048 1908 01P at market prices 1308.3 100.0 3.0 4.8 Gross doestic investmnt 188.8 12.9 4.5 19.1 Gross national savings 67.8 8.2 2.2 "88. Current accunt balarce -72.8 8.6 -4.7 0.8 Exports @+nfa) 1S7.4 12.1 14.5 -2.9 aimorts (genen) 244.2 18.7 4.1 2.2 QDP at factor cost 1187.7 100.0 8.1 8.8 Primary "stor 719.8 80.6 2.4 8.2 Secondary sector 182.8 13.7 S 0 3.4 Tertiary setor 308.4 25.7 8.7 8.8 OOVBR4T FINANCE (Central Government) (Fbu bin.) 1 of COP 1908 198 10S1 Current revenue b/ 24.09 16.2 1t.8 Current expenditure c/ 18.07 12.1 12.2 Current surplus 6.02 4.1 1.0 Development expenditure c/ 18.0S 11.4 12.1 D/ The per capita GP oetimate calculated by the mome converoion technique mo the world Bank Atlas. All other eonversions to dollars in this table are at the average exchange rate prevailIna during th. period covered. b/ It does not include officiol capital grants. a/ On a cash baoio. / not available. / not uapplicable.  COUtRY DATA -ANDI (14illion* Fbu Outstanding End Period) MONEY, CRED1T 4A0 PRICES 1980 1981 1982 1983 1984 1988 1988 Monesy Supply */ 12601 15898 tS878 16756 19984 23822 2474 Claieo on Government (net) 4615 7808 9841 12389 14090 1S796 14712 Clot.. on the ESconoy 0276 11000 10989 11013 11430 1267 18645 Credit to Public Enterpri.o 1887 874 468 4884 4180 5120 7219 (percentage or Indx Numbers) Money ae of atIG 15.9 1.0 10.9 16.6 16.9 18.4 16.6 CPI Average 19600100 100.0 118.8 119.8 129.8 140.8 184.0 156.8 Annual Percentage Chlngos in: Coneuoer Price Index 12.8 13.8 8.7 8.8 14.4 3.7 1.8 Clalm an overnmnt (net) 28.2 58.8 30.8 29.9 18.7 12.1 -e.9 Claim on the Econogo 28.0 82.9 -0.4 7.8 -8.2 10.9 7.6 Bank Cr*dit to Public Entorprile -- -87.7 -20.2 880.8 -4.7 28.6 40.8 SALACE OF PAYMTS 1v80 191 1982 1988 1984 1988 1986 MEBCADISE EPOBMT (AVEBAQE 1980-1988) (Ms MILLIONS) US9 Mln. Percent FEporte (g*fen) 81.0 87.7 102.6 96.7 101.8 128.0 187.1 I,port (genfe) 205.6 196.6 25.1 288.7 247.9 228.0 248.7 Coffee 80.S 87.4 Ter 8.8 4.1 Recource Gap (deflclt.) -124.6 -110.9 -185.5 -189.0 -140.6 -99.2 -86.6 Cotton 1.2 1.4 Other 6.6 7.1 Factor Service (net) -7.1 -20.1 -26.2 -26.4 -26.9 -82.7 -81.4 Totael 92.2 100.0 Current Trenefere (net) 47.1 88.7 5.6 51.6 44.4 48.8 66.3 Balance on Current Account -84.6 -07.8 -126.1 -13.8 -129.1 -88.6 -72.8 EXTERAL DEB AS OF OM. 81. 190 S Mi in. Official Capital Orrnte 88.2 80.5 40.1 89.9 89.8 89.0 39.0 Public Debt, IncI. Ous nteed 626.41 Direct Priv. Foreign Investmen 1.1 0.6 1.5 0.4 0.9 1.6 1.8 Non Guaranteed Private; *t -- NeOt MLT Loans 80.6 22.8 40.7 110.7 81.1 86.1 80.2 Total Outetnding *and OiSebured 526.41 Short Term Capital (neOt) 12.8 12.4 14.5 20.4 2.0 2.8 -1.2 Al location of SORe 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DEBT SERICE RATIO FOR 196 b/ Percent Error, A Oomisiono -1.0 -87.4 -6.1 -28.2 8.6 -2.7 -8.9 ------ Increase In Roaervee(-) -6.O -81.0 -88.4 14.0 -1.8 11.4 88.7 Public Debt, Inl. Ouaranted 28.2 Non Guaranteed Private Debt - Petroleum Imports 24.7 82.2 80.1 20.7 82.8 82.8 26.0 Total Outetanding and Disbursed 28.2 IDA LENDSNO AS OF DM. 81,1966 US$ MIln. RATE OF EXCHAWN Annual Averag --------------- 1980 198t 1982 198S 1984 1985 1986 Outstanding and Diebureed 164.0 Undtiburwd 106.1 U5se 1.00 - suf 90.0 90.0 90.0 98.0 119.7 120.7 114.0 Outotanding Incl. Unditbured 290.1 o/ Include, money and quasicmne y. b/ Debt eorv ice as a pereuntage of export. of goode and nn-foctor servico.  BURUNDI STRUCTURAL ADJUSTMENT AND DEVELOPMENT ISSUES BACKGROUND REPORT Table of Contents Patze No.. INTRODUCTION ...*.......... ..... ...... .... ......**....... 1 Progress since last CEM .1. .................... ................ 1 Organization of present report ............................... 2 I. RECENT POLICY REFORMS ANvu ,CORoMIC PEKRFORMNCE ............ 3 A. An Overview of Recent Policy Reforms ................... 3 Background ................................3 Adjustment Policies ....5............................ 5 B. Recent Economic Performance ...... ..................... 8 Sector Growth and Policies ........................... 8 Investment and Savings 449444444444 #4444..... 11 The External Sector 99944444444444c. 44944**4444**** 12 External Public Debt ...,.............. 15 Public Finance ........ ............... ............ 16 Monetary Policies ...449 *4444449 .. .*. 21 Price and Price Determination .......,............... 23 Wages and Employment .. ....................*......... 25 II. THE LONG-RUN CHALLENGE . ..................... 99944444 27 A. AGRICULTURE ..............44444 . .......... 27 Food Security 4 94.444..494.4....4... 44949944444494944444.28 Government Programs ........................... ........ 29 Imports and Food Aid 94444444444*9444444444444444444444 30 Shortages/disruptions .......................... ....... 31 Increasing Export Earnings from Cash/Industrial Crops ..................... .. 32 Strategic Issues for the Long-run ..... ................... 35 Meeting Food Demand 944 944499 444......... 9 35 Increasing Export Crops and Competition with Fooderops ..................... 37 Market Development and Regional Specialization 9444444 38 Policy Agenda *4449444944449449a o * ....... o 38 Short-term agenda ................ ........*... 39 Long-term agenda 44 44*944@44*44494444444444444444944*94 41 Institutional Issues ............. ...*......... 42  B. RURAL-URBAN LINKAGES AND REGIONAL DEVELOPMENT ............ 44 Population and Employment ............. ............... 44 Monetarization of the Agricultural Sector and Rural Development ... .... ............ .... *. 45 Urbanization and Regional Development ................... 49 Conclusions and Recommendations ........................ 49 The modern Sector ............................. *....... 52 Recent Employment Trends ............................ 52 The Social Security System *.......................... 55 Civil Service Salary Scale and Wages ................ 55 Government Policies ........ ....... ...... ...... *. 56 The Informal Sector ... ..................... ............. 58 Recommendations .............. .. . .. .. .. . .. .. .. . .. .. . .. . 60 D. SMALL-SCALE ENTERPRISES ............ ..................... 61 The SME Sector ........................................... 61 Major Constraints and Development Potential ....... ....... 62 Institutions ......... 63 Istues tions....... ...................................... 64 Possible Approaches .... .................................. 65 Potential Problems ....... ............. * .............*.... 65 Summary of Proposed Actions .............. ................. 66 E. EKPORT PROMOTION ....,.... .. .......... * ................. 67 Structure of Exports .................................... 67 Liberalisation and the Policy Environment ............... 68 Market Prospects .......... .............. ........ . 69 Export Promotion: Action Program ..... .................. 70 Short-Term Measures ................................ 71 Medium-Term Measures .... ......,......... ... ... .. 72 Long-Term Measures (3+ years) ............... ,...... 73 F. MAJOR ENERGY SECTOR ISSUES .................... .......... 74 G. TRANSPORT 44*94499*9*494449*494494449444444***4** 77 H. SOCIAL SECTORS * ........................................... 80 1. POPULATION ............................................... 80 Population Growth and Socio-Economic Consequences *... 81 Family Planning Policies and Programs ................ 83 Recommendations ....*............ .*** *......... 86 2. EDUCATION ******** ...................................... 86 Government Objectives and Strategy * .................. 86 Issues ....... *****.** *....... ******............... *... 88 Recommendations ....*...............................*.. 89 3. NUTRITION ****.*.*..494499499444994449 *****................ 91 Nutrition Status .............................. 91 Nutrition Policies/Programs .. ........................ 92 Recommendations .................. 93  4. HEALTH . 94 Health Status . . . . . . . .. . . . . . . . . . . . . . . ... .... ..... 94 Health Policies and Programs .......................... 94 Health Financing ............ . * 96 Recommendations ..**..*....... * ...................... 98 I. DOMESTIC RESOURCE MOBILIZATION .......O.................. 100 Mobilizing Private Savings .............................. 100 Financial Sector .......................... 100 Policy Issues ............................ 101 Interest Rates .......................... 102 Monetary and Credit Policies ....................... 103 Guarantees . 104 Determinants of Financial Savings Level .............. 15 The COOPEC System ................... ... .... ... ... ... . 106 COOPEC Lending and SSEs ............................ 106 Summary of Recommendations * ............................. 107 III. EIIUM-TERM PROSPECTS .............. .... .. .............. 109 A. Policies for Sustained Growth: An Agenda ................. 109 Trade Policies .............. ...... ..... ..... ...*. . . 109 Liberalization ................... 110 Domestic Investment .. .............. 110 Public Investment Program, 1987-89.................... 111 B. Growth with Equity: Reeucing Population Growth and Strengthening the Social Base ....... 0............... 115 C. The Base Case ............... ............................ 115 Investment and Savings . ........ * * * *............... . 117 Balance of Payments ............ . .. ..... .... ... .. ... . 117 D. Alternative Scenario .................. ... .... ... ... ... .. . 118 E. Foreign Capital Requirements ............................. 119 Medium-term Financing Requirements, 1987-91 .......... 119 External Borrowing Strategy ......................... 121 ANNEX I - Demograph_U-