Burundi - Economic memorandum (Vol. 1 of 2) : Executive summary

Report No. 4784-BU Burundi Economic Memorandum Executive Summary December 26, 1984 Programs Department II Eastern and Southern Africa Regional Office 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 without World Bank authorization.  Currenicy Unit: Burundi Frainc (FBu) ExchanLge Rate: SDR I = FBu 122.7 (siuce November 1983) Fiscal Year is thLe Calendar Year Standards are based on the metric system Conversions: 1 kilometer = 0.62 mile 1 square kilometer = 0.3861 square mile 1 meter = 3.28 feet 1 millimeter = 0.04 intch 1 kilogram = 2.2046 pounds 1 metric tou = 1.1 U.S. toins I hectare = 2.47 U.S. acres 1 liter = 1.057 liquid quarts (U.S.) I metric ton of: gasoline (95 Ron) = 8.6 barrels gas-oil (48-52 Diesel Index) = 7.4 barrels fuel oil (heavy, high-sulphur) = 6.7 barrels kerosene (regular) = 7.9 barrels I barrel = 42 U.S. gallons or 159 liters 1 U.S. galloni = 3.785 liters  Report No. 4784-BU Burundi Economic Memorandum Executive Summary December 26, 1984 Programs Department II Eastern and Southern Africa Regional Office FOR OFFICIAL USE ONLY U 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 without World Bank authorization.  Curreucy Uuit: Bururdi Fraxnc (FBu) Exchange Rate: SDR I = FBu 122.7 (siince November 1983) Fiscal Year is the Calendar Year Stanidards are based on the metric system Coniversioins: 1 kilcmeter = 0.62 mile 1 square kilometer = 0.3861 square mile 1 meter = 3.28 feet 1 millimeter = 0.04 inch 1 kilogram = 2.2046 pounds 1 metric tou = 1.1 U.S. toins I hectare = 2.47 U.S. acres 1 liter = 1.057 liquid quarts (U.S.) 1 metr:ic ton ot: gasoLiae (95 Ron) = 8.6 barrels gas-oil (48-52 Diesel ludex) = 7.4 barrels fuel oil (heavy, high-sulphur) = 6.7 barrels kerosene (regular) = 7.9 barrels I barrel = 42 U.S. gallOLs or 159 liters I U.S. galloEn = 3.785 liters  FOR OFFICIAL USE ONLY BURUNDI ECONOMIC MEMORANDUM EXECUTIVE SUMMARY Background 1. Burundi is a small and landlocked country in Eastern Africa sur- rounded by Zaire, Rwanda and Tanzania. Excluding Lake Tanganyika, the national territory measures only 25,000 square kilometers. At the extremes, Burundi extends only 250 kilometers from north to south and 210 kilometers from east to west. 2. Burundi is among the poorest countries in the world; per capita GNP is estimated at about US$240 (1983); three-fourths of the adult popul- ation is illiterate; infant mortality is still high, despite considerable progress registered in the last twenty years; and access to potable water and electricity is limited to the urban centers -- 5% of the population. Burundi has the second highest population density in Africa (more than 170 people per km2) and its potential for population growth is alarming: at current levels of fertility and in absence of migration, the population would triple in the next 35 years. The country does not have the capacity to accommodate this growth. Food production is barely keeping up with pop- ulation growth (the problem becomes especially serious in drought years like 1984), and growing demographic pressure on land is leading to defores- tation, declining soil fertility and increasing erosion. 3. Burundi's economy shares the underdeveloped and undiversified characteristics of many Sub-Saharan African countries. Agriculture is still the most important sector (60% of GDP) and coffee the only signifi- cant export (85% of exports, followed at a distance by tea and cotton). Natural resources are scarce. Identified minerals include nickel, phos- phate, petroleum, vanadium, some fluvial gold and calcium, but the economic justification for their exploitation is still uncertain. Burundi's manu- facturing sector is small, its growth being limited by the small size of the domestic market, the country's isolation from trade routes, vulnerabi- lity to disruptions in the external transport corridors, high transport costs, and the lack of skilled manpower. 4. Burundi's land-locked location is a key factor in the country's development prospects. Although progress has been made in recent years to improve physical facilities and to simplify transit formalities, transport- ation costs to the Indian Ocean are very high, adding substantially to the cost of living in Burundi. There are two main routes connecting Burundi to the Indian Ocean: the Northern Route, by road from Bujumbura to Mombasa via Rwanda and Uganda (2,020 km long); and the Central Route, by barge down Lake Tanganyika and then by railway through Tanzania to Dar-es-Salaam (1,425 km). Passage through neighboring countries can be interrupted by events which are beyond Burundi's control, causing serious domestic short- ages. 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.  - 2 - Economic Developments: Goals and Performance 5. In the mid-1970s, Burundi's economic situation benefitted from several favorable factors: (i) a new Government, headed by President Bagaza, took power in 1976, ending a period of political instability; (ii) the prices of coffee in the international market tripled, resulting in sub- stantial windfall profits and accumulation of public savings; and (iii) the level of foreign aid to Burundi increased considerably, in support of the new regime's stated commitment to economic development. These circumstan- ces appeared to be a good omen for the Third Development Plan (1978-82), and expectations for an improvement in lLving conditions were therefore high. 6. The Third Development Plan (1978-82) included broad objectives such as the transformation of the economic structure; the mobilization of resources for production; the reduction of poverty, together with improved income distribution; and increased access to education and health ser- vices. 7. A review of performance during the Plan period indicates a rela- tively good record, especially in comparison with most of the Sub-Saharan countries. On the average, GDP at market prices rose by 3.1% per year, in constant prices, with gross domestic investment averaging about 13.5% of GDP, far above the 8.0% share of the previous five years. The public sector took the lead in the investment effort, accounting for 90% of the total. Foreign donors financed about 60% of the expenditures. However, because of a 42% decline in Burundi's external terms of trade, Gross Domes- tic Income (GDY) rose by only 1.6% per year. With population rising at an estimated 2.4% per year during the Third Plan period, GDY per capita fell by 0.8% per year. The growth in total value added was mainly due to the growth in the modern sector stimulated by -public investment spending. The output of the subsistence sector which accounts for 85% of the population, grew more slowly than the population, widening the gap between rural and urban dwellers. The investment program favored mostly the modern sector, and the effects of this investment on incomLe and foreign exchange earnings were limited. Most of the projects were capital intensive and created few jobs; moreover, the protection extended to the new ventures made them inefficient and heavily dependent on imported materials, adding little to the country's foreign exchange earning capacity. 8. The financial situation, which was kept under control during the 1970's, deteriorated rapidly at the turn of the decade. This was due to two main factors: (i) deterioration in the terms of trade -- by 75% bet- ween 1977 and 1982 -- reflecting a decline in coffee prices and a doubling in import prices, notably of oil products, which pushed the current account deficit to about 12% of GDP; and (ii) insufficient and delayed response of the Government to the changing economic environment. To support the balance of payments, the Government relied mostly on a run-down of its reserves; it also increased restrictions on imports and on remittances of foreign exchange abroad. The Burundi Franc appreciated with respect to the curren- cies of the major trade partners, reflecting the appreciation of the US dollar to which it was pegged.  9. These unfavorable developments had serious consequences for the budget. The terms-of-trade deterioration reduced import capacity and led to budgetary problems, as the Government's receipts from coffee exports fell dramatically, necessitating cutbacks in imports and public spending. These factors as well as the poor agricultural conditions of 1982 led to a decline in income, which spread into 1983 and affected economic activity. The overall result was a widening of the resource gap, depletion of re- serves, and an accumulation of payment arrears in the Government accounts. 10. During the 1978-82 period, Burundi was able to receive external financing on very soft terms. Grant assistance was substantial. In addi- tion, external public borrowing during the period carried an average inter- est rate of only 2.4% and an average maturity of 31 years including eight years of grace, implying a grant element of about 60%. Debt servicing re- mained, therefore, low -- at about 5% of exports of goods and nonfactor services in 1978-82. Bank projections indicate, however, a rapid increase to about 20-25% in the next few years due to the composition and terms of past borrowing. 11. The year 1983 was the first year of the Fourth Development Plan (1983-87), which , as explained further below, incorporates an ambitious investment program of US$250 million per year (US$100 million more than what was achieved in the Third Plan Period). The Government tried to raise its revenues in order to be able to carry out this ambitious program. New tax measures were introduced, notably increases of 50 to 100% in the rates of the most important taxes -- transaction tax, income tax and tax on beer consumption, which in the last years replaced coffee as the single main source of government fiscal revenue. By mid-1983, however, there were signs of increasing financial stress. The Government tried to cope with the situation by attempting to reduce the investment budget by 45%, but this proved difficult. While 80% of the investment planned for 1983 was actually implemented, this was obtained at a great cost: the public domes- tic debt increased substantially; unpaid obligations accumulated, repre- senting (at end-1983) 30% of Government spending; and the overall budget deficit reached 5% of GDP. Economic growth, which had been negligible in 1982, remained marginal in 1983, with non-agricultural sectors registering an absolute decline, 12. In response to this difficult situation, the Government took a number of important actions. First, in November 1983, the FBu was delinked from the US dollar (to which it had been linked since 1976) and pegged to the SDR, with an implicit devaluation of about 30%. Second, in early 1984, the producer prices of the main export crops were raised to provide stronger incentives to producers. The coffee price was increased by 6%, the tea price by 36%, and the cotton price by 17%. Third, in an attempt to balance the current budget, the Government increased the rates of the most important taxes (para. 11), froze public wages and salaries, improved the system of tax collection, and cut the recurrent subsidies to the para- statals.  -4- Thle 1983-87 Fourth Plan 13. The Fourth Plan was presented at a Round Table meeting organized by the UN in February 1984. The Plan envisages real GDP (factor cost) growth of 3.7% per year between 1982 and 1987 and total investment of FBu107.2 billion (in constant 1981 prices), equivalent to about US$1,200 million. Barring an unforeseen and substantial improvement in coffee pri- ces and a major inflow of fresh financial aid, achievement of the Fourth Plan objectives does not seem likely. Given the prospective resource availabilties, perhaps not more than 60% of the intended investment would be feasible. Even with such a shortfall, external donors would have to provide 80% of total financing. 14. The analysis of the Economic Memorandum suggests that Burundi's ability to generate financial resources for development projects and programs will be severely limited during the Fourth Plan period. World cofEfee prices are expected to rise only slowly, from US$1.32 per pound in 19133 to perhaps US$1.73 per pound in 1987, in current terms. Allowing for vo.Lumes sufficient to fulfill the quota of the International Coffee Agree- ment, coffee export receipts during the five-year period will average less than US$75 million per year, only US$5 million more than realized during the 1978-82 period. If Burtmdi's imports prices rose by 10% per year, as assumed in the Fourth Plan, the purchasing power of coffee export receipts would decline from an index of 100 in 1982 to about 70 in 1984-87. 15. The Fourth Plan anticipates that 30% of the investment financing will come from domestic sources (20% from the budget, 10% from bank credit and the private sector) and 70% from foreign aid. The budgetary contribu- tion is clearly unrealistic, and -- on these grounds alone -- the Govern- ment may have to cut the investment program, unless additional foreign aid can be obtained to substitute for the lack of domestic resources. The out- look for increased foreign aid is, however, not promising. 16. The Plan indicates that FBu28 billion (in current prices, or about FBu6 billion per year) will be budget-financed. However, according to Mission's projections, the current budgetary surplus is unlikely to exceed FBu 1-1.5 billion during the Plan period. Even if one included in the budget contribution an annual amount of FBu2.0 billion of credit from the central bank to finance investments, the annual contribution of the central government to the investment program could not exceed FBu3-3.5 bil- lion, that is, about half of the projected figure.  17. Turning to foreign aid availabilities, the Fourth Plan antici- pates an annual average of about US$250 million, of which US$160 million for project financing. This is considerably higher (almost twice) than what was received during 1982: US$138 million, of which US$88 million for project financing. A doubling of net external assistance, while not impos- sible, does not appear very probable. A more conservative figure would be between US$150-180 million per year, or US$100-130 million for project fin- ancing. (Net current transfers, projected at about US$50 million a year, are mostly for financing technical assistance and scholarships and are not available for financing investment projects.) 18. In short, the prospects for resource availabilities do not appear to be consistent with the resource requirements included in the Fourth Plan. Hence, the necessity of producing a more realistic project list devoted to high-priority projects of clear economic justification. Cost- benefit analyses can be used to select projects according to their economic impact and to screen the projects included in the project list. However, for the annual exercise of preparing the investment budget, more specific criteria would have to be used. Examples are: (a) the effects of each project on domestic production; (b) the lag between investment and product- ion; (c) firmness of commitmenit of external financing; (d) effects on bal- ance of payments; and (e) effects on budget. Establishing meaningful expen- diture priorities is certainly a complex and arduous task requiring repeated iterations. The existing mechanisms and procedures in Burundi re- present a good beginning, which must be extended and refined, to improve the balance between resource requirements and availabilities and to set sharper spending priorities. Selected Sectoral Issues 19. Agriculture is the dominant productive sector of the economy and will retain this role for many years to come. It contributes 60% of GDP, 85% of employment, and 90% of merchandise exports (mostly coffee). If agriculture fails to diversify and grow, it will be extremely difficult to develop the overall economy. However, due to the dispersed nature of rural settlement in Burundi and the shortage of resources, developing the agri- cultural sector is a formidable undertaking. Of the approximate 2,3 mil- lion hectares of land suitable for agricultural use, three-fourths are already exploited. About 600,000 additional hectares might be brought under cultivation or used for grazing or forest production. However, a sizable share of this unused land is on steep slopes, or of low soil ferti- lity or situated in parts of the country that receive irregular rainfall. 20. Smallholders occupy almost all of the land subject to agricul- tural use. There are about 900,000 small family farms, with an average size of less than one hectare. Most farming is of a subsistence nature  - 6 - and the use of purchased illputs is not common. Efforts to provide improved seeds, fertilizers, and other inputs have been largely confined to cash crops. To illustrate, fewer than one perceent of the farms in Burundi have received improved seeds, and these are concentrated in a few regions. About 85% of the traditional food crops such as beans, cassava, maize, peas, and sweet potatoes is consumed on the farm. Coffee and banana beer are sold to obtain a modest cash irtcome used to purchase necessities such as salt, machetes, cloth, and other items. 21. The Government has three basic development objectives with res- pect to agriculture: domestic food security, export diversification, and rural welfare improvement. The first (food security) implies being able to feed people even if specific crops fail. The second (diversification) implies maintaining incentives to coffee producers in order to satisfy the available export quotas and improve product quality, while increasing the volume of other *agricultural export commodities. The third (welfare) iniplies providing clean drinking water, rural health clinics, primary edu- cELtion facilities, etc. 22. The critical aspects of programs to raise rural welfare are effectiveness, affordabilicy, and replicability. Therefore, priority needs to be given to specii-ic, clearly-focussed programs that reach large numbers of people at low unit cost. Cost recovery should be pursued to the maximum extent possible. 23. Moreover, the Government must make greater efforts to match needs and resources and to revisit the current approach to rural develop- ment. In a very small country such as Burundi, centralized programming and financing functions are appropriate, although implementation can be dele- gated to field units. The SRD (Societe Regionale de Developpement, or Regional Development Company) concept needs to be reassessed in light of the experience of the last several years, and the results of this reassess- ment should be examined carefully before creating more SRDs. As a minimum, the number of tasks assigned to such companies may have to be reduced, to concentrate more purposefully on production. 24. Finally, although agriculture is the top-priority sector of the economy, the amount of technical and financial assistance that Government cart provide is limited relative to the need; therefore, every effort must be made to deploy such assistance effectively. Because of inadequate information, the true situation in the countryside is sometimes hard to determine; in light of the above, the current effort to improve the data basis should be significantly strengthened, The budget places definable constraints on Burundi's ability to build and maintain a civil service cadre that is trained, motivated, and capable of helping farmers to under- stand and accept new methods. Under such circumstances, organization, staff selection criteria, and communication techniques become extremely important. The linkage between research, training, and extension activi- ties must be clarified and strengthened.  - 7 - 25. Turning to manufacturing industry, most enterprises appear to be operating at very low levels of installed capacity. They are profitable, nonetheless, because (a) the import-licensing system protects them from foreign competition; (b) the industrial-licensing system protects them from new domestic competitors; and (c) the price-control system permits generous mark-ups over stated costs. Unit costs of production are typically very high relative to costs in other countries, in part because of low capacity utilization. Exports are not significant, consisting mostly of beer, cig- arettes, and asbestos ciment products. There is heavy reliance on imported equipment, spare parts, and raw materials. These imports are expensive because of high transportation costs and heavy import duties. Burundi's manufacturing sector should support the development and modernization of agriculture by providing inputs (e.g., small farm implements, household utensils) and processing outputs (e.g., vegetables, fruit juices, pre- serves). Thus, manufacturing linkages to agriculture can be broadened and deepened. 26. Improvement in the identification, preparation, and appraisal of projects is a key to a stronger, more efficient, industrial sector. Exist- ing procedures appear to favor capital-intensive techniques of production and sales to the domestic market. More needs to be done to stimulate small-scale activities and to strengthen their linkages with larger enter- prises. 27. In a very small country such as Burundi, one or two enterprises can satisfy the market for many products, and domestic competition may not be sufficient to ensure economic efficiency. In principle, to increase industrial competitiveness, imports should be allowed to enter the mar- ket. Through the gradual relaxation of quantitative restrictions and skil- lful use of ad valorem tariff rates, it should be possible to encourage existing units to reduce production costs. Moreover, new domestic firms can be licensed even if existing companies say they can satisfy the mar- ket's needs, so long as the new firms can demonstrate the ability to pro- duce at a significantly lower cost or to offer a superior product at the same cost. 28. Every effort should be made to stimulate exports of manufac- tures. The recent exchange rate adjustment is a major step in the right direction. Attention should, however, be paid to avoid overvaluation of the local currency so as to facilitate the competitiveness of Burundi's exports abroad. The "drawback" system should also be revived, so that export sales will be rewarded in relation to domestic sales. Other mea- sures are needed to stimulate industry to use relatively more labor and less capital and to increase capacity utilization. Among those are the gradual relaxation of price controls and the mark-up system, an increase in tariffs on imported capital goods, an increase in the rate of interest on industrial loans, and perhaps the abolition of the payroll tax.  - 8 - 29. Burundi's main sources of energy consumption include imported petroleum products, imported and domestic hydroelectric power, firewood, charcoal, and agricultural residues. Roughly 90% of energy consumption is based on the traditional materials. Peat is an interesting possibility as a new-domestic energy source, but questions remain about the technical, f'inancial, and environmental implications of large-scale peat exploitation. 30. Studies are iin progress to ascertain the cost savings to Burundi of importing more petroleum products on -.he central route from Dar-es- Salaam. For security reasons, however, a portion of the products purchased in the Middle East should be transported via the northern route. The c.i.f. import value of petroleum products rose by 450% between 1977 and 1982 due to price escalation, its share in total merchandise imports rising from 8% in 1977-79 to 16% in 1980-82. Currently, 45% of the coffee export receipts is spent on oil imports. Thus, finding ways to reduce the delivered cost of imported oil should command a high priority. With res- pect to electricity, the maain issue concerns the methodology and assump- tions used to project power demand to 1990, 1995, and 2000, for there is a danger that generating capacity may exceed future demand. Only two percent of the population current:Ly has access to this source of power. Total sales in 1982 were just under 50,000 MWh, of which 96% in Bujumbura. About two-thirds were imported f'rom the Ruzizi-I plant. Several projects are under execution to increase the supply of domestic power: a hydro plant is being built at Rwegura; the Ruzizi-II plant (financed by IDA) is also under construction and expected to produce power in 1987; discussions continue with respect to the Rusumo Falls project on the Kagera River; and "mini- h7dro" facilities are being planned or built at several sites in Burundi. The demand for electricity has grown by 10% per year in the last six years. Assuming that this expansion will continue in the future, the potential for increasing supply at an even faster rate raises serious ques- tions. While it is recognized that the demand for electric power often seems to rise to meet available supply, the Government should review existing power demand projections (and their assumptions) before new investments are launched to expand capacity further. 31. Government should also review the ongoing programs to increase fuelwood supply and to use fuel more efficiently by improving charcoal kilns and production methods and by modifying household cookstoves, consi- dering that peat may become an important source of energy, or that electri- city could become a competitive form of energy for household and office uses, at least in Bujumbura where appliances could be afforded. 32. The potential for a substantial expansion of population is very real in Burundi; without emigration, population could triple in 35 years. The long-term implications of a rapid population growth are extremely wor- risome. Existing demographic analyses (including the analysis contained in a recent study conducted by the Bank) indicate that, even a gradual decline in fertility could reduce the increase by one million in the year 2015 -- a rapid decline could reduce it by four million. The Government should therefore move vigorously to sensitize people to the alarming implications of continued high population growth in a small country such as Burundi,  -9- with limited emigration prospects. The Government has already taken some encouraging steps. A country-wide campaign has been launched to sensitize the population about the needs for family planning,and an Interministerial Commission for Family Planning has been approved by the Cabinet. 33. The population issue is closely linked to health and social wel- fare. Government's ability to deliver social services is constrained by budget resource limitations, and in recent years real spending has not kept pace with population growth. Burundi's health-care system emphasizes hospital-based curative services, and more importance should be given to rural and preventive care. Innovative programs designed to deliver basic, preventive care to large numbers of citizens at low unit cost should be considered. For example, simple clinics can be opened throughout the coun- try, and patients can be asked to pay fees to cover part of the operating costs. Training programs should also be prepared within this perspective. Private and nongovernmental organizations should be supported and encour- aged to complement government efforts and resources in this domain. The Expanded Program of Immunization is an example of what can be achieved. This program, launched in 1980 with assistance from WHO, USAID, and UNICEF, provides 1-3 year-olds with vaccinations against tuberculosis, measles, diptheria, tetanus, whooping cough, and polio. Similar programs to control other diseases and to improve environmental sanitation would be very help- ful, as would a well-designed maternal/child health care program. 34. Progress has been satisfactory in the field of education. Pri- mary school enrollment has increased substantially, and geographical cover- age has expanded. Secondary and technical education opportunities were also increased. Education planning has improved, and more attention is being given to matching the supply of graduates with Burundi's manpower requirements. The Government hopes to enroll all seven-year-olds in pri- mary school by 1987, and a system of double-shift was introduced in 1982/83 which will cover all primary grades by 1987/88. However, several other conditions need to be satisfied. For example: (a) local communities must help to construct school buildings; (b) budgetary resources devoted to pri- mary education need to be increased; and (c) the quality of primary educa- tion may have to be concentrated in "basic" instruction (i.e., reading, writing, and arithmetic) so as to achieve the maximum effects with the available resources. As a general proposition, the magnitude of the educa- tional task in Burundi is so large that it cannot be handled entirely by the formal programs administered by the Ministry of Education. A strength- ened linkage between formal and nonformal systems and with NGO schools would help to achieve the goals of the Government. 35. In urban development, the Bujumbura municipality's Housing Bureau is gaining experience with more affordable types of land servicing and house construction than have thus far been carried out. Improvements in the local tax base in Bujumbura should result in the national budget being relieved of some investments directly benefitting Bujumbura, since these investments would be paid for by the city residents themselves. However,  - 10 - to date these efforts have focused only on Bujumbura. Their extension to stmaller towns, in support of rural investments, would be more difficult but, in the end, probably even more useful. Overall Assessment and Issues 36. Notwithstanding a vigorous and creditable effort to increase development spending during the Third Plan period, Burundi faces many serious problems as it embarks on the Fourth Plan. Declining coffee prices, coupled with higher prices of petroleum products and other imports, have greatly reduced the quantum of goods that Burundi can obtain with the proceeds of its exports. In addition, while foreign grants and loans have increased rapidly (and now finance over half of the country's import bill), recent reductions in the overall aid programs of the main donors due to their domestic economic conditions add to the uncertainties regarding the resource availabilities of Burundi. 37. For those and other reasons, the piospects for a rapid GDP growth in Burundi are not encouraging. Moreover, total population is expected to rise from 4.4 million in mid-1983 to 7.0 million in the year 2,000 and to double by the year 2,009. The social and economic implications of this growth are disturbing, when one considers the existing poverty and density of the population. The need to implement the announced population policies has thus become more urgent than ever. 38. The structural constraints which face Burundi will persist for a lorng while. Burundi's landLocked position constrains the country's deve- lopment and makes it vulnerable to interruptions in traffic through neigh- boring countries. Agriculture, the mainstay of the society, has changed little, and while coffee is still the main wealth of the country, the pur- chasing power of its export receipts is expected to decline by 30% between 1982 and 1987. Foodcrop production has barely kept up with population growth, and diets are weakenLng in terms of protein and fat content. Soil erosion and degradation are rmounting; fuelwood supplies are running low. 39. At the central government level, budget constraints have increased. The current surp].us declined in 1982 (to one-tenth of its level in 1978) and disappeared completely in 1983. The balance of payments has deteriorated steadily since 1.977, with the current account deficit reaching 12% of GDP in 1982. Net foreign financing has been inadequate to cover such deficits, and foreign official exchange reserves have been drawn down; more drastic import controls had to be introduced to contain the further depletion of foreign resources. 40. Policy actions which should receive priority are the following: first, expert assistance should be called in to help with a thorough review of the government budget. New sources of tax revenue are badly needed and expenditures require close scrutiny. Since wages and salaries make up a  - 11 - large part of the government's current expenditure, a comprehensive review of the civil service could entail some savings, while improving institutional capacity. Moreover, the existing budgetary processes need to be reviewed and improved in several ways. For example: the linkage between the budget -- defined to include both Ordinary and Extraordinary budgets -- and the investment program needs to be improved; the existing quantitative models used to prepare the five-year plans, should be used to balance spending proposals with likely resource availabilities; the existing procedure of separating the budget into "Ordinary" and "Extra- ordinary" components and of leaving foreign assistance out of the budget may need to be modified (or complemented) so as to provide an overall picture of the public expenditure program. In a highly constrained resource situation, it is very important to maintain a clear, accurate and comprehensive picture of the nation's financial resources and requirements. 41. A second area of action is the public enterprises. A number of these enterprises are suffering from severe financial problems, and while Government has taken over their foreign debt-service obligations, it has effectively cut off other financial assistance. Many institutions are facing a difficult survival test, and this is positive. However, some of them may be worth saving. The newly created Public Enterprise Commission (Commissariat Ggngral aux Entreprises Publiques, CGEP) needs to be activated to prepare a program of rehabilitation for the sector and to work with selected enterprises to prepare well-defined action programs in which goals, strategies, and financing plans are spelled out in detail. 42. Burundi cannot afford to borrow from commercial sources. Although the country has enjoyed favorable terms of assistance to date, World Bank projections indicate that public debt service as a percentage of exports could surpass 25% during the Fourth Plan period. For a coun- try so heavily dependent on coffee exports, one-fourth of exports for debt service is probably the maximum that should be tolerated. 43. The Fourth Plan acknowledges the need for increased private savings. However, as the forced savings effort appears to have lost its momentum, new efforts should now be envisaged to promote voluntary pri- vate savings. To attract private savings, one must offer convenience, safety, and yield features acceptable to the masses. To overcome initial distrust, government may have to pledge its support and guarantee that people will not lose their money. Vigorous promotion and advertising of innovative saving schemes might produce considerable results. Attention should also be paid so as to keep real interest rates positive. The cur- rent system of multiple interest rates, some of which are heavily subsi- dized, may need to be reviewed. 44. In addition to encouraging people to save more, Government should explore ways to cover a greater share of project costs through user fees and charges. Affordability should be a key consideration in this respect. If users can pay as little as 5-10% of the cost of provi- ding health care, or school books, or other public services, their con- tributions will add up to substantial amounts.  - 12 - 45. The World Bank is currently undertaking a review of the Burundi Public Investment Program, including its implementation to date. A prelimi- nary evaluation of this program raises some questions regarding the rela- tive priority of some projects. This applies to the integrated rural deve- lopment projects, some road construction projects, the Mosso sugar mill and distillery, the Rumonge palm-fiber particle board factory, the Bujumbura brewery expansion, and Bujumbura slaughterhouse. Some of these projects face great uncertainties in term of costs, competitiveness in external mar- kets, and capi-tal/labor factor utilisation. There are also questions of compatibility between Government-stated objectives and the projects inclu- ded in the PIP. This applies in particular to the Education and Health sectors where Government's objectives of favoring primary education and rural, preventive-care health efforts over high-level education and urban, curative-care efforts are not always reflected in the choice of projects included in the PIP. 46. Burundi's government is aware of- the difficulties which the country is facing and will face in the next three to five years. The solu- tions are not easy and even the most adequate and pertinent measures will take time to produce the desired effects. Given the unpromising outlook of resource availabilities, the challenge is to continue the development effort and carefully choose those projects and programs with the greatest impact on economic growth. The international community and, more specifi- cally, the donors closer to the country's development effort, need to understand Burundi's particuLar conditions, respect its priorities and maintain a flexible approach in their aid program, so as to maximize the impact of their assistance on Burundi's economic development.   Keport No. 4784-BU Burundi Economic Memorandum Executive Summary   neporn No. 4/t4-IU Burundi Economic Memorandum Executive Summary