Burundi - Joint World Bank–IMF Debt Sustainability Analysis

Overview & Synopsis

This joint World Bank International Monetary Fund debt sustainability analysis for Burundi finds that despite markedly improved macroeconomic conditions from favorable terms of trade and stronger growth, the country remains at high risk of external and overall public debt distress, with judgment applied, while debt is assessed as sustainable under the baseline. The analysis, based on a weak debt carrying capacity, documents record coffee and gold prices that boosted exports, rebuilt foreign exchange (FX) reserves, narrowed the parallel market premium, and supported a recovery in growth as inflation eased from its 2025 peak. Under the baseline, which assumes continued reforms and sustained favorable terms of trade, all external debt burden indicators stay below their thresholds; the debt service to exports ratio remains below ten percent; and the present value (PV) of total public debt to gross domestic product (GDP) sits above the 35 percent benchmark in 2026 to 2027, reaches the benchmark in 2028, and falls below it from 2029. Vulnerabilities stem from domestic debt held largely at highly negative real rates by state owned banks, external arrears of about 0.5 percent of GDP, and unquantified domestic arrears, while risks are mitigated by negative real interest rates on domestic debt, strong nominal GDP dynamics, favorable terms of trade, and prospects for gradual FX convergence and reform. A customized downside scenario that combines adverse terms of trade shocks, election related fiscal slippage, and weaker growth shows the PV of external debt to exports and the debt service to exports ratios breaching their thresholds in 2026 to 2028, underscoring sensitivity to export shocks and justifying the high external risk rating with application of judgment. Key downside risks include a reversal in commodity prices, higher fuel costs, election related fiscal slippages ahead of 2027, delays in FX reform, escalation of external arrears, and spillovers from the conflict in the Democratic Republic of Congo, while upside risks include swifter FX reform, a potential new Fund arrangement, and regional stabilization. The report concludes that debt is sustainable under the baseline and that maintaining the assessment requires continued fiscal consolidation, suspension of monetary financing, gradual FX reform, and strengthening of expenditure and arrears management. Recent and planned policy changes highlighted include the cessation of central bank advances to the government since mid 2025, an ambitious FY2025 to 2026 consolidation with wage bill compression, tighter subsidies, revenue mobilization, a prohibition on extra budgetary commitments, and enforcement of commitment cut off dates, a 2023 law requiring government approval for all new state owned enterprise borrowing with enhanced reporting and oversight, ongoing transition to program budgeting and securitization of some domestic arrears, a progressive reduction of the FX premium while maintaining an administered official rate, and plans to expand electricity generation through public private partnerships, supported by technical assistance and the Sustainable Development Finance Policy to strengthen debt reporting and public financial management.