12 October 2017

Burundi: Forex Reserves Headache

As Burundi grapples with a political crisis that has lasted almost two years now, a shortage of foreign currency is still a major concern for investors in the country.

Burundi imports almost 80 per cent of the manufactured goods it needs, hence the high demand of foreign currency.

"We can no longer pay our suppliers so they have stopped sending us goods. Although we have enough local currency, we obviously can't use it to pay for imports," said one Bujumbura businessman who imports construction materials.

Since August last year, traders have faced a shortage of foreign currency, a situation that has been blamed for a rise in inflation over several months now.

The central bank has continued to loosen its monetary policy in efforts to plug the widening fiscal deficit.

A black market is flourishing, with the exchange rate almost doubling the official rate. The dollar exchanges at Bif2,930 on the black market, against the official rate of Bif1,737.

Negative economic growth

The World Bank 2016 Report indicates that economic growth remains negative due to the fragile political environment.

Private consumption likely weakened following a contraction in food production due to climate shocks, a longer than expected lean season and forced migration.

Positive developments in the real estate sector included private investment growing in recent months as the consumer agro-industries and the cement industry found new domestic and external markets.

Meanwhile, Kenya and Tanzania have stepped up support for Burundi through trade exhibitions. Tanzania, for the first time, joined Kenya for a trade fair that ended two weeks ago.

"We are showing togetherness as East Africans and as Burundi looks to strengthen its relations with other East African countries," said Burundi first vice president, Gaston Sindimwo.

Kenya exports more products to its EAC partner states than to any other part of the world. However, Tanzania and Kenya's share of manufactured goods and services in Burundi have reduced since 2015.

As a consequence, the Tanzania-Kenya trade exhibition was designed to rekindle interest and offer opportunities for investments and partnerships between the countries.

Major Kenyan companies have already invested in Burundi including Kenya Commercial Bank, Jubilee Insurance, Safintra, Kobil and some universities.

The inflation rate in Burundi has remained moderate at six per cent, which is below the eight per cent convergence level agreed within the EAC's regional integration arrangement.

Available estimates from the central bank, suggest that public debt is expected to exceed 45 per cent of gross domestic product.

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