Burundi initially fixed its exchange rate to the USD, and then the SDR, but from 1987 moved erratically towards greater exchange rate flexibility and more active monetary policy, including the adoption of some indirect monetary instruments in a context of limited development of financial markets and institutions.
|Years||Targets and attainment||Classification|
|1974-86||currency pegged to USD since 1970, parity adjusted 1972 and 1973, central bank sets exchange rates for authorised banks with narrow margins; central bank operates direct credit controls (ceilings and prior approval) over the few banks, interest rates rarely changed; importance of coffee production whose seasonality has major effect on bank lending; annually agreed limits on central bank lending to government; price controls and development planning; 1976 devaluation; late 1970s monetary policy still largely accommodating, in particular of fiscal deficits (limits are not so strict), but some concern with growth as well as external equilibrium and price stability; recurring trend of fiscal overexpansion and rising overvaluation; 1978 credit ceilings abolished but more emphasis on commercial bank prior approval of individual loans, plus rediscount policy and interest rates; economic disruption from droughts, and periodic conflicts in nearby countries; 1982 central bank tries to tighten limits on credit to government; 1983 peg switched to SDR, large devaluation; another devaluation 1986 July plus several small adjustments by end of year||augmented exchange rate fix AERF|
|1987-2017||[No Article IV consultation after 2014] consolidation of move to greater exchange rate flexibility within wider programme of economic reform: from 1987 further small depreciations at varying intervals and sizes, liberalisation especially of exchange and trade, public enterprise reform, but not much stabilisation; 1988 prior approval abolished, interest rates liberalised, auctions of treasury certificates initiated, but auction not effective and liquidity ratio poorly observed; growth of bank and nonbank financial institutions; 1991 reserve requirements introduced; 1991 renewed reform efforts, moves towards indirect monetary instruments; depreciations resume; 1992 peg switched to trade-weighted basket, some forex liberalisation; 1993-2005 civil war, with internal and external displacements and arrival of refugees from Rwanda, falls in GDP and rises in inflation, departure or death of many civil servants, liberalisation in many areas halted or reversed; 1995 closure of large commercial bank, other banks suffer large non-performing loans; large fiscal deficits accommodated by monetary expansion; embargo imposed on Burundi by neighbouring countries in response to 1996 coup; with exchange rate managed and forex rationed, parallel forex market premium rises; real interest rates negative; some trade/exchange controls reintroduced; second official forex market set up late 1999 but abandoned mid-2000, forex market remains heavily distorted and parallel premium remains; mid-2002 major depreciation allowed, some forex liberalisation including regular auctions, parallel premium declines; further forex liberalisation 2003; Arusha peace agreement signed 2000 but properly implemented only from 2005; stabilisation and structural reform resumed; more brief hostilities mid-2008 followed by final peace agreement; as of 2010 monetary policy is geared towards price stability and then growth, with a managed float/crawling peg of the exchange rate (at roughly its equilibrium level), with some emphasis on reserve and broad money, while instruments are indirect but inflexible (forex and liquidity auctions) and interbank and bond markets are very limited; 2015 political crisis and repression lead to renewed internal and external displacement, monetary financing of growing deficits, increased bank fragility, re-emergence of parallel forex premium, falls in GDP and rise in inflation, international isolation with suspension of most aid, and failure to provide data to international institutions; provision of statistical data reduced in crisis from 2015 and restored in 2020, but statistical database remains weak||loosely structured discretion LSD|
Selected IMF references: RED 1974 pp26, 41-3, 49-55; RED 1977 pp35-6, 55; RED 1979 pp36-8; RED 1982 pp33-9; RED 1984 pp43, 63-4; RED 1986 pp47-8, 51, 55; RED 1987 p13; RED 1989 pp42-9, 66; SR 1990 pp16, 19; RED 1992 pp23-4, 28-32, 35, 49; SR 1992 pp3-4, 6-8; BPSA 1994 pp2-8; SR 1996 pp5, 11; RED 1997 pp12-13, 15; SR 1998 pp12, 14-15; SR 2002 pp8, 9-10, 15, 16; SISA 2004 pp17-24; SR 2004 pp7-8; SR 2010 pp9, 11; SR 2014 p18; Burundi: Economic Developments December 2017 pp3-9; SR July 2020 on Request for Debt Relief under Catastrophe Containment and Relief Trust, pp2-5, 7-8.
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