Burundi: Financial Sector Profile
Years of civil conflict have taken a severe human and economic toll on Burundi. The country has experienced gradual economic growth following the Arusha Accords in 2000 but recovery has been slow. As of 2009, GDP per capita reached only USD 160, with just under two thirds of the population living below the $1.25 (purchasing power parity) a day extreme poverty line.
Burundi’s economy remains largely dependent on the agricultural sector, which accounted for 43.5 percent of GDP and around 90 percent of employment by end-2008, and particularly on coffee production which accounts for over 60 percent of export revenues.
Real GDP grew by an average of 3.8 percent a year from 2004 to 2008, supported by strong financial and structural reforms and economic reconstruction efforts. Real GDP growth slowed somewhat to 3.5 percent in 2009, down from 4.5 percent in 2008, as coffee, food, and sugar sector production decreased, while tourism and donor-financed and foreign direct investments inflows dropped following the global economic and financial crisis. Economic growth is expected to pick-up, with real GDP growth registered at 3.9 percent in 2010 and projected at 4.5 percent in 2011 and 4.8 percent in 2012, supported by increased sugar and coffee production.
The immediate effects of the financial crisis on Burundi’s financial sector have been limited due to low levels of integration with the international financial markets and little exposure to high-risk securitized asset classes. Consolidated financial institution assets have increased by almost 14 percent in 2009, although reserves held by financial institutions decreased by about 16 percent due to higher credit demand from households and the non-financial businesses, compounded with a tightening of prudential fiduciary liquidity management standards. Average refinancing rates also increased from 10.1 percent in 2008 to 12.2 percent in 2009 following financial liberalization measures (adopted in 2008 and early 2009) which set the sale of fiduciary liquidity to financial institutions through auctions, with refinancing rates determined by money market supply and demand.
Burundi’s banking system, although relatively small, still largely dominates the financial sector and represents about 75 percent of total financial system assets. As of 2009 bank deposit and deposit money banks assets represented 34.6 percent and 29 percent of GDP respectively. Liquidity levels remain high, with the ratio of liquid assets to total loans granted decreasing slightly from 86.9 percent in December 2008 to 84 percent in March 2010, while the volume of non-performing loans decreased from 14.6 percent of total gross loans granted to 12.7 percent over the same period. Profitability has however decreased, as returns on assets and equity capital declined from 2.3 percent and 29.7 percent in end-2008 to 0.5 percent and 4.7 percent in March 2010. Lending rates also increased from 16 percent to 18.58 percent in 2009, reflecting higher inflation levels, while deposit interest rates remained unchanged between 8 percent and 9 percent. While compliance with prudential requirements and performance in stress tests were satisfactory, concerns remain over overextended credit portfolios. High concentration risks, with large exposures representing 21.3 percent of capital in March 2010, still present a potential source of vulnerability in the sector.
The legal and regulatory framework for banking supervision lags behind international standards, conforming to six out of the twenty-five Basel Core Principles for banking supervision. However, the Central Bank has, in recent years, embarked on several reforms to strengthen banking supervision. Implemented measures have included raising minimum capital requirements and enhancing risk-based supervision, as well as introducing a new investment code and establishing the Burundi Revenue Authority. Authorities also plan to take steps to address concentration risks and introduce a repo market.
Access to finance remains limited, with only about 2 percent of the population holding a bank account and 0.5 percent using bank credit services. As such, cash transaction and physical exchanges of payment instruments largely dominate market transactions. Underdeveloped payment systems, poor creditworthiness information on borrowers, weak project preparation capacities and limited abilities to enforce guarantees also further restrict the expansion of the financial system.
Microfinance plays an important role in increasing access to financial services, with about 4 percent of Burundians members of microfinance institutions – a larger share of the population than that reached by banking and postal services combined. 26 licensed microfinance institutions (MFIs) offer savings, deposits, and short- to medium-term credit. Dependence on the sector on donor assistance is limited.
Capital markets are in the nascent stages of development. While public authorities have succeeded to establish a primary market for treasury securities, public debt management lacks an executing infrastructure.
Burundi’s fixed income market is not very active and remains limited to government securities as there are no corporate issued debt instruments on the market. Authorities regularly issue a range of instruments of varying maturities. By June 2009, more then 64 percent of government securities featured maturities of less than one year. As of April 2011 Burundi received no long-term sovereign rating from any of the three major credit rating agencies.
With no primary dealers operating on the market, commercial banks with security accounts at the Central Bank play the role of capital market intermediaries. All investors, domestic and foreign, can access the market via commercial banks, subject to foreign exchange restrictions. However, foreign investor participation remains low and commercial banks, pension funds and insurance companies form the bulk of the investor base, with commercial banks holding more then 65 percent of outstanding government debt. There is effectively no secondary market activity, largely due to a lack of liquidity on the market; all transactions take place on the primary market and most investments are help until maturity. There is no active derivatives market in the country.
Burundi’s insurance industry is poorly developed, with neither a set of regulations for the industry nor an insurance supervisor. The sector remains small, highly concentrated, and features a density rate (as measured by premium/inhabitant) about fifty times below the African average. The national pension system (INSS) covers only 5 percent of the population, and accounts for a mere 5 percent of total financial assets.
|2007||2008||2009||Average Africa 2009|
|Liquid Liabilities /GDP||0,36||0,411||0,476||0,412|
|Deposit Money Bank Assets / GDP||0,238||0,262||0,29||0,32|
|Other Financial Institutions Assets / GDP||0,025||0,031||0,036||0,288|
|Private Credit By Deposit Money Banks and Other Financial Institutions / GDP||0,231||0,248||0,267||0,272|
|Bank Credit / Bank Deposits||0,75||0,731||0,71||0,728|
|Net Interest Margin||n.a.||n.a.||n.a.||0,069|
|Stock Market Capitalization / GDP||n.a.||n.a.||n.a.||0,947|
|Remittance Inflows / GDP||0||0||0||0,237|
|Mobile Cellular Subscriptions (Per 100 People)||n.a.||n.a.||n.a.||40,33|
|Private Credit Bureau Coverage (% Of Adults)||0||0||0||4,539|
|Public Credit Registry Coverge (% Of Adults)||0,2||0,3||0,2||2,575|
For statistical coherence and comparability purposes, the FSDIs are extrapolated from a limited number of sources (AfDB, IMF, OECD, WB), where a common data collection methodology was applied to all countries surveyed. For additional data from other sources, please refer to the Documents section.