Fiscal Sustainability in Burundi : Baseline Projections, Stochastic Simulations, and Policy Scenarios
This paper analyzes Burundi's medium-term fiscal sustainability in the light of the country's vulnerability to various shocks. Earlier studies have highlighted the country's vulnerability to exogenous shocks related to commodity expo...
Main Author: | |
---|---|
Format: | Policy Research Working Paper |
Language: | English en_US |
Published: |
World Bank, Washington, DC
2013
|
Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2013/08/18134682/fiscal-sustainability-burundi-baseline-projections-stochastic-simulations-policy-scenarios http://hdl.handle.net/10986/16015 |
Summary: | This paper analyzes Burundi's
medium-term fiscal sustainability in the light of the
country's vulnerability to various shocks. Earlier
studies have highlighted the country's vulnerability to
exogenous shocks related to commodity exports, rain-fed
agriculture, and volatile foreign aid. Internally,
uncertainty about the implementation of the
government's fiscal reforms is a key risk. The earlier
studies, however, did not quantify the size and impact of
the risks on the country's fiscal sustainability.
Drawing initially on the standard inter-temporal
sustainability framework, the baseline analysis shows that
Burundi's ongoing fiscal policy strategy is not
sustainable, even with a gradually improving external
environment and relatively strong growth. Stochastic
simulations show that adverse shocks to rainfall or coffee
prices could increase the country's debt-to-gross
domestic product ratio by 5 to 7 percentage points above the
projected baseline ratio. Aid shocks could have an even
larger impact but the estimates are less statistically
reliable because of the short time series and because
historical volatility in part reflects endogenous shocks
(such as reform implementation) as well as exogenous shocks
(donors' behavior). The policy scenario analysis shows
that future fiscal sustainability will hinge on the
government's ability to stick to its plans to broaden
the tax base, streamline generous tax incentives and
exemptions, and control civil service wages and short-run
expenditure pressures -- risks that need to be monitored
closely over the political cycle in the country. |
---|