Burundi’s falling forex reserves are placing the country in dire straits, needing an urgent reboot of its monetary policy as it also faces high inflation.
This week, the Central Bank rescinded a two-year ban on individual recipients of forex from withdrawing cash in the original currency as part of efforts to “modernise” the country’s foreign policy and allow more flow of forex through private entities.
“The Bank of the Republic of Burundi is lifting, from today, the restrictions on the conditions for the settlement of instant transfers received from abroad, introduced on March 16, 2020,” Dieudonne Murengerantwari, Bank of the Republic of Burundi governor, said on Friday.
Since 2020, Burundi had barred forex bureaus and banks from dishing out foreign currencies to individuals. Those receiving money from abroad were forced to accept local currencies, even when the money had been wired to their foreign currency accounts. The bank now says all forex bureaus can reapply for licences to relaunch operations.
“Approval will be conditional on the signing of an act of commitment to compliance with the regulatory framework of exchange offices,” Murengerantwari said.
The bank announced changes in the wake of a report by the International Monetary Fund indicating that Burundi’s current account deficit is projected to widen this year due to increased imports for fuel, consumer and capital goods.
The high commodity prices have pushed inflation up, which stood at 19.6 percent in August, and compounded the country’s vulnerable external position.
Burundi is expected to continue grappling with the challenges of balancing social and development spending with the need to maintain macroeconomic stability and address debt vulnerabilities.
The IMF recommended a change in the current monetary policy stance while addressing inflationary pressures.
Burundi’s foreign exchange reserves fell to 1.6 months’ worth of imports at the end of July, down from 2.2 months’ worth of imports at the same time last year. IMF attributed this to increased import bill “not matched by capital inflows.”