Macroeconomic Performance, Exchange Rate Dynamics, and Short-Run Policies in Burundi

Abstract

This article analyzes the link between economic performance and macroeconomic policy in Burundi based on data up to 2016. The results show that short-run policies in Burundi tend to dent macroeconomic performance in two folds. First, the Burundi Franc has been overvalued for the most part of the recent decade with a damaging effect on long-run growth. Secondly, fiscal policy tends to be procyclical while the fear of free-falling of the currency changes the usually countercyclical monetary policy with negative effects of long-run growth as well as increasing output volatility. We recommend more flexibility for the currency to ameliorate the overvaluation of the Burundi franc combined with other institutional reforms to curtail fiscal dominance and create space for countercyclical fiscal and monetary policies.