Devaluation results in commodity price increases

Prices of imported commodities have increased following a decision on 28 August by the government to devalue the Burundi franc by 20 percent. On the official market, the dollar is now exchanged at 1,045 francs, 150 francs higher than the previous level. Traders who hoped to benefit from the devaluation removed some basic commodities from shelves, thereby creating an artificial shortage, especially in the capital, although sugar is produced in the country. The government has now resorted to rationing sugar, accusing businessmen of either trying to earn more by exporting sugar to neighbouring countries like Rwanda and the Democratic Republic of the Congo, or hoarding it in anticipation of general price increases in the country. Prices of cement, iron sheets, powder milk and salt increased by 20 percent or more. A 50 kg sack of cement was sold at 12,000 francs (US $11.50), up from 10,000 francs (US $9.57). The government has now announced that the World Bank will release a three-phase US $54 million loan to the country. But it rejected any link between the devaluation and the World Bank loan. The Central Bank governor, Gregoire Banyiyezako, said the government not only has a budget deficit, but also a deficit in the coffee sector. Coffee is Burundi's main export commodity. However, its prices on the world market have been steadily declining in recent years. According to Banyiyezako, Burundi has found itself in a situation where the production cost of coffee is higher than its sales price. This will result in an estimated deficit of 9 billion francs (US $8,612,440) in the coffee sector, on top of a 7 billion franc (US $6,698,564) loss from the previous coffee-growing season. "We lost 300 francs per kg," Banyiyezako said. "The government will be able to finance this deficit following the devaluation", he said, adding that the IMF and the government agreed that all possible measures should be taken to ensure that the deficit in the coffee sector does not affect other sectors. The government plans to reduce public expenses and increase revenues in its efforts to deal with the budget deficit. It has already frozen the recruitment of teachers in the civil service. The World Bank and the IMF have, over the years, refused to give money to Burundi, claiming it was being used to purchase arms. Certain events, such as national teachers' strikes, have led some western governments, especially Belgium and France, to recommend financial assistance to the government in the belief that such turmoil could jeopardise the transitional government and overall peace process. "The poor man is set to become poorer while businessmen and government officials who cash in on their missions abroad are enjoying the day," a Bujumbura resident told IRIN.