Page 1 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB4069 Operation Name BI - Food Crisis Response Development Policy Grant Region AFRICA Sector General agriculture, fishing and forestry sector (75%);General education sector (15%);Central government administration (10%) Project ID P113438 Borrower(s) REPUBLIC OF BURUNDI Implementing Agency MINISTRY OF ECONOMY, FINANCE, AND DEVELOPMENT COOPERATION Date PID Prepared August 5, 2008 Estimated Date of Appraisal Authorization Estimated Date of Board Approval August 13, 2008 1. Background Burundi is in the midst of a food crisis: it is one of the hardest hit countries in sub-Saharan Africa by the recent increase in international food and fuel prices. The global rise in food prices is having a disastrous effect on the welfare of the population, especially the poorest. Faced with the combined impacts of the poor rainy season, the oil price shock, and the food crisis, the Burundian authorities have taken a number of measures aimed at, on the one hand, reducing the impact of fuel and food prices on the most vulnerable segments of the population, and on the other hand, stimulating domestic food supply in the medium term. The Government’s strategic response, contained in the revised 2008 budget, relies on a combination of actions ranging from fiscal measures designed to alleviate the fiscal burden on food and oil imports to mitigate the impact of higher food and oil prices on the poor by enhancing social safety nets (e.g., food security programs and school feeding programs), in the short term, to investments designed to boost domestic food production in the medium to longer term. The Government has asked the World Bank to provide further support to the revised budget and fill the residual financing needs. 2. Operation Objectives The proposed grant is being undertaken under the Global Food Crisis Response (GFCR) Program, which was endorsed by the Board on May 29, 2008, and will be financed out of the Food Price Crisis Response Trust Fund. The proposed Food Crisis Response Development Policy Grant (DPG) of US$10 million supports the Government’s program to mitigate the impact of increased food prices on the poor, while maintaining fiscal stability. This in turn will help reduce the risk of worsened food insecurity, increased poverty, social unrest, and will help foster social and economic development. This Grant helps to finance the revised 2008 budget which includes a number of measures, notably: (i) suspension of custom duties and domestic transaction taxes on thirteen basic food items; (ii) sustaining and/or extending school feeding programs (including for girls) in primary schools of vulnerable provinces; and (iii) adding more resources to the budget for the emergency humanitarian relief to cope with a threat of famine in the country following the drought. Other components of the revised budget attempt to address the fuel price increases and limit increases in transport costs, to which the poor are particularly vulnerable. 3. Rationale for Proposed Development Policy Grant/ Bank Involvement The severity of the Burundi’s situation calls for a rapid response by the Bank. Without additional assistance, the food crisis may result in increased hardship on the population. The Government has been Page 2 quick in responding to the food crisis but it needs further financial support. The Government has revised the 2008 budget to address among other issues the impact of oil and food prices on the economy of Burundi. Short term interventions in Burundi have included the temporary removal of all tariffs and taxes on basic food items and the reduction of the tariffs on diesel to further ease up transportation costs of food imports. These measures are reducing government revenue and increasing spending pressures. The Government has asked the World Bank to provide further support to the revised budget and fill the residual financing needs. 4. Institutional and Implementation Arrangements The Ministry of Economy, Finance and Development Cooperation will monitor the overall implementation of the Grant. It will ensure that the funds are used for their intended purpose in the context of the budget and Government’s response to the food crisis. Concurrently, the Bank is providing support in this regard through a resident poverty economist (i.e., through PETS, CWIQ, and support of household surveys), as well as through spot checks, and parent associations feedback, performed during the supervision of the ongoing Bank’s education project (Burundi’s Education Sector Rehabilitation Support Project, PARSEB). Bank staff will also continue the policy dialogue in the field with the institutions involved in the implementation of the policies and programs, as well as to coordinate effectively with donors and agencies, especially those involved in the delivery of emergency assistance. 5. Benefits and Risks The provision of budget financing will enable the Government to maintain the gains in macroeconomic stability, sustain the critical reforms under the Economic Reform Support Grant (ERSG) program, and undertake critical expenditures to respond to the food price shock. The proposed food response grant financing will complement other support from bilateral and multilateral agencies for mitigating the risks to the overall Burundi’s program. It will also support the Government’s medium-term reform agenda for putting in place a better safety net system that improves Burundi’s resilience and response to shocks. While important risks to this operation exist, the Bank will work closely with Government to ensure that necessary measures are put in place to mitigate the risk. Burundi remains vulnerable to commodity price changes and droughts. A further rise in the prices of food and energy could undermine the impact of the Government’s program for the poor and may require additional measures to sustain the fiscal balance and macroeconomic stability. There are also moderate institutional weaknesses which could result in delays in the implementation of the Government’s program. In addition, fiduciary risks are significant. These risks are currently being tackled by the Government, in collaboration with the Bank, mainly through technical assistance which addresses budget management, procurement and transparency issues. 6. Poverty and Social Impacts and Environment Aspects A rapid assessment following the recent Bank - IMF mission confirms that the set of measures undertaken by the Government are the most feasible given the circumstances and will have fast and positive impact on Burundi's poor population. They will be adequately targeted to the poorest groups in Burundi based on the following considerations: (i) the suspension of the taxes on thirteen basic food prices is directly improving the situation of the poor; (ii) school feeding programs will help meet the caloric requirements of the poor and vulnerable households. The possibility of adverse environmental impacts is minimal. The specific policies support by this operation are targeted to the food crisis response by government, and are not likely to have significant effects on the environment, natural resources, and forests. In particular, the potentially most sensitive measure as regards the environment, the financing of diesel subsidies under the revised budget, is expected to be temporary. It therefore should not affect consumption patterns in the long run, with a potential small effect in the short term. Page 3 7. Tentative financing Source: ($m.) Borrower 0 Special Financing 10 Total 10 8. Contact point Contact: Jean-Pascal N. Nganou Title: Country Economist Tel: 202-458-8054 Fax: 202-473-8466 Email: jnganou@worldbank.org