| Date | November 2018 | Marks available | 4 | Reference code | 18N.2.SL.TZ0.4 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 4 | Adapted from | N/A |
Question
Burundi
- Burundi is a small landlocked African country. Densely populated, it has a population of approximately 10.6 million inhabitants. The economy is dominated by subsistence agriculture, which employs 90 % of the population, though cultivatable land is extremely scarce. More than a decade of conflict led to the destruction of much of the country’s physical, social and human capital. However, substantial improvements have occurred since the conflict ended in 2006, thanks largely to the success of measures implemented to reduce the excessive control of the military.
- Even though Burundi is enjoying its first decade of sustained economic growth, poverty remains widespread. Burundi’s ranking on the Human Development Index (HDI) increased by 2.5 % per year between 2005 and 2013 as education and health outcomes have significantly improved over the period, yet the country still ranks low at 180th out of 187 countries in 2013. Per capita gross national income more than doubled between 2005 (US$130) and 2013 (US$280).
- Burundi is making the transition from a post-conflict economy to a stable and growing economy. Economic reforms and institution building are ongoing. After significant improvements to achieve peace and security, the country’s development program is shifting gradually towards modernizing public finance. However, the government has limited “fiscal space” because tax collection is very hard to carry out and tax receipts are low.
- With its limited resources, the government is attempting to strengthen basic social services and upgrade infrastructure and institutions, particularly in the energy, mining, and agricultural sectors. This has been accompanied by increasing participation of the private sector. The goal now is to grow a more stable, competitive and diversified economy with enhanced opportunities for employment and improved standards of living.
- Over the last decade, annual economic growth in Burundi has been between 4 % and 5 %. Inflation continues to decline reaching 3.9 % in July 2016, down from 24 % in March 2012, reflecting a careful monetary policy helped by a recent decrease in the prices of imports, especially oil, which is an essential commodity.
- Burundi’s main exports are agricultural; coffee and tea account for 90 % of foreign exchange earnings, and exports are a relatively small share of Gross Domestic Product (GDP).
List two components of the Human Development Index (HDI) (paragraph [2]).
Define the term monetary policy indicated in bold in the text (paragraph [5]).
Using a production possibilities curve (PPC) diagram, explain the effect on economic growth of the “destruction of much of the country’s physical, social and human capital” (paragraph [1]).
Using an AD/AS diagram, explain why the “decrease in the prices of imports, especially oil” might reduce inflationary pressure (paragraph [5]).
Using information from the text/data and your knowledge of economics, evaluate the challenges to economic growth and economic development faced by Burundi.
Markscheme
Candidates who incorrectly label diagrams can be rewarded with a maximum of [3].
For a PPC, the axes could be two alternative products, one on each axis, eg Good A and Good B or Schools and Motor Cars; or two groups of products, eg Consumer Goods and Producer Goods.
Candidates who incorrectly label diagrams can be rewarded with a maximum of [3].
For AD/AS, the vertical axis may be “average (general) price level”, “APL” or “price level”. For the horizontal axis, “real output”, “real national output”, “real income”, “real national income”, “real GDP” or “real Y”. Any abbreviations are acceptable. A title is not necessary. “AS” is a valid label for the SRAS curve.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.
Responses may include:
- definition of economic growth
- definition of economic development.
Discussion of factors affecting growth and/or development
- Landlocked country (paragraph [1]) making access to markets difficult, and difficult to access resources.
- High population density (paragraph [1]), affecting the quality of life.
- Dependence on subsistence agriculture (paragraph [1]) leads to low incomes.
- Scarcity of cultivatable land (paragraph [1]) limiting production of agricultural goods.
- Destruction of capital (paragraph [1]) during conflict, expensive to rebuild from (limited) public funding.
- Widespread poverty (paragraph [2]) and existence of the poverty trap.
- Per capita gross national income is still very low (paragraph [2]), despite doubling over eight years.
- Low tax receipts (paragraph [3]) limit the ability of the government to finance development objectives.
- Over-specialization (paragraph [6]) on a narrow range of (agricultural) exports makes Burundi vulnerable to international price changes.
- Low agricultural export revenue (paragraph [6]) with low income elasticities and high levels of global competition implies lower prospects for growth.
- Possibility of debt (increasing) due to public spending and a narrow tax base (paragraph [3]).
- It is likely that inequality is high, because poverty is widespread, which makes development more difficult to achieve (paragraph [2]).
- However better prospects for growth because of lower import prices and use of government monetary and other policies (paragraphs [4] and [5]).
Any reasonable discussion.
