Press Release No. 07/143

Press Release: IMF Executive Board Completes Second Review Under the PRGF Arrangement with Rwanda and Approves US$1.7 Million Disbursement

June 25, 2007

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Rwanda's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF)¹ arrangement. In completing the review, the Board also approved Rwanda's request for a waiver of the non-observance of a performance criterion pertaining to the net credit to the government at end-2006 and a modification of performance criteria for 2007. The completion of the review enables the release of an amount equivalent to SDR 1.14 million (about US$1.7 million), bringing total disbursement under the arrangement to SDR 3.42 million (about US$5.1 million).

The three-year PRGF arrangement for Rwanda was approved by the Executive Board in June 2006 (see Press Release No. 06/121) in an amount equivalent to SDR 8.01 million (about US$12 million).

At the conclusion of the Executive Board's discussion on Rwanda's economic performance, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"The Rwandese Authorities are to be commended for the satisfactory implementation of macroeconomic policies, which are supported under the Poverty Reduction and Growth Facility (PRGF).

"For 2007, the main challenge lies in managing a grant-financed fiscal expansion without jeopardizing macroeconomic stability, avoiding an acceleration in inflation or crowding out of the private sector.

"The monetary program has been rebased to better reflect developments in money demand. The main task for the Central Bank now is to closely monitor incipient inflationary pressures.

"To allow for greater exchange rate flexibility and, in the absence of hedging instruments, the authorities are taking appropriate steps by moving toward an interbank foreign exchange market in coordination with banks and by opening the market to international banks.

"To preserve external debt sustainability and, given Rwanda's small export base and vulnerability to shocks, new sources of grants should be sought in preference to shifting external financing toward loans.

"Looking forward, public financial management reforms must be stepped up to ensure successful decentralization and productive use of funds. Progress in financial sector reform is encouraging and is expected to accelerate with the Financial Sector Development Plan, which is a sound blueprint for building long-term financial markets.

"Given the limited success in reducing poverty in the past few years, the new Poverty Reduction Strategy Papers (PRSP) needs to revamp Rwanda's poverty strategy. It will be essential to improve monitoring of outcome indicators and raise agricultural yields to address rural poverty," Mr. Portugal said.

¹ The PRGF is the If's confessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.