Press Release: IMF Executive Board Completes Third Review Under PRGF Arrangement with Rwanda and Approves US$1.8 Million Disbursement

February 29, 2008

Press Release No. 08/38

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Rwanda's performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review allows for the disbursement of SDR 1.14 million (about US$ 1.8 million), which would bring total disbursements under the arrangement to SDR 4.56 million (about US$7.2 million).

In completing the review, the Board also granted a waiver for the nonobservance of a delayed structural performance criterion concerning the publication of the first consolidated report of local governments showing transfers and budget execution per district and per province for the period January-April 2007.

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$12.7 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"Rwanda's economic performance in 2007 was satisfactory. Economic growth was robust and inflation was contained. Macroeconomic policy implementation was broadly on track, notwithstanding delays in disbursement of donor funds. Structural reforms advanced, albeit with some delays due in part to capacity constraints.

"The authorities' continued steadfast commitment to reform will be critical, looking forward. The authorities' medium-term policy framework, defined in the new Economic Development and Poverty Reduction Strategy paper, aims to address impediments to growth and poverty reduction while preserving macroeconomic stability. This will require sustaining reform momentum in the social sectors, modernizing agriculture to improve food security, and increasing investment in infrastructure.

"For 2008, the main challenge lies in managing the impact of a grant-financed fiscal expansion without jeopardizing macroeconomic stability. To ensure that the widening of the deficit does not fuel inflation or crowd out credit to the private sector, it is important that the authorities stand ready to make adjustments to the fiscal program as necessary, including by more gradual domestic spending.

"To preserve external debt sustainability, borrowing for large high-priority infrastructure projects needs to be carefully evaluated, and in general, highly concessional borrowing continues to be appropriate. The authorities are encouraged to develop a debt management strategy to guide future borrowing and prevent a re-accumulation of unsustainable debt.

"The authorities' commitment to reforms in the macrocritical areas is welcome. A strong focus is needed on building capacity in the civil service to support public sector reforms. Plans to develop a public financial management action plan are encouraging. The planned reforms in tax administration are essential to mobilize domestic resources and reduce Rwanda's reliance on aid over the long term. Financial sector reform will ensure sound financial management and provide long-term financing for development needs," Mr. Portugal said.


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