Public Information Notice: IMF Concludes Article IV Consultation with Rwanda

November 16, 2004

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On October 6, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Rwanda.1


Rwanda undertook an extraordinary national regeneration following the 1994 genocide, with an estimated one-third of its population dead or displaced, its human capital, economic infrastructure, and government institutions in ruins. The economic agenda included macroeconomic stabilization, the establishment of new economic and financial institutions, the development of human resource capacity, and repair of infrastructure.

Some aspects of the macroeconomic recovery were achieved rapidly, while others proved more challenging. While the recovery in primary activities was relatively rapid, formal sector activity registered a mixed performance. While growth in most services was strong, neither manufacturing nor commerce had regained their 1993 levels by end-2003. The wholesale destruction of Rwanda's human capital, along with an initial phase of domestic security threats, followed by regional conflict, clearly contributed to this disappointing performance.

A significant part of the authorities' political agenda for 2003-04 was realized. In particular, a new constitution was adopted by popular referendum in May 2003, followed by presidential and legislative elections during August-October 2003. On the social agenda, proceedings against the genocide-accused were introduced on a trial basis during 2003, and the completion of hearings planned for 2004−05. The demobilization process is ongoing.

The implementation of Rwanda's growth strategy lagged during 2003-04, reflecting continuing human resource constraints. In these circumstances, the vulnerability of Rwanda's real economy to exogenous shocks became evident during 2003-04. Failed rains in 2003 led to a decline in agricultural output, which accounts for 40 percent of value added, and limited overall real GDP growth for the year to about 0.9 percent. There is a risk that real GDP growth may also fall short of target in 2004 as construction activity is slowing and, reflecting the impact of a drought-related electricity shortage, manufacturing activity contracting.

While some progress was made toward strengthening the government revenue base during 2003-04, the structural fiscal imbalance remained large. The revenue-to-GDP ratio rose to 13.5 in 2003 and is on-track to maintain that level in 2004, reflecting the impact of income tax reforms that went into effect in 2003 Government spending has become increasingly focused on social programs and capital expenditure. The overall fiscal deficit after grants, which amounted to 2.5 percent of GDP in 2003, is programmed to decline modestly in 2004, to 2.2 percent of GDP. Data for the first half of 2004 indicate that the implementation of the 2004 budget was on track.

The external current account relative to GDP widened during 2003, before narrowing modestly during the first half of 2004. A moderate improvement in the external terms of trade during 2003, as market prices for coffee and tea rose, was more than offset by a drop in coltan and coffee export volumes. The continued significant depreciation in the real effective exchange rate did little to slow import growth during 2003, and the external current account deficit before grants increased by 3 percentage points of GDP, to 19.2 percent of GDP in 2003. During the first part of 2004, however, coffee export volumes increased substantially, as international market prices recovered from the previous year's lows.

Rwanda's external debt steadied in 2003, as new borrowing, excluding a new government loan guarantee, was limited. Nonetheless, according to preliminary estimates based on a debt sustainability analysis update, Rwanda's net present value (NPV) of debt-to-exports ratio rose to about 315 percent at end-2003, after enhanced HIPC Initiative relief. Slower-than-envisaged export growth and discount rate changes had led to this deterioration in Rwanda's net present value of debt-to-exports ratio.

Rwanda's medium-term macroeconomic strategy is to gradually reduce the fiscal and current account deficits, and to bring its external debt to a sustainable level over the medium- to long-term. Supporting these objectives, Rwanda aims to strengthen regional relations and trade, and further improve the environment for private investment. Rwanda's economic program includes a comprehensive structural reform agenda, which has been set in line with its Poverty Reduction Strategy Paper, which was issued in June 2002.

Executive Board Assessment

Directors noted Rwanda's substantial strides since the 1994 genocide in macroeconomic stabilization, the establishment of key elements of a market economy, and the restoration of state institutions. Nevertheless, the economic base of the formal sector remains narrow, with the economy heavily dependent on agriculture, and extremely vulnerable to external and climatic shocks. Capacity limitations are acute and human capital constraints severe. Directors noted that Rwanda now faces the major challenge of implementing further economic reforms aimed at faster and sustained economic growth to fight poverty, while aiming for achieving fiscal and external sustainability and stabilizing the very heavy debt burden. They looked forward to the realization of regional peace to help bolster confidence and encourage private investment.

Directors welcomed the substantial advances made in the design and implementation of essential social sector programs. They urged the authorities to update and implement the agricultural growth strategy and press ahead with the export promotion strategy. Improved productivity in the agricultural sector will be crucial for boosting economic growth. They welcomed the initiatives under way to develop new products for niche markets, establish an export processing zone, and expand export markets, including through Rwanda's prospective entry into the East African Community and Southern African Development Community (SADC).

On the fiscal side, Directors observed that revenue collection in Rwanda is constrained by the limited size of the formal sector and, accordingly, the achievement of government revenue targets remains a challenge. In light of this, Directors underscored the importance of continued efforts to improve tax efficiency by strengthening tax administration, reforming tax, customs, and investment code legislation, and avoiding new tax exemptions. In addition, budgetary operations will need to be clearly prioritized, spending contingencies established, and expenditure limited to a sustainable level.

Directors noted that the scaling up of spending programs currently under consideration could lead to a substantial increase in the structural deficit. Directors welcomed that borrowing targets under the PRGF-supported programs have been observed. However, most Directors expressed concern that significant further reliance on long-term external borrowing to finance the planned higher spending may both hinder achievement of the progressive reduction in imbalances targeted in Rwanda's PRGF-supported program, and be imprudent given the economy's vulnerability. Given that the outlook for debt sustainability has worsened, Directors urged the authorities to limit further external borrowing, and supported the view that Rwanda's development partners should be prepared to substantially shift their support for Rwanda toward grant assistance. Several Directors pointed to the importance of improved macroeconomic performance in 2004 to bring Rwanda to the completion point under the enhanced HIPC Initiative.

Directors indicated that the recent slowing of money growth is appropriate. They called on the authorities to further strengthen coordination between the central bank and Treasury to ensure that spending increases programmed for the second half of 2004 do not generate instability in the money market.

Directors considered that the current floating exchange rate regime continues to serve Rwanda well, given Rwanda's continued vulnerability to external shocks and the regime's success in limiting inflation to moderate levels. Directors welcomed the authorities' recent adjustment of the auction rules, and looked forward to further steps toward increasing exchange rate flexibility.

Directors commended the recent sale of the government's majority shareholdings in two commercial banks, and urged the central bank to act promptly to bring all commercial banks into compliance with banking regulations.

Directors looked forward to a continuation of the progress in governance and public financial management and accountability that has taken place since 2003. Directors urged the authorities to continue to utilize efficiently available technical assistance—including from the Fund—to address weaknesses in Rwanda's statistical base, which suffers from significant limitations for surveillance purposes.

Rwanda: Selected Economic and Financial Indicators, 1999-2004











(Annual percent changes, unless otherwise indicated)

Real GDP growth







Consumer prices (period average)







Export, f.o.b (in U.S. dollars)







Real effective exchange rate (end-period; depreciation -)







Net domestic assets







Money and quasi-money (M2)







Reserve money







Velocity (ratio of GDP to M2; end-period)








(In percent of GDP, unless otherwise indicated)

Overall fiscal balance (payment order)


After grants







Before grants








External current account balance


Including official transfers







Excluding official transfers







External debt (end of period)







Source: Rwandese authorities; and IMF Staff estimates and projections.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100