Public Information Notice: IMF Executive Board Concludes 2006 Article IV Consultation with Rwanda

February 9, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 07/17
February 9, 2007

On January 29, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Rwanda.1


Rwanda has made great strides since the 1994 genocide. National rehabilitation has moved forward, including through presidential and legislative polls in 2003, and community-based hearings of those accused of genocide. Output has rebounded driven mostly by a recovery in the agriculture sector. With the help of debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI), the external position has strengthened and macroeconomic stability has been largely achieved. Progress has also been made in structural reforms and Rwanda is advancing toward the Millennium Development Goals, with good results noticeable in education and gender issues. Nonetheless, poverty remains widespread and the economy remains vulnerable to climatic and terms of trade shocks.

The government of Rwanda's medium-term policies address the country's challenges to increase growth and make headway toward the Millennium Development Goals. Macroeconomic stability and debt sustainability are considered prerequisites for strong growth. Policies will also focus on further fostering private sector development, making the country more competitive, and removing obstacles to growth, which include low agricultural yields, limited and expensive electricity supply, a poor transportation network, a shallow financing system, and high cost of doing business.

To support their policies, the authorities requested a three year Poverty Reduction and Growth Facility (PRGF) arrangement, which was approved on June 5, 2006. The program is designed to maintain macroeconomic stability while setting the stage for stronger growth and poverty reduction.

The PRGF-supported program remained broadly on track in 2006. Growth is expected to exceed 4 percent, reflecting buoyant activity in the manufacturing, services, and financial sectors. However, mostly owing to rising prices for food and energy products, 12-month inflation increased to 11 percent in November. Macroeconomic policies remain in line with the program, but short-term risks have evolved on the monetary side from a large increase in private sector credit. On the structural front, banking supervision is being strengthened, including through amendments in the banking law currently at parliament. With the passage of the Organic Budget Law in August 2006, expenditure management reforms also have picked up momentum. In addition, the authorities have been focusing on reforms to improve the business climate for the private sector and enhance productivity in the agricultural sector.

Executive Board Assessment

Directors commended Rwanda's sound macroeconomic management and progress on structural reforms and social reconstruction. Together with debt relief, this has led to macroeconomic stability, strong economic growth, and progress in advancing toward the Millennium Development Goals.

Nevertheless, Directors stressed that Rwanda continues to face major challenges in the period ahead. Poverty remains pervasive, per capita income growth has slowed in recent years, inflation pressures have resurfaced, and debt sustainability remains a concern despite HIPC and MDRI debt relief. Directors noted the limited impact of past growth on poverty reduction, and recommended that the reasons for this be explored in order to help prioritize and sequence future reforms.

Directors observed that, to boost growth and reduce poverty, the authorities will need to address Rwanda's severe infrastructure gap and low agricultural yields, enhance export competitiveness, improve the business climate, strengthen and deepen the financial sector, and tackle the skilled labour shortages. These measures will need to be backed by a prudent borrowing policy and continued reliance on concessional and grant financing, to ensure that fiscal and debt sustainability is maintained. In this context, Directors supported the authorities' strategy to keep the net present value of the public debt below 125 percent of exports over the long run.

While Directors welcomed scaled-up aid for Rwanda given the country's urgent spending needs, they underscored the importance of ensuring that macroeconomic stability is maintained. Close coordination of fiscal, monetary, and exchange rate policies will be crucial. In particular, Directors noted that increased aid is likely to intensify pressures for real exchange rate appreciation. They urged the central bank to follow through on its commitment to more nominal exchange rate flexibility by allowing a gradual appreciation through increased sales of foreign exchange. This would reduce the need for costly domestic sterilization to keep inflation down. Directors also stressed that the growth of private sector credit and inflationary developments need to be closely monitored, and the monetary stance kept tight until inflation is firmly on a downward path.

Directors welcomed the authorities' plans to broaden the tax base and increase priority spending in 2007. Going forward, efforts to mobilize revenue and control nonpriority spending should be further strengthened. In this context, Directors stressed that expenditure prioritization and control would be facilitated if future budgets are embedded in a medium-term expenditure framework.

Directors supported the structural reforms being implemented to improve public service delivery. The public expenditure management action plan is encouraging, but efforts should be stepped up to tackle weaknesses in expenditure management more systematically. Directors called on the authorities to move forward on civil service reform and urged prompt action to complete the review of the civil service wage structure. They also emphasized the need for increased training to build expertise and overcome capacity constraints in the public sector.

Directors welcomed the efforts to strengthen bank supervision and regulation, particularly in the microfinance sector, and looked forward to early progress in developing the medium-term financial sector reform agenda. Directors also supported the authorities' moves to improve the business environment and increase the openness of the economy, including through membership in the East African Community and other trade arrangements. In this regard, issues related to energy, transport and communications, and the cost of doing business in Rwanda would need to be vigorously addressed.

Rwanda: Selected Economic and Financial Indicators, 2003-06

  2003 2004 2005 2006
  Act. Act. Act. Proj.

  (Annual percentage changes, unless otherwise indicated)

Output and prices


Real GDP growth

0.9 4.0 6.0 4.2

Real GDP (per capita)

-0.7 2.5 4.2 2.4

Consumer prices (period average)

7.4 12.0 9.2 5.5

Consumer prices (end of period)

7.7 10.2 5.6 5.0

External sector


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

-6.3 55.4 27.6 9.6

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

4.0 13.1 35.6 17.7

Export volume

-12.5 26.8 3.8 10.4

Import volume

0.5 10.2 24.2 13.8

Terms of trade (deterioration = -)

3.5 19.5 12.6 -4.0

Government finance



21.4 20.2 22.6 9.8

Total expenditure and net lending

23.7 27.2 24.0 10.6

Money and credit1


Net domestic assets2

14.8 -28.9 -12.1 7.6

Domestic credit2

19.7 -22.7 -5.3 9.9


10.7 -28.9 -16.4 -4.0


9.0 6.2 11.2 13.8

Broad money (M2)

15.2 12.1 17.2 14.5

Reserve money

12.2 13.4 12.3 12.8

Velocity (GDP/M2; end of period)

5.4 5.6 5.5 5.2
  (Percent of GDP)

National income accounts


National savings

-0.8 2.3 3.2 2.2

Gross investment

18.4 20.5 22.6 21.3

Of which: private (including public enterprises)

12.8 12.0 12.5 12.8

Government finance


Total revenue and grants

21.6 25.9 29.1 28.4

Total revenue (excluding grants)

13.5 13.9 15.1 15.0

Total expenditure and net lending

23.9 26.1 28.5 28.6

Capital expenditure

5.6 8.5 10.1 8.5

Current expenditure

17.8 15.9 18.0 19.3

Primary fiscal balance 3

-3.3 -0.9 -2.0 -3.0

Domestic fiscal balance4

-5.5 -5.5 -5.6 -6.8

Overall balance (payment order)


After grants

-2.3 -0.2 0.7 -0.2

Before grants

-10.3 -12.1 -13.4 -13.6

External sector


External current account balance


Including official transfers

7.8 -3.0 -3.1 -8.4

Excluding official transfers

-19.2 -18.2 -19.4 -19.1

External debt (end of period)5

93.4 91.9 70.7 14.9

Net present value of external debt


(percent of exports of goods and services) 5

285.6 239.4 149.8 61.5

Scheduled debt-service ratio after HIPC Initiative debt relief


(percent of exports of goods and services)

11.1 9.7 7.2 2.7

Gross reserves (in months of imports of goods and services)

5.0 5.7 6.4 4.9
  (Millions of U.S. dollars)

External debt (end of period)5

1,572.4 1,685.3 1,510.0 354.0

Gross official reserves

217.6 314.5 405.8 368.7

Memorandum item:


Nominal GDP (billions of Rwanda francs)

905.3 1,054.3 1,197.2 1,316.1

Sources: Rwandese authorities; and IMF staff estimates and projections.

1 Data based on program exchange rates.

2 As a percent of the beginning-of-period stock of broad money.

3 Revenue excluding grants minus current expenditure except interest due and exceptional expenditure minus domestically financed capital expenditure.

4 Revenue excluding grants minus current expenditure (excluding external interest) minus domestically financed capital expenditure and net lending.

5 After rescheduling, including arrears and new debt (the latter includes assumed project and budgetary disbursements for 2006) and based on assumptions about expected new borrowing.

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.


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