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Press Release No. 99/53
November 19, 1999
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Second Annual ESAF Arrangement for Rwanda

The International Monetary Fund (IMF) today approved the second-year arrangement for Rwanda under the Enhanced Structural Adjustment Facility (ESAF)1 in an amount equivalent to SDR 23.8 million (about US$32.77 million) to support the government's economic program. Rwanda's three-year ESAF arrangement was approved on June 24, 1998 (see Press Release 98/24) in an original amount of SDR 71.4 million (about US$98 million), of which SDR 23.8 million (about US$33 million) has been disbursed. Today's decision provides Rwanda with another SDR 23.8 million to be disbursed during the second year, with SDR 9.5 million (about US$13.1 million) available immediately.

In commenting on the Executive Board discussion on Rwanda, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, said: "Directors commended the authorities for maintaining macroeconomic stability, improving fiscal management and transparency, and making progress with structural reforms under the 1998/99 program -- despite a difficult security environment and institutional capacity constraints. This had allowed Rwanda to achieve solid economic growth and low inflation. However, noting that difficult challenges remain, Directors welcomed the authorities' intention to consolidate the recent gains and to deepen the reform effort, laying the basis thereby for sustained reduction of Rwanda's still pervasive poverty.

"Noting persistent weaknesses in revenue collection, Directors welcomed the progress in firmly establishing the Rwanda Revenue Authority as an important step in strengthening overall revenue performance, while -- in the interest of opening the economy-reducing Rwanda's reliance on trade taxes. They stressed the importance of improving tax and customs administration and accelerating the preparation of the value-added tax. Directors also attached particular importance to achieving the targeted reductions in defense outlays in 1999 and 2000. These efforts would be crucial to create room for the needed further increases in spending in the social sectors and other priority areas.

"Directors stressed the need to enhance governance. They welcomed the steps taken to improve budgetary transparency and control, and encouraged the authorities to make the Auditor General's office operational promptly.

"Directors welcomed progress in structural reforms, which they saw as vital for achieving sustained and robust growth, especially as Rwanda's recovery from the 1994 war now seemed to be almost complete. They encouraged the authorities to proceed promptly with civil service reform, as well as with restructuring the commercial banks, and strengthening the supervisory capacity of the NBR. Directors noted Rwanda's significant progress in trade liberalization in recent years. While regretting that revenue considerations had recently led the authorities to introduce temporary import surcharges, Directors welcomed the authorities' intention to phase them out in the course of 2000.

"Noting Rwanda's heavy debt burden, Directors looked forward to considering its request for debt relief under the enhanced HIPC Initiative in the course of 2000, following satisfactory performance under the second-year ESAF arrangement," Sugisaki said.

ANNEX

Program Summary

Rwandese authorities made significant progress in the implementation of macroeconomic policies and structural reforms under the first annual ESAF arrangement. The outcomes for real GDP growth and inflation have been better than foreseen, helped by improvements in the security situation, the return and settlement of refugees, and favorable weather. In 1999, mainly because of problems in the transport and manufacturing sectors, real GDP growth slowed down and is now projected at 5%. The impact of the conflict in the Democratic Republic of the Congo on the Rwandese economy and on the government's capacity to implement economic reforms has been limited.

The government's medium-term strategy aims at achieving high and sustainable growth and rapid poverty reduction. The macroeconomic objectives of the 1999-2002 period are to achieve annual real GDP growth of 6%, while keeping inflation at or below 3% a year. As output is estimated to recover to its prewar level in the course of 1999, sustained growth from 2000 onward is predicated on a further recovery in private investment and savings in response to structural reforms, a further improvement in confidence, and significant levels of government investment focused on improving human capital and rural infrastructure. To finance the required investment while gradually reducing the reliance on humanitarian aid flows and achieving a sustainable debt position over the medium term, national savings are projected to increase by almost 4 percentage points of GDP during 1999-2002.

Under the second-year program, straddling the 1999 and 2000 budgets, improving tax administration and the implementation capacity for social spending will be at the center of fiscal policies. For the year 2000, revenues are projected to improve to 10.7% of GDP. Achieving this target while further liberalizing the trade regime will require considerable efforts on the part of Rwanda to enhance tax and customs administration, including through preshipment inspection of imports, the control of transit trade and smuggling, and accelerated computerization. The major new tax measure foreseen for 2000 is the introduction of a value-added tax, beginning with the coverage of large and medium-sized enterprises from mid-2000 onward.

Social Policies

During the last five years, output, which had dropped by 50% in 1994, has recovered to its prewar level. Nevertheless, the majority of the population is still worse off today, as many displaced people still live in temporary shelter, and poverty incidence (estimated at 70%) is higher than in the prewar period.

To make further progress on its social objectives, the government envisages significant increases in budget allocations to these sectors over the coming years, with particular emphasis on the training of health workers and teachers, the provision of books, medicines, and other essential supplies, and the establishment of adequate financial mechanisms to promote efficiency at the local levels.

In addition to this, the government will be implementing a strategy to reduce poverty, focusing on improving agricultural productivity, promoting small and medium-size enterprises in both rural and urban areas, and encouraging the expansion of the coffee and tea sectors through liberalization and privatization.

Rwanda joined the IMF on September 30, 1963; its quota2 is SDR 80.1 million (about US$110.3 million). Its outstanding use of IMF financing currently totals SDR 45.8 million (about US$63 million).


Rwanda: Selected Economic and Financial Indicators, 1994-2002

1994

1995

1996

1997

1998

1999

2000

2001

2002

Prog.

Est.

Rev.

Prog

Est.

Projections

(Annual percent change)

Output and prices

Real GDP growth

-50.2

34.4

15.8

12.8

6.7

9.5

8.1

5.0

5.0

6.0

6.0

GDP deflator

17.2

51.3

10.4

15.5

8.5

2.6

3.0

2.0

3.0

3.0

3.0

Consumer prices (period
average)

64.0

22.0

8.9

11.7

11.0

6.8

-0.5

-2.5

3.5

3.0

3.0

Consumer prices (end of
period)

64.4

38.3

9.2

16.6

7.0

-6.0

5.0

2.5

3.0

3.0

3.0

External sector

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

-52.5

56.8

22.9

50.0

-9.1

-32.9

5.8

13.6

5.2

4.3

5.4

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

37.2

-47.2

9.9

30.1

14.6

-7.8

20.9

-5.4

14.3

5.7

8.2

Export volume 2/

-60.3

21.4

39.4

13.4

5.3

-12.2

16.1

25.1

4.6

3.6

5.5

Import volume 2/

28.2

-49.8

6.3

43.0

15.7

2.3

17.6

-8.6

11.8

4.2

4.9

Nominal effective
exchange rate (end of
period; depreciation -) 1/

2.9

-54.8

3.8

12.3

...

-11.9

...

8.6

...

...

...

Real effective exchange
rate (end of period;
depreciation -) 1/

51.8

-39.7

8.6

27.1

...

-18.2

...

7.6

...

...

...

Terms of trade
(deterioration -) 2/

11.8

22.6

-14.7

45.4

-12.8

-15.2

-11.4

-12.3

-1.6

-0.8

-3.1


Government finance

Revenue and grants

-80.4

716.9

15.1

35.4

26.9

3.3

21.3

1.8

15.4

14.4

12.6

Revenue

-76.7

283.4

70.5

47.3

19.7

13.7

17.7

7.6

10.4

16.8

16.4

Total expenditure and net
lending

-60.5

161.3

37.1

15.1

39.0

7.1

38.4

17.0

16.0

16.3

11.2

Current expenditure

-49.0

89.7

32.7

14.6

29.7

17.6

21.6

13.5

8.7

18.5

14.0

Money and credit

Net domestic assets 3/

1.2

3.2

-7.4

35.1

9.6

-5.5

11.6

10.3

...

...

...

Domestic credit 3/

-38.7

15.3

-2.6

42.1

12.0

10.4

9.4

7.5

...

...

...

Government 3/

-16.5

-34.4

-2.8

18.8

0.9

0.5

3.1

1.0

...

...

...

Economy 3/

-22.3

49.7

0.2

23.3

11.1

9.9

6.3

6.5

...

...

...

Money and quasi money
(M2)

-6.5

73.7

8.2

47.5

17.3

-3.4

15.0

5.0

8.2

9.2

9.2

Reserve money

10.0

43.1

21.5

14.6

16.3

-11.0

14.5

5.0

6.1

...

...

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

4.5

5.3

6.2

5.5

6.4

6.4

6.4

6.6

6.6

6.6

6.6

Interest rate (one-year
savings deposits, in
percent; end of period)

9.0

12.0

11.0

11.4

...

10.3

...

9.8

...

...

...

(In percent of GDP, unless otherwise indicated)

National income accounts

National savings
(excluding official
transfers)

-41.3

-4.1

-3.5

-2.4

-4.9

-1.3

-3.5

-0.2

1.0

2.5

2.9

Of which: private

-31.6

1.5

0.4

-1.4

-2.8

0.2

-1.9

2.0

3.1

4.8

5.1

Gross investment

11.7

15.0

15.5

14.9

15.2

15.7

16.1

15.6

18.0

19.4

19.7

Of which: private

9.0

6.9

6.4

6.7

3.4

9.0

6.0

8.0

9.0

10.0

10.5

Government finance

Total revenue and grants

4.5

18.2

16.4

17.0

18.7

15.7

17.1

14.9

15.9

16.7

17.2

Total revenue

3.6

6.9

9.1

10.3

10.7

10.4

11.0

10.5

10.7

11.5

12.2

Total expenditure and net lending

16.0

20.6

22.1

19.5

24.3

18.6

23.1

20.3

21.8

23.2

23.6

Capital expenditure

2.7

8.1

9.1

8.1

11.5

6.7

10.1

7.7

9.1

9.4

9.2

Current expenditure

13.4

12.5

12.9

11.4

12.8

11.9

13.0

12.6

12.7

13.8

14.4

Primary fiscal balance

Including exceptional
expenditure 4/

-5.3

-3.3

-2.2

0.2

-1.1

-0.6

-0.7

-1.3

-1.2

-1.6

-1.4

Excluding exceptional
expenditure and including
domestic capital
expenditure

-5.4

-3.3

-1.8

0.3

-0.2

0.0

0.0

-0.7

-0.1

-1.0

-1.2

Overall balance (payment order)

Including grants

-11.5

-2.4

-5.7

-2.4

-5.6

-2.9

-5.6

-5.4

-5.9

-6.5

-6.5

Excluding grants

-12.4

-13.8

-12.9

-9.2

-13.7

-8.1

-11.7

-9.8

-11.1

-11.7

-11.4

External sector

External current account balance

Including official
transfers

-6.0

4.2

-0.2

-3.2

-6.1

-4.8

-7.6

-5.9

-7.3

-8.0

-8.3

Excluding official
transfers

-53.0

-19.1

-19.0

-17.3

-20.1

-17.0

-19.6

-15.8

-17.0

-16.9

-16.8

External debt (end of
period) 5/

134.4

82.7

79.0

61.2

63.6

60.3

66.6

61.2

63.4

64.6

64.6

NPV of external debt

(in percent of exports
of goods and nonfactor
services)

...

...

...

423.5

578.8

575.8

570.2

557.7

570.6

585.6

574.5

Debt-service ratio
(in percent of exports
of goods and nonfactor
services)

Before debt
rescheduling 6/

55.4

54.3

44.0

24.6

41.1

34.5

43.3

40.5

42.2

41.8

38.7

After debt rescheduling 7/

55.4

54.3

44.0

24.6

31.9

30.8

35.8

29.6

32.1

37.5

38.7

Gross reserves (in months of imports, c.i.f)

1.3

5.0

5.0

5.4

6.0

6.1

6.0

7.3

6.2

5.7

4.5

Overall balance of payments

-44.1

51.2

-0.9

11.7

-80.2

-25.6

-112.4

-112.5

-131.6

-142.4

-150.2

External arrears 8/

66.5

61.5

78.9

97.3

0.0

43.1

0.0

0.0

0.0

0.0

0.0

External financing gap 9/

0.0

0.0

0.0

0.0

192.3

0.0

153.9

145.6

103.8

119.3

129.4

External debt (end of
period) 5/

1,012.6

1,063.0

1,111.9

1,137.9

1,304.0

1,213.4

1,417.4

1,254.3

1,357.4

1,463.6

1,546.6

Gross official reserves

51.2

99.7

106.6

153.4

196.0

164.2

196.3

183.5

178.8

172.6

144.7

Memorandum items:

Nominal GDP (in billions
of Rwanda francs) 10/

165.8

337.2

431.4

562.4

650.1

632.1

703.8

677.0

732.2

799.4

872.7

Nominal exchange rate
(period average; per U.S.
dollar)

220.0

262.2

306.5

302.4

317.0

314.2

330.5

330.5

341.8

353.0

364.4

Domestic debt (end of
period; in percent of GDP)

...

...

...

15.8

13.7

13.7

10.5

10.5

8.7

7.2

6.0

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

1/ Data for 1999 are as of end-August.

2/ The methodology of the calculation of these indices was changed in the course of 1999.

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

4/ Definition used for the 1997 performance benchmark; excludes all capital expenditure.

5/ Including Fund obligations, external arrears, and financing gap; before debt rescheduling and hypothetical stock-of-debt operation.

6/ Scheduled debt service before rescheduling and hypothetical stock-of-debt operation.

7/ Reflects flow rescheduling on Naples terms of outstanding arrears at end of June 1998 and maturities falling due between July 1998 and end-May 2001 to Paris Club creditors, and assumes at least comparable treatment of debt to other bilateral and commercial creditors.

8/ The end-1997 stock of arrears includes accumulated late interest that was determined by the Paris Club secretariat at the time of the rescheduling agreement in July 1998.

9/ Excludes exceptional financing (bilateral debt forgiveness and rescheduling and refinancing from multilaterals).

10/ In December 1997, the national accounts for 1995-97 were revised upward by a cumulative 10%, reflecting an adjustment in the GDP deflator.




1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5% and are payable over 10 years with a 5-year grace period.
2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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