## Rwanda SDG Financing — Key Findings from the Dynamic Financing Framework

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### Pandemic impact and macroeconomic context
- The COVID-19 pandemic "has plunged the world into a deep recession", pushing millions into extreme poverty and potentially causing lasting economic scarring that reduces potential growth (IMF working paper).
- Low-income and developing countries (LIDCs) and sub-Saharan African economies (SSA) were hit particularly hard; public finances were significantly stretched and "debt levels [rose] to historical highs".
- Rwanda pre-pandemic progress:
  - Poverty fell from 60 to 38 percent and "its human development score doubled between 1990 and 2019".
  - Significant gaps remained in nutrition, quality healthcare, clean water, sanitation, and electricity.
- Pandemic-specific impacts in Rwanda:
  - Up to ½ million citizens could fall into poverty in 2021.
  - An estimated 3.5 million children remained out of school for most of 2020.
  - Growth and tax revenues plummeted; government increased expenditures to mitigate the health and economic crisis.
  - "Debt-to-GDP ratios are projected to increase by more than 10 percentage points by end-2021", raising the risk of debt distress from low to medium.
  - Fiscal space to tackle SDGs narrowed as a result.

### Dynamic financing framework: purpose and capabilities
- Primary objectives:
  - Quantify SDG financing gaps and assess feasibility of meeting SDGs within a projection horizon.
  - Permit assessment of different financing options across alternative macroeconomic scenarios and policy levers (domestic revenue mobilization, private sector funding, international support).
  - Gauge whether SDGs can realistically be achieved by 2030 and, if not, estimate by when they could be achieved.
  - Assess economic scarring by estimating pandemic impacts on long-term growth in stylized scenarios.
- Key features:
  - Accounts for real, fiscal, and external sectors to ensure macroeconomic consistency.
  - Focuses on public and private funding contributions to SDGs in five areas: education, health, roads, electricity, and water and sanitation.
  - Economic growth determined endogenously; policies feed back on the SDG financing gap over 2020–50.

### Dynamic financing framework: model and calibration
- Production function and state variables:
  - Variables: A (total factor productivity), K_G (public capital), K_P (private capital), L (labor), h = H/L (human capital per worker).
  - Public capital decomposition: K_G.bank and K_G.nonbank; bankable capital associated with efficiency parameter 휃൒1.
- Capital and human capital accumulation:
  - Capital law of motion: K_{i,t} = (1−훿_{i,t}^K) K_{i,t−1} + 휖_{i,t} I_{i,t}, with 휖 ∈ (0,1).
  - Human capital: H_{i,t} = (1−훿_{i,t}^H) H_{i,t−1} + ω_{i,t} S_{i,t−1}, with ω ∈ (0,1).
  - Schooling evolution: S_{i,t} = (1−ϖ_{i,t}) S_{i,t−1} + (ρ_{i,t} T_{i,t−1})^{φ} N_{i,t−1}^{γ}, with ρ ≥ 0, φ elasticity of human capital to health and education spending, and γ elasticity of schooling to N.
- Calibration sources:
  - Stock of physical capital: IMF Fiscal Affairs Department’s Investment and Capital Stock database.
  - Demographics: United Nations’ World Population Prospects (United Nations, 2019).
  - Macroeconomic variables: IMF World Economic Outlook database and surveys to Rwanda desks.
  - 2030 SDG targets: based on Gaspar et. al. (2019), adjusted for recent Rwandan developments.

### Main quantitative findings for Rwanda (post-pandemic)
- Pandemic effects on SDG financing gap:
  - The pandemic widened Rwanda’s financing gap to meet 2030 SDG targets by about 5½ percentage points of GDP.
  - More than half of this widening is explained by the lower post-pandemic nominal GDP level.
- Timing results:
  - Under current policies, Rwanda would meet its SDGs right after 2050.
  - If Rwanda mobilized all funding needed to close its pre-COVID SDG financing gap by 2030, in the post-COVID environment it would still need an additional five years (i.e., meet them by 2035).
- Resource gap magnitudes:
  - Post-pandemic estimate of additional resources needed to meet SDGs by 2030: 21¼ percent of GDP per year.
  - Pre-pandemic static estimate of additional annual spending needs (health, education, water and sanitation, roads, electricity): 18.7 percent of GDP.
  - Disaggregated pre-pandemic needs (percent of 2030 GDP):
    - Health: 2.2
    - Education: 6.1
    - Electricity: 2.0
    - Water & Sanitation: 4.5
    - Roads: 3.9
    - Total: 18.7
- Role of active policies:
  - Active policies combining fiscal measures and higher private sector participation could fulfill "more than one third" of Rwanda’s post-pandemic SDG financing gap.
  - Even in the active policies scenario, meeting SDGs by 2030 would require about 13¾ percentage points of GDP in additional resources annually until then.

### Pre-pandemic development context and targets
- Growth and social outcomes:
  - GDP per capita more than tripled between 2000 and 2019.
  - Poverty fell from 60 to 38 percent (timeframe implied: 2000–2019).
  - Human development score doubled between 1990 and 2019.
  - Rwanda achieved all but one of its MDGs.
  - Current outcomes are above the median of peers in health, education, water and sanitation, and infrastructure.
- National strategy and investment targets:
  - Vision 2050 targets: upper-middle-income status by 2035 (per capita income of US$ 4,035) and high-income status by 2050 (per capita income of US$ 12,476).
  - NST1 (2017–24) aimed to increase total annual investment from 23 percent of GDP in 2017 to 31 percent in 2024.
  - Public investment (including government’s PPP share) targeted to rise from 8.3 percent of GDP in 2017 to 9.9 percent in 2024.
  - Pre-COVID NST1 financing envisaged largely from higher tax and non-tax revenues; authorities expected NST1 costs to be shared 60-40 between government and private sector.
- Pre-pandemic macro stance (selected indicators, January 2020 vintage):
  - Real GDP growth (2018, 2019, 2020, 2021): 8.6, 8.5, 8.0, 8.0
  - Inflation (p.a.): 1.4, 2.3, 5.4, 5.0
  - Revenues (total): 24.1, 23.6, 23.1, 22.9
    - Tax revenues: 16.2, 16.6, 16.9, 16.5
    - Grants: 4.9, 4.5, 4.1, 4.3
    - Other: 3.0, 2.5, 2.1, 2.1
  - Expenditures (total): 28.8, 31.9, 29.0, 29.2
    - Current: 15.3, 15.9, 14.5, 14.6
    - Capital: 11.5, 12.7, 12.1, 12.7
    - Interest: 2.0, 3.3, 2.4, 1.9
  - Overall balance: -4.7, -8.3, -5.9, -6.3
    - Excluding contingent liabilities: -5.0, -6.7, -5.7, -6.4
  - PV of total public debt incl. guarantees (projected, in percent): 40.9, 44.5, 43.1, 42.9
- Fiscal policy tools under consideration pre-COVID:
  - Domestic revenue mobilization via (i) streamlining tax incentives (mostly VAT exemptions), (ii) improving tax compliance, and (iii) developing a Medium-Term Revenue Strategy (MTRS).
  - With limited scope for additional revenue and downward trends in ODA relative to SDG needs, reliance expected on additional public borrowing and private sector participation.
  - Enhancing spending efficiency (e.g., through technology) identified as a contributor to financing SDGs.

### Pre-pandemic dynamic projections and scenarios (baseline)
- Under the dynamic financing framework (January 2020 WEO vintage) pre-pandemic:
  - Rwanda would need additional resources of 15.7 percent of GDP per year to meet SDGs by 2030.
  - Without those resources, SDGs would be met 15 years later; baseline implies SDGs met by 2045.
- Scenario highlights (pre-COVID):
  - An MTRS that boosts total revenues by 7 percent of GDP could shorten the period to meet SDGs by 6 years.
  - Reallocating 1 percent of GDP of public expenditures toward SDGs while increasing spending efficiency could cut the period by 4 years.
  - Combined fiscal measures could abridge the SDG path by at least 8 years.
  - Attracting private investment to reach FDI pace of top quartile peers could enable meeting SDGs by 2035.
  - Active policies (fiscal measures plus higher private sector participation) could lessen Rwanda’s SDG gap by more than a half.

### Rwanda’s COVID-19 crisis response (Box 1)
- Public-health and social measures:
  - Six-week lockdown; digital solutions for contact tracing, surveillance, prevention, and data visualization.
  - Advanced social data collection and targeting system used for social protection.
  - Outcomes: a limited number of cases and a low fatality rate (IMF 2020c, 2020d, IMF 2021).
- Major pandemic-era programs:
  - Social Protection Response and Recovery Plan delivering:
    - door-to-door food distribution to vulnerable households;
    - cash transfers to informal workers;
    - temporary employment in labor-intensive public projects;
    - wider access to health and education via subsidized tuition, school material, and construction of sanitation facilities.
  - Fiscal and quasi-fiscal support:
    - subventions to agricultural inputs;
    - subsidized loans to firms in the most affected sectors;
    - credit guarantees and debt restructuring for firms with recovery potential.
- Pandemic-related spending (2020):
  - Pandemic-related health spending: about 1.4 percent of GDP.
  - Social protection spending: 0.2 percent of GDP.
  - Investments in sanitation and water facilities in low-income neighborhoods.

### Impact on SDG financing needs and fiscal space (post-pandemic, Box 1)
- The pandemic widened Rwanda’s financing gap to meet 2030 SDG targets by 5.6 percentage points of GDP.
  - Breakdown of the 5.6 percentage points:
    - Effect of lower nominal GDP: 3.2 percentage points of GDP.
    - Effect of lower fiscal space: 2.4 percentage points of GDP, comprising:
      - change in revenues (-): 1.3 percentage points of GDP.
      - change in fiscal balance: 2.2 percentage points of GDP.
      - change in interest expenses: 0.5 percentage points of GDP.
      - change in non-SDG spending: -1.3 percentage points of GDP.
      - change in identified grants (-): -0.3 percentage points of GDP.
- Rwanda’s annual fiscal space to invest in SDGs over 2020–30 is expected to be, on average, 2.4 percent of GDP lower than pre-pandemic levels.
  - Lower tax and non-tax revenues reduce fiscal space by 1.3 percent of GDP.
  - Higher interest expenses absorb another 0.5 percent of GDP.
  - Lower non-SDG public expenditures (-1.3 percent of GDP) and higher ODA flows (0.3 percent of GDP) almost offset these forces.
- The pandemic is expected to impose output losses of 10 percent in real terms.
  - This translates into an additional SDG financing gap of 3.2 percent of GDP per year until 2030.
- Long-term income effects:
  - 2030 per capita income: decline of 18 percent relative to pre-COVID projection.
  - 2050 per capita income: decline of 26 percent relative to pre-COVID projection.
- Timing effects:
  - The pandemic delayed Rwanda’s ability to meet its SDGs by about 5 years: under current policies, SDGs met right after 2050 versus pre-pandemic timing.

### Scenario results and potential contribution of policy levers (post-pandemic)
- Aggregate needs to meet SDGs by 2030:
  - Post-pandemic additional resources needed: 21¼ percent of GDP per year (compared with pre-pandemic 15.7 percent).
  - Additional needs could be 1-1½ percent of GDP larger in a scenario with long-term economic scarring.
- Policy lever impacts (post-pandemic):
  - MTRS raising total revenues-to-GDP by about 7 percentage points during 2023–29 could fulfill about one fifth of the SDG gap and shorten the development path by 6 years or more.
  - Reallocating 1 percentage point of GDP in public expenditures toward SDGs and boosting spending efficiency to peer levels would provide additional support.
  - Combined fiscal measures (MTRS, 1 percentage point reallocation, and efficiency gains) could cover more than one quarter of the 2030 SDG financing gap, helping meet SDGs around a decade later (by 2041).
  - Private sector participation: aligning annual FDI with the top quartile of peers could attract an extra 2¾ percent of GDP of private resources, covering up to one tenth of the 2030 SDG financing gap.
  - Active policies combining fiscal measures and higher private sector participation could fulfill more than one third of the post-pandemic SDG financing gap (21.3 percent of GDP), enabling Rwanda to meet SDGs by 2040.
  - Even in the active policies scenario, meeting SDGs by 2030 would require about 13¾ percentage points of GDP in additional resources annually until then.

### Economic scarring: calibration and impacts
- Scarring mechanisms modeled:
  - Schooling interruptions, protracted unemployment with skills mismatches, technological disruptions in contact-intensive sectors, and lower returns to education spending due to social distancing.
- Calibration adjustments:
  - Accelerate human capital depreciation and lower the elasticity of new human capital formation to education spending for about five years (at declining rates), with lasting negative spillovers to total factor productivity.
- Illustrative scarring effects:
  - Rwanda’s stock of human capital could end the decade almost 24 percentage points below pre-COVID projections.
  - Real GDP growth rate example point estimates:
    - Pre-COVID: 7.3 percent
    - Post-COVID: 6.5 percent
    - Post-COVID with scarring: 5.6 percent
  - Scarring could widen the 2030 SDG financing gap by 1-1½ percentage points of GDP, pushing the gap toward 22½ percent of GDP per year.

### Policy implications and recommendations
- Closing Rwanda’s post-pandemic SDG financing gap requires a combination of:
  - Ambitious fiscal measures to enhance domestic revenue mobilization (e.g., MTRS raising revenues by about 7 percentage points of GDP during 2023–29).
  - Reallocation of public spending toward SDGs (e.g., 1 percentage point of GDP) and boosting spending efficiency to peer levels.
  - Attracting greater private investment (including raising FDI to top-quartile peer levels, potentially adding 2¾ percent of GDP).
  - Additional concessional external resources from bilateral and multilateral donors, blended finance for de-risking, and unlocking institutional investor and philanthropic resources.
- Specific policy design points for private participation:
  - Strengthen business climate and governance.
  - Develop a pipeline of bankable infrastructure projects.
  - Use public-private partnerships with an attractive risk-return profile on a project-by-project basis.
  - Provide government guarantees (“de-risking”) with fair and proportional distribution of risk and return among public and private participants.
- Rationale:
  - Ambitious fiscal measures both increase resources for SDGs and help reduce public debt consistent with Rwanda’s fiscal consolidation objectives; ODA on concessional terms will remain critical.
  - The framework supports policymaking by quantifying trade-offs and inter-temporal coherence of development strategies and by evaluating combinations of fiscal, private, and external financing options.

*Source: IMF working paper and IMF staff estimates applying a dynamic financing framework to Rwanda’s SDG financing.*

### References .............................................................................................................

### Rwanda SDG Financing — Key Findings from the Dynamic Financing Framework

### Pandemic impact and macroeconomic context
- The COVID-19 pandemic "has plunged the world into a deep recession", pushing millions into extreme poverty and potentially causing lasting economic scarring that reduces potential growth.
- Low-income and developing countries (LIDCs) and sub-Saharan African economies (SSA) have been hit particularly hard; public finances were significantly stretched and "debt levels [rose] to historical highs".
- Rwanda: poverty fell from 60 to 38 percent and "its human development score doubled between 1990 and 2019" before the pandemic, but significant gaps remained in nutrition, quality healthcare, clean water, sanitation, and electricity.
- Pandemic-specific impacts in Rwanda:
  - Up to ½ million citizens could fall into poverty in 2021.
  - An estimated 3.5 million children remained out of school for most of 2020.
  - Growth and tax revenues plummeted; government increased expenditures to mitigate the health and economic crisis.
  - "Debt-to-GDP ratios are projected to increase by more than 10 percentage points by end-2021", raising the risk of debt distress from low to medium.
  - Fiscal space to tackle SDGs has narrowed as a result.

### Dynamic financing framework: purpose and capabilities
- The paper introduces a dynamic financing framework to:
  - Quantify SDG financing gaps and assess feasibility of meeting SDGs within a projection horizon.
  - Permit assessment of different financing options across alternative macroeconomic scenarios and policy levers (domestic revenue mobilization, private sector funding, international support).
  - Gauge whether SDGs can realistically be achieved by 2030 and, if not, estimate by when they could be achieved.
  - Assess economic scarring by estimating pandemic impacts on long-term growth in stylized scenarios.

### Main quantitative findings for Rwanda
- The pandemic widened Rwanda’s financing gap to meet 2030 SDG targets by about 5½ percentage points of GDP; more than half of this widening is explained by the lower post-pandemic nominal GDP level.
- Under current policies, Rwanda would meet its SDGs right after 2050.
- If Rwanda mobilized all funding needed to close its pre-COVID SDG financing gap by 2030, in the post-COVID environment it would still need an additional five years (i.e., meet them by 2035).
- Active policies combining fiscal measures and higher private sector participation could fulfill "more than one third" of Rwanda’s post-pandemic SDG financing gap.
- Even in the scenario with active policies, meeting SDGs by 2030 would require about 13¾ percentage points of GDP in additional resources annually until then.
- Pre-pandemic assessments indicated substantial additional spending was needed in health, education, water and sanitation, roads, and electricity.

### Policy implications and recommended policy levers
- Renewed commitment to pro-SDG policies is required from all stakeholders, informed by clear financing strategies.
- Key policy directions highlighted by the framework:
  - Structural reforms to boost potential growth.
  - Domestic revenue mobilization to expand government resources.
  - Improvements in spending efficiency.
  - Strategies to facilitate private investment in SDGs.
  - Renewed efforts by development partners to scale up aid, especially on concessional terms.
- The framework supports policymaking by quantifying trade-offs and inter-temporal coherence of development strategies and by evaluating combinations of fiscal, private, and external financing options.

*Source: IMF working paper applying a dynamic financing framework to Rwanda’s SDG financing.*

### Section III describes Rwanda’s pre-pandemic situation and development challenges. Section

### RWANDA’S SDG FINANCING: PRE-PANDEMIC SITUATION

### Dynamic financing framework (model and calibration)
- The dynamic financing framework consists of accounting identities covering the real, fiscal, and external sectors to ensure macroeconomic consistency and focuses on public and private funding contributions to SDGs in five areas: education, health, roads, electricity, and water and sanitation.
- Economic growth is determined endogenously; adopted policies have a feedback effect on the SDG financing gap over the projection horizon (2020-50).
- Output follows an augmented neoclassical growth model based on the Debt, Investment and Growth (DIG) framework.
- Key model components and relations:
  - Production function variables: A (total factor productivity), K_G (public capital), K_P (private capital), L (labor), h = H/L (human capital per worker).
  - Public capital decomposed into bankable (K_G.bank) and non-bankable (K_G.nonbank); bankable capital associated with efficiency parameter 휃൒1.
  - Capital accumulation law of motion: K_{i,t} = (1−훿_{i,t}^K) K_{i,t−1} + 휖_{i,t} I_{i,t}, where 휖 is a country- and time-specific efficiency parameter bounded between zero and one.
  - Human capital accumulation: H_{i,t} = (1−훿_{i,t}^H) H_{i,t−1} + ω_{i,t} S_{i,t−1}, with ω ∈ (0,1).
  - Schooling evolution: S_{i,t} = (1−ϖ_{i,t}) S_{i,t−1} + (ρ_{i,t} T_{i,t−1})^{φ} N_{i,t−1}^{γ}, where T is total spending on health and education, ρ ≥ 0 is an efficiency parameter, φ is elasticity of human capital to health and education spending, N is share of school-age population, and γ is elasticity of schooling to N.
- Calibration sources:
  - Stock of physical capital: IMF Fiscal Affairs Department’s Investment and Capital Stock database.
  - Demographics: United Nations’ World Population Prospects (United Nations, 2019).
  - Macroeconomic variables: IMF World Economic Outlook database and surveys to Rwanda desks.
  - 2030 SDG targets: based on Gaspar et. al. (2019), adjusted for recent Rwandan developments.

### Pre-pandemic development progress and challenges
- Progress and outcomes:
  - GDP per capita more than tripled between 2000 and 2019.
  - Poverty fell from 60 to 38 percent (timeframe implied: 2000–2019).
  - Human development score doubled between 1990 and 2019.
  - Rwanda achieved all but one of its MDGs.
  - Current outcomes are above the median of peers in health, education, water and sanitation, and infrastructure.
  - Healthcare: benefited from extensive primary care by rural clinics.
  - Education enrollment: nearly universal at the primary level; less than 40 percent at the secondary level.
- National strategy and targets:
  - Vision 2050 aims for upper-middle-income status by 2035 (per capita income of US$ 4,035) and high-income status by 2050 (per capita income of US$ 12,476).
  - Vision implemented via 2017–24 “National Strategy for Transformation” (NST1); SDGs integrated into NST1.
  - Prior to COVID-19, NST1 aimed to increase total annual investment from 23 percent of GDP in 2017 to 31 percent in 2024.
  - Public investment (including government’s PPP share) targeted to rise from 8.3 percent of GDP in 2017 to 9.9 percent in 2024.
  - Strategy envisaged financing largely from higher tax and non-tax revenues.
- Remaining development challenges:
  - Poverty remained high and nutrition indicators disappointed; stunting affected many children.
  - Access to qualified healthcare providers was low.
  - Access to clean water and sanitation remained difficult.
  - Electricity: on-grid capacity in excess but only 46 percent of households connected to the grid.

### Pre-pandemic SDG needs and financing gaps
- Static costing estimate:
  - Gaspar et. al. (2019) estimated additional annual spending needs of 18.7 percent of GDP to achieve 2030 SDGs in health, education, water and sanitation, roads, and electricity.
- Disaggregated annual SDG needs (as used in the document; percent of 2030 GDP):
  - Health: 2.2
  - Education: 6.1
  - Electricity: 2.0
  - Water & Sanitation: 4.5
  - Roads: 3.9
  - Total: 18.7
- Rwanda’s policy stance and macro context pre-COVID:
  - IMF Policy Coordination Instrument (PCI) supported policies since mid-2019 aimed at creating budget space for NST1 while preserving fiscal sustainability.
  - By PCI First Review (October 2019) staff estimated 2019 real GDP growth at 8.5 percent and projected similar pace thereafter.
  - Inflation expectations anchored around 5 percent.
  - Overall fiscal deficit was within the adjusted program rule of 5.5 percent of GDP.
  - Public debt (including government guarantees) projected to remain below the Eastern African Community debt convergence criterion of 50 percent of GDP in NPV terms.
- Fiscal and revenue plans:
  - Authorities focused on domestic revenue mobilization via: (i) streamlining tax incentives (mostly VAT exemptions), (ii) improving tax compliance (registration and technology), and (iii) developing a Medium-Term Revenue Strategy (MTRS).
  - Given limited scope for additional revenue and downward trends in ODA relative to SDG needs, reliance expected on additional public borrowing and private sector participation, including Compact with Africa and de-risking instruments.
  - Authorities expected NST1 costs to be shared 60-40 between government and private sector.
  - Enhancing spending efficiency (e.g., through technology) identified as a contributor to financing SDGs.

### Dynamic financing framework projections and scenarios (pre-COVID baseline)
- Under the dynamic financing framework and pre-pandemic assumptions (January 2020 WEO vintage), Rwanda would need additional resources of 15.7 percent of GDP per year to meet its SDGs by 2030.
- Without those resources, SDGs would be met 15 years later; baseline scenario implies SDGs met by 2045.
- Scenario findings (high-level):
  - Implementing an MTRS that boosts total revenues by 7 percent of GDP could shorten the period to meet SDGs by 6 years.
  - Reallocating 1 percent of GDP of public expenditures toward SDGs while increasing spending efficiency could cut the period by 4 years.
  - Combined fiscal measures could abridge Rwanda’s SDG path by at least 8 years.
  - Adding private investment attraction to reach FDI pace of top quartile peers could enable meeting SDGs by 2035.
  - Active policies (fiscal measures plus higher private sector participation) could lessen Rwanda’s SDG gap by more than a half.
- Table 2 (selected entries preserved as reported):
  - Scenario G. Baseline plus additional grants: SDGs met by 2030; Additional grants per year = 15.7 (in percent of nominal GDP); Per capita income 1,491 (in 2018 USD); Real GDP growth rate 5,011 (note: table formatting in source indicates column layout; numbers preserved verbatim in table).
  - (Other scenarios A–I shown in table with associated numeric entries in the source.)

### Selected economic indicators (as of January 2020)
- From IMF Country Report No.20/9, January 2020 (table values by year)
  - Real GDP (2018, 2019, 2020, 2021): 8.6, 8.5, 8.0, 8.0
  - Inflation (p.a.): 1.4, 2.3, 5.4, 5.0
  - Revenues: 24.1, 23.6, 23.1, 22.9
    - Tax revenues: 16.2, 16.6, 16.9, 16.5
    - Grants: 4.9, 4.5, 4.1, 4.3
    - Other: 3.0, 2.5, 2.1, 2.1
  - Expenditures: 28.8, 31.9, 29.0, 29.2
    - Current: 15.3, 15.9, 14.5, 14.6
    - Capital: 11.5, 12.7, 12.1, 12.7
    - Interest: 2.0, 3.3, 2.4, 1.9
  - Overall balance: -4.7, -8.3, -5.9, -6.3
    - Excluding contingent liabilities: -5.0, -6.7, -5.7, -6.4
  - PV of total public debt incl. guarantees (projected, in percent): 40.9, 44.5, 43.1, 42.9

*Source: IMF staff; perrelli-rwanda-sdg-financing-imf-wp-2021-115.*

### BOX 1. RWANDA’S COVID-19 CRISIS RESPONSE

### BOX 1. RWANDA’S COVID-19 CRISIS RESPONSE

### Rwanda’s immediate public-health and social response
- Rwanda imposed a six-week lockdown and adopted digital solutions for contact tracing, surveillance, prevention, and data visualization.
- Built on pre-pandemic community-based social protection identification and survey information, authorities used an advanced social data collection and targeting system to support the most vulnerable.
- Outcomes reported: a limited number of cases and a low fatality rate (see IMF 2020c, 2020d, IMF 2021).

### Major pandemic-era programs and fiscal support
- Two major plans rolled out:
  - Rwanda’s Social Protection Response and Recovery Plan, which provided:
    - door-to-door food distribution to vulnerable households;
    - cash transfers to informal workers;
    - temporary employment in labor-intensive public projects;
    - wider access to health and education via subsidized tuition, school material, and construction of sanitation facilities.
  - Fiscal and quasi-fiscal support including:
    - subventions to agricultural inputs;
    - subsidized loans to firms in the most affected sectors;
    - credit guarantees and debt restructuring for firms with recovery potential.
- Pandemic-related spending priorities:
  - Pandemic-related health spending: about 1.4 percent of GDP in 2020, mostly for quarantine facilities, drugs, medical and personal protection equipment.
  - Social protection spending: 0.2 percent of GDP in 2020, focused on cash transfers and food distribution.
  - Investments in sanitation and water facilities in low-income neighborhoods to minimize contagion.

### Impact on SDG financing needs and fiscal space (post-pandemic)
- The pandemic widened Rwanda’s financing gap to meet 2030 SDG targets by 5.6 percentage points of GDP.
  - Of the 5.6 percentage points:
    - Effect of lower nominal GDP: 3.2 percentage points of GDP.
    - Effect of lower fiscal space: 2.4 percentage points of GDP.
      - change in revenues (-): 1.3 percentage points of GDP.
      - change in fiscal balance: 2.2 percentage points of GDP.
      - change in interest expenses: 0.5 percentage points of GDP.
      - change in non-SDG spending: -1.3 percentage points of GDP.
      - change in identified grants (-): -0.3 percentage points of GDP.
- Rwanda’s annual fiscal space to invest in SDGs over 2020–30 is expected to be, on average, 2.4 percent of GDP lower than pre-pandemic levels.
  - Lower tax and non-tax revenues reduce fiscal space by 1.3 percent of GDP.
  - Higher interest expenses absorb another 0.5 percent of GDP.
  - Lower non-SDG public expenditures (-1.3 percent of GDP) and higher ODA flows (0.3 percent of GDP) almost offset these forces.
- The pandemic is expected to impose output losses of 10 percent in real terms.
  - This translates into an additional SDG financing gap of 3.2 percent of GDP per year until 2030 (mostly reflecting higher infrastructure costs relative to the smaller economy).
- Rwanda is committed to bringing public debt below 50 percent of GDP (in net present value terms) to meet the Eastern African Community debt convergence criterion; this commitment underpins a backloaded but more stringent fiscal consolidation.
- Authorities are considering a medium-term revenue strategy (MTRS) to raise up to 7 percentage points of GDP between 2023 and 2029 (gains of up to 1 percentage point per year relative to baseline projections).

### Timing and income effects of the pandemic
- The pandemic has delayed Rwanda’s ability to meet its SDGs by about 5 years.
  - Under current policies, Rwanda would meet its SDGs right after 2050.
  - In a counterfactual where all funding to close the pre-COVID SDG financing gap is mobilized by 2030, Rwanda would meet SDGs by 2035 in the post-COVID environment (5 years later than pre-COVID expectations).
- Projected long-term per capita income declines associated with the pandemic:
  - 2030 per capita income: decline of 18 percent relative to pre-COVID projection.
  - 2050 per capita income: decline of 26 percent relative to pre-COVID projection.

### Scenario results and the potential contribution of policy levers
- Aggregate needs to meet SDGs by 2030:
  - Post-pandemic estimate of additional resources needed: 21¼ percent of GDP per year (compared with pre-pandemic SDG financing gap of 15.7 percent of GDP per year).
  - The additional needs could be 1-1½ percent of GDP larger in a scenario with long-term economic scarring.
- Policy lever impacts (post-pandemic):
  - Enacting an MTRS that raises total revenues-to-GDP by about 7 percentage points during 2023–29 could fulfill about one fifth of Rwanda’s SDG gap in post-pandemic projections and shorten the development path by 6 years or more.
  - Reallocating one percentage point of GDP in public expenditures toward SDGs and boosting spending efficiency to peer levels would provide additional support.
  - Combined fiscal measures (MTRS, 1 percentage point reallocation, and efficiency gains) could cover more than one quarter of Rwanda’s 2030 SDG financing gap, helping meet SDGs around a decade later (by 2041).
  - Private sector participation: aligning annual foreign direct investment with the top quartile of peers could attract an extra 2¾ percent of GDP of private resources, covering up to one tenth of the 2030 SDG financing gap.
  - Active policies combining fiscal measures and higher private sector participation could fulfill more than one third of the post-pandemic SDG financing gap (21.3 percent of GDP), enabling Rwanda to meet SDGs by 2040.
  - Even in the active policies scenario, meeting SDGs by 2030 would require about 13¾ percentage points of GDP in additional resources annually until then.

### Economic scarring: calibration and effects
- Scarring mechanisms considered: schooling interruptions, protracted unemployment with skills mismatches, technological disruptions in contact-intensive sectors, and lower returns to education spending due to social distancing.
- Calibrated model adjustments: accelerate human capital depreciation and lower the elasticity of new human capital formation to education spending for about five years (at declining rates), with lasting negative spillovers to total factor productivity.
- Illustrative scarring impacts:
  - Rwanda’s stock of human capital could end the decade almost 24 percentage points below pre-COVID projections.
  - Real GDP growth rate could drop below 6 percent (example point estimates shown: Pre-COVID 7.3 percent, Post-COVID 6.5 percent, Post-COVID with scarring 5.6 percent).
  - Scarring could widen the 2030 SDG financing gap by 1-1½ percentage points of GDP, pushing the gap toward 22½ percent of GDP per year.

### Policy implications and recommendations
- Closing Rwanda’s post-pandemic SDG financing gap requires a combination of:
  - Ambitious fiscal measures to enhance domestic revenue mobilization (e.g., MTRS raising revenues by about 7 percentage points of GDP during 2023–29).
  - Reallocation of public spending toward SDGs (e.g., 1 percentage point of GDP) and boosting spending efficiency to peer levels.
  - Attracting greater private investment (including raising FDI to top-quartile peer levels, potentially adding 2¾ percent of GDP).
  - Additional concessional external resources from bilateral and multilateral donors, blended finance for de-risking, and unlocking institutional investor and philanthropic resources.
- Specific policy design points for private participation:
  - Strengthen business climate and governance.
  - Develop a pipeline of bankable infrastructure projects.
  - Use public-private partnerships with an attractive risk-return profile on a project-by-project basis.
  - Provide government guarantees (“de-risking”) with fair and proportional distribution of risk and return among public and private participants.
- Rationale: Ambitious fiscal measures both increase resources for SDGs and help reduce public debt consistent with Rwanda’s fiscal consolidation objectives; ODA on concessional terms will remain critical.

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_Source: https://www.imf.org/-/media/files/about/key-issues/fiscal/perrelli-rwanda-sdg-financing-imf-wp-2021-115.pdf_