## 1rwaea2022001

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### Executive summary — context and medium-term outlook
- Rwanda’s medium-term outlook is positive, supported by the authorities’ large policy package to respond to the evolving COVID-19 pandemic and their continued commitment to the PCI.
- Economic recovery underway with easing of restrictions and faster vaccination rates since July.
- Key projections and indicators:
  - GDP growth projected at 10.2 percent in 2021.
  - Growth averaged 7.2 percent over 2010–19.
  - Life expectancy rose from below 50 years (in 2000) to almost 70 years (in 2019).
- Risks:
  - Large share of population unvaccinated and emergence of new variants keeps risks elevated.
  - Pandemic scars on poverty, unemployment, and gender inequalities risk reversing prior gains.

### Pandemic impact, social scars, and policy response
- Authorities’ response:
  - Policy package includes accelerating vaccination, expanding social safety nets under the Economic Recovery Plan (ERP), and ERF-2 financial support to firms.
  - Vaccination progress: achieved target of covering 30 percent of total population with two doses in December 2021; as of December 16, 34.7 percent fully vaccinated, including 99 percent of eligible residents in Kigali; campaign aims to reach 70 percent by end-December 2022.
- Social and human capital effects:
  - More than 600,000 additional people projected to fall below the poverty line in 2020–21.
  - School closures estimated to cause a 6 percent reduction of expected years of schooling.
  - Unemployment remains high, especially among women, with disproportionate human capital losses.

### Recent developments and program performance
- Growth and inflation:
  - Real GDP grew by 11.6 percent y/y in 2021H1.
  - Headline inflation increased by 1 percent in November 2021; inflation was negative during May–September 2021.
  - BNR kept the policy rate unchanged in November (policy rate level later noted at 4.5 percent).
- External sector and reserves:
  - Current account deficit improved to 11 percent of GDP in 2021H1.
  - Rwandan franc depreciated by 4.1 percent y/y at end-October (another note: depreciated by 2.6 percent since the beginning of the year as of end-September).
  - Foreign exchange reserves (including SDR allocation) around 5.5 months of import cover at end-October; projected at 5.2 months of prospective imports at end-2021 (4.5 months excluding SDR allocation).
- Program performance:
  - All end-June 2021 quantitative targets met; inflation within MPCC inner band.
  - Two reform targets through end-November 2021 not met due to procurement delays; VAT refunds automation completed with one-month delay.

### FY20/21 budget execution and FY21/22 signals
- FY20/21 outcomes:
  - Debt-creating overall balance was –8.2 percent of GDP (target was –9.2 percent of GDP).
  - External grants and loans amounting to US$87.4 million (0.9 percent of GDP) did not materialize; US$12 million disbursed in FY21/22.
- Q1 FY21/22:
  - Revenues negatively impacted by July lockdown, VAT exemptions on construction material imports, and reduction in the fuel levy in May.
  - Expenditure in line with expectations.
- Fiscal aggregates (selected GFSM entries reported as table pairs):
  - Overall balance: –9.2 and –8.6.
  - Net acquisition of nonfin. assets: 12.6 and 12.2 (percent of GDP entries).
  - Net lending (+) / borrowing (–): –7.9 and –7.5 (percent of GDP entries).
  - Net incurrence of liabilities: 11.0 and 8.9 (percent of GDP entries).
  - Total Covid-19 spending: 3.7 and 3.7 (percent of GDP entries).
  - Debt-creating overall balance (excl. PKO): –9.2 and –8.2 (percent of GDP entries).

### Fiscal relaxation, SDR use, and medium-term stance
- FY21/22 fiscal relaxation:
  - Staff and authorities agreed to relax the FY21/22 fiscal deficit by 0.5 percentage points of GDP.
  - Financing: about 70 percent (1.3 percent of GDP) of the SDR allocation (SDR 153.5 million) to finance the one-off spending; remaining 30 percent (0.5 percent of GDP) saved as reserves to retire the 2013 Eurobond at maturity in 2023.
- Medium-term consolidation:
  - Cumulative reduction in the overall headline deficit: 6.1 percentage points of GDP during FY22/23–FY25/26.
  - Debt anchor of 65 percent of GDP reached in 2028 (5th PCI fiscal path shows 65.0 percent in 2027/28).
  - Drivers: phase-off of COVID-19 and SDR-financed spending (2.1 and 1.3 percentage points of GDP, respectively), DRM adding 1.5 percentage points of GDP from MTRS measures, and reductions in recurrent spending; capital spending declining slightly but remaining high.

### Fiscal projections and selected paths (exact entries preserved)
- Fourth PCI Review Baseline — Overall deficit (percent of GDP): 2020/21 -9.2; 2021/22 -8.6; 2022/23 -7.5; 2023/24 -5.1; 2024/25 -4.0; 2025/26 -3.0.
- Fourth PCI Review Baseline — Public debt (percent of GDP): 2020/21 79.1; 2021/22 81.3; 2022/23 81.1; 2023/24 79.5; 2024/25 76.5; 2025/26 74.0; 2026/27 71.4; 2027/28 68.5; 2028/29 65.7; 2029/30 64.4; 2030/31 63.2.
- 5th PCI Fiscal Path — Overall deficit (percent of GDP): 2020/21 -8.6; 2021/22 -9.1; 2022/23 -7.5; 2023/24 -5.0; 2024/25 -4.0; 2025/26 -3.0; 2026/27 -3.0; 2027/28 -3.0; 2028/29 -3.0; 2029/30 -3.5; 2030/31 -4.0.
- 5th PCI Fiscal Path — Public Debt (percent of GDP): 2020/21 74.6; 2021/22 77.2; 2022/23 77.9; 2023/24 75.7; 2024/25 73.1; 2025/26 71.1; 2026/27 68.2; 2027/28 65.0; 2028/29 62.1; 2029/30 60.5; 2030/31 59.1.
- Annual adjustments (consolidation + = fiscal tightening): 2020/21 0.5; 2021/22 -0.5; 2022/23 1.7; 2023/24 2.4; 2024/25 1.1; 2025/26 0.9; 2026/27 0.0; 2027/28 0.0; 2028/29 0.0; 2029/30 -0.5; 2030/31 -0.5.
- Fiscal items (selected percentage point contributions to GDP 2021/22–2025/26): Total revenue and grants: 0.4, -0.1, 0.2, -0.5, -0.6; Taxes: -0.4, -0.4, -0.4, -0.2, -0.6; Grants: -0.1, 0.5, 0.7, -0.2, 0.1; Other revenue: 0.9, -0.1, -0.1, -0.1, -0.2; Expense: 0.2, -1.0, -0.2, -0.1, -0.5; Compensation of employees: -0.5, -0.6, -0.5, -0.5, -0.5; Use of goods & services: 0.7, 0.3, 0.6, 0.4, 0.2; Net acquisition of nonfinancial assets: 1.2, 0.9, -0.1, -0.4, -0.1; Policy lending: -0.6, -0.1, 0.4, 0.0, 0.0; Overall balance (GFSM comparators): -0.5, 0.1, 0.1, 0.0, -0.1; Net domestic financing: -3.3, 0.2, 0.4, 0.8, 0.3; Net foreign financing: 3.8, -0.3, -0.4, -0.8, -0.2; Of which SDR financing: 1.3, 0.5, 0.0, 0.0, 0.0; Of which eurobond: 2.4, -0.5, 0.0, 0.0, 0.0.

### Debt sustainability, Eurobond issuance, and SDRs
- Debt assessment:
  - Debt remains sustainable with a moderate risk of debt distress; stress tests show elevated solvency risks.
  - Debt expected to fall below EAMU PV-of-debt convergence criterion of 50 percent by 2027 under baseline.
- Liability management:
  - US$620 million Eurobond issued in August 2021; used mostly to buyback 85 percent of outstanding US$400 million Eurobond maturing in 2023 and to retire expensive commercial debt.
  - Remaining US$147.5 million proceeds to finance selected investment projects.
- SDR allocation:
  - Rwanda received SDR allocation share of US$219 million (1.9 percent of GDP) in August 2021.
  - Planned use in FY21/22: about 70 percent to supplement FY21/22 efforts; 30 percent saved as reserves to retire 2013 Eurobond in 2023 (text contains specific breakdowns: 25 percent (0.4 percent of GDP) to temporarily increase recurrent social protection spending and retrofit public offices; 45 percent (0.9 percent of GDP) for capital spending; remainder 30 percent (0.6 percent of GDP) retained as reserves).
- Policy emphasis:
  - Timely return to credible fiscal consolidation, containment of fiscal risks, and reliance on concessional resources to limit debt service burden.

### Domestic revenue mobilization (DRM), tax incentives, and MTRS
- MBRP and exemptions:
  - Tax exemptions under MBRP over FY21/22 and FY22/23 projected to cost RWF 40 billion (0.3 percent of GDP).
  - Temporary fuel subsidy (reduced fuel levy) will cost RWF 16 billion (0.1 percent of GDP) this fiscal year; subsidy to be phased out beginning July 2022.
  - Permanent tariff reductions under AfCFTA expected to reduce revenue by 0.2 percent of GDP per year once fully implemented.
- MTRS:
  - MTRS (FY21/22–FY23/24) expected to be approved by Cabinet by end-January 2022; aim to permanently increase revenue-to-GDP ratio by 1 percentage point once temporary exemptions are unwound.
  - Draft laws revising personal and corporate income taxes and VAT awaiting approval.
  - First review of MTRS implementation due by end-December 2022.
- Policy caution:
  - Authorities should monitor tax exemptions’ impact on MTRS yields and consider accelerating withdrawal if revenue losses exceed expectations.

### Financial sector — resilience, vulnerabilities, and inclusion
- Resilience indicators (end-September 2021 unless noted):
  - Banks’ CAR: 22.2 percent (prudential requirement noted as 12.5 percent in one place and 15 percent in others).
  - MFIs CAR: 36.0 percent (prudential requirement 15.0 percent).
  - Key liquidity indicators above minimum prudential requirements.
  - NPL ratios: banks 6.6 percent at end-March 2021 to 5.1 percent at end-September 2021; MFIs 7.7 to 6.4 percent over same period.
  - COVID-restructured loans: close to 2/3 servicing obligations as of end-September 2021; about 5.3 percent of gross loans still in moratorium (including hotels).
- Stress tests and provisioning:
  - Recent stress tests confirmed resilience of bank sub-sector; BNR removed restrictions on dividend payments.
  - Banks increased provisioning levels since March 2021.
- Financial inclusion and digitalization:
  - Retail e-payments as share of GDP increased by 17.3 percent y/y in June 2021 to reach 95.5 percent.
  - Mobile payments increased by 64 percent; internet banking services increased by 26 percent.
  - Active mobile payment subscribers increased by 25 percent to 6.1 million in June 2021.
  - Number of mobile payment transactions increased by 42 percent to 424 million in 2021H1; value of transactions increased by 100 percent to RWF 5.2 trillion in 2021H1.
  - Share of merchant payments increased from 6 percent to 22 percent of the value of mobile payments.

### Monetary policy framework and implementation
- Framework:
  - Interest rate-based monetary policy adopted January 2019 with medium-term headline inflation target of 5 percent and an inflation target band of ±3 percentage points.
  - BNR cut policy rate by 50 basis points at pandemic onset; policy rate kept unchanged in November (noted at 4.5 percent).
- FPAS and market reforms:
  - FPAS developed with IMF TA; quarterly monetary policy reports since 2020; a fully functioning quarterly core model established.
  - GMRA rollout delayed; legal assessment for repo and GMRA expected end-March 2022; GMRA operationalization expected by end-December 2022 (timeline revised).
  - Constraints: excess liquidity, incomplete transmission to lending rates, inefficient collateral pricing, liquidity forecasting weaknesses.
- Exchange rate:
  - Regime de facto “crawl-like”; staff recommends market-determined exchange rate with FX interventions limited to stemming excessive volatility.
  - BNR committed to limit FX interventions and maintain exchange rate flexibility.

### External sustainability and REER assessment
- 2021 external position:
  - Current account deficit estimated at 11 percent of GDP in 2021.
  - REER: depreciated starting mid-2020 and continued through 2021.
  - EBA-Lite CA model: 2021 multilaterally consistent CA norm 7.3 percent of GDP; cyclically adjusted current account deficit 12.1 percent of GDP; current account gap -4.8 percentage points of GDP; estimated real overvaluation 23 percent.
- Reserves:
  - International reserves projected more than US$1.8 billion by year-end 2021, equivalent to 5.2 months of prospective imports.
  - Staff considers reserves in range 4.0–5.0 months optimal; ARA-CC indicates 3.8–4.9 months.
- Medium term:
  - Current account deficit expected to widen temporarily in 2022 then improve over medium term through increased domestic savings and productivity growth.

### Structural policies, climate action, and SDG financing
- Structural priorities:
  - Reverse learning and earning losses, accelerate human capital accumulation, improve health, education, early childhood development, boost female employment and entrepreneurship, narrow digital gap.
  - ERP social policies: expand programs for pregnant and lactating women, reduce child stunting, improve schooling quality and retention, ERF-2 support for female entrepreneurs.
- Climate and green PFM:
  - Rwanda’s NDC goals amount to US$10 billion by 2030 (another annex notes US$11 billion total with US$5.7 billion mitigation and US$5.3 billion adaptation).
  - Government initiatives: Rwanda Green Fund; introduce ECC Monitoring Statement in FY22/23 budget; climate budget tagging system; planned PIMA in January 2022 and CCDR with World Bank.
- Financing SDGs:
  - Additional resources needed to meet SDGs by 2030: about 21¼ percent of GDP per year (pre-pandemic was 15.7 percent of GDP per year).
  - Policy options: enhance cost-effectiveness of fiscal incentives, share fiscal risks with private sector and partners, prioritize value-for-money in public investment, promote regional integration.
- Annex model results (Pandemic Scars):
  - Temporary 5-year human capital scarring can affect growth and debt through end of decade.
  - Combined temporary shock (scenario A-5): growth "0.3 percentage points below" baseline in 2030; public debt "4 percentage points above" baseline in 2030; SDG financing gap increases "about 1 percentage point relative to the baseline."
  - Active policies scenario: per capita income "8.1 percent higher"; real GDP growth rate "1.9 points above"; public debt as share of GDP "4.2 points below" baseline with pandemic scars.
  - Even with active policies, meeting SDGs by 2030 unlikely without additional concessional financing.

### Program modalities, conditionality, and monitoring
- Program instruments:
  - QTs, RTs, standard continuous targets, and an MPCC (monitored semi-annually).
  - Adjustors introduced for timing uncertainties related to Eurobond proceeds and SDR allocation; to be reassessed during 6th PCI review.
- Proposed target adjustments and new RTs:
  - Modify end-December 2021 QTs and set new end-June 2022 QTs in line with updated macro framework.
  - Propose floor on net foreign assets modified to exclude swaps with resident institutions with original maturity of one year or less and with nonresident institutions.
  - Two new RTs: publish MTRS approved by Cabinet (end-January 2022) and conduct first review of MTRS implementation (end-December 2022).
  - Several missed RTs proposed to be reset with new deadlines (RSSB asset allocation, GMRA legal assessment, GMRA rollout cascades).

### Safeguards, capacity development, and statistics
- Safeguards:
  - October 2021 remote safeguards assessment: BNR maintains relatively strong safeguards framework; recommendations include amending reserves management policy to discontinue inclusion of domestic issuers’ instruments as foreign reserves.
- Capacity development priorities:
  - PIMA, PFRAM, MTRS follow-up, IPSAS rollout, performance-based budgeting, FSSR follow-up, financial sector TA.
- Statistics:
  - e-GDDS implemented since 2017; authorities interested in subscribing to SDDS in 2022.
  - Ongoing focus to improve quality, coverage, and frequency of monetary, external, and fiscal data.

### Staff appraisal and recommended actions (key judgements)
- Staff assessment:
  - Recovery strengthening despite risks; inflation low; banking system stable and liquid; borrowing predominantly concessional; public debt sustainable with moderate risk of debt distress but limited buffers.
- Recommended actions:
  - Near-term: contain COVID-19 spread, support recovery, monitor credit risks, deploy targeted time-bound interventions without relaxing prudential standards, strengthen fiscal risk management (SOEs and PPPs), and legislate revenue and spending efficiency measures to support medium-term consolidation credibility.
  - Medium-term: start rebuilding policy buffers, implement growth-friendly fiscal consolidation, advance DRM under MTRS, modernize monetary policy framework, maintain exchange rate flexibility, and pursue structural reforms to improve competitiveness and attract private financing.
- Consultation timing:
  - Staff recommends next Article IV on 24-month consultation cycle per Executive Board decision.

*Source: Executive Summary and selected chapters and annexes from IMF staff report for Rwanda (December 20, 2021) as provided in the content unit.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and medium-term outlook
- Rwanda’s medium-term outlook is positive, supported by the authorities’ large policy package to respond to the evolving COVID-19 pandemic and their continued commitment to the PCI in a challenging environment.
- Economic recovery is underway with easing of restrictions supported by faster vaccination rates since July.
- GDP growth is projected at 10.2 percent in 2021 and inflation remained subdued.
- Rwanda’s economic and social progress over the last two decades faces a significant setback, with poverty, unemployment, and gender inequalities on the rise; these pandemic scars, if not addressed, risk reversing hard-won economic and social gains.
- With a large share of the population still unvaccinated and the emergence of new variants, risks to the outlook remain elevated.
- Pre-pandemic performance and drivers:
  - Growth averaged 7.2 percent over 2010–19.
  - Rwanda’s investment in physical capital was about 25 percent of GDP higher than its peers in the East African Community (EAC) or sub-Saharan Africa (SSA) during 2015–19.
  - Physical capital accumulation contributed around one half of Rwanda’s growth (2000–19), while contributions from human capital accumulation and total factor productivity (TFP) growth marginally increased and remained relatively low.
  - Life expectancy rose from below 50 years (in 2000) to almost 70 years (in 2019).

### Pandemic impact and social scars
- Authorities’ response:
  - The policy package includes accelerating vaccination efforts, expanding social safety nets under the Economic Recovery Plan (ERP), and financial support to hard-hit firms under a revamped ERF (ERF-2).
  - Vaccination progress: Rwanda achieved its COVID-19 vaccination target of covering 30 percent of the total population with two doses in December 2021. As of December 16, 34.7 percent of the population was fully vaccinated, including 99 percent of eligible residents in Kigali. The vaccination campaign aims at raising this ratio to 70 percent by end-December 2022.
- Social and human capital effects:
  - The pandemic is exacting a severe impact on employment and human capital formation, especially among women.
  - Unemployment remains high, especially among women, potentially setting back gender equity progress.
  - The poverty rate is projected to increase with more than 600,000 additional people falling below the poverty line in 2020–21, reversing recent poverty-reduction gains.
  - School closures led to learning losses, premature youth employment, and an estimated 6 percent reduction of expected years of schooling, which, if not reversed, may reduce earnings, productivity, and potential growth.

### Recent developments and program performance
- Growth and inflation:
  - Real GDP grew by 11.6 percent y/y in 2021H1, primarily driven by base effects from recovering activities in the industry and service sectors.
  - Headline inflation increased by 1 percent in November on the back of rising education fees; inflation was in negative territory during May–September.
  - The National Bank of Rwanda (BNR) kept the policy rate unchanged in November.
- External sector and reserves:
  - The current account deficit improved to 11 percent of GDP in 2021H1, largely due to higher grants and remittances.
  - Domestic demand-driven import increases outpaced export improvements, producing a small deterioration of the trade balance in USD terms (but a slight improvement as a share of GDP).
  - The Rwandan franc depreciated against the dollar by 4.1 percent y/y at end-October.
  - Foreign exchange reserves, including the recent Special Drawing Rights (SDR) allocation, remained adequate at around 5.5 months of import cover at end-October.
- Program implementation:
  - Program performance remains satisfactory with all end-June 2021 quantitative targets met and inflation remaining within the inner band set in the monetary policy consultation clause.
  - Two reform targets through end-November 2021 were not met due to delays in the procurement process to hire experts needed for their completion.
  - A third reform target on automation of the risk-based verification of VAT refunds was completed with a one-month delay.

### Outlook and risks
- Recovery prospects are supported by fiscal relaxation in FY21/22 and partial use of the SDR allocation to underpin recovery and targeted social spending.
- Risks remain elevated due to vaccine coverage gaps and potential new variants.
- Policy trade-offs and vulnerabilities:
  - Near-term risks include fiscal and financial sector pressures; closely monitoring credit risks to safeguard financial stability is critical.
  - As the recovery takes hold, rebuilding policy buffers will be important to reduce debt vulnerabilities and bring debt down timely to its anchor.
  - Exchange rate flexibility within a forward-looking monetary policy framework and reforms to strengthen Rwanda’s external competitiveness are envisaged to safeguard external sustainability.

### Policy recommendations and priority reforms
- Fiscal policy and public finance:
  - The fiscal relaxation in FY21/22 supported by the partial use of the SDR allocation will help underpin the recovery and support targeted social spending needs and policies to support the recovery.
  - The near-term agenda should fast-track efforts to strengthen fiscal risk management, including of state-owned enterprises.
  - Start rebuilding policy buffers as the recovery takes hold to reduce debt vulnerabilities and bring debt down timely to its anchor; envisaged fiscal consolidation coupled with exchange rate flexibility and reforms to strengthen external competitiveness will safeguard external sustainability.
- Financial sector and monetary policy:
  - Closely monitor credit risks to safeguard financial stability and deploy targeted and time-bound interventions, as needed, to contain their materialization without relaxing regulatory and supervisory requirements.
  - Continue modernization of the monetary policy framework while maintaining vigilance over financial stability.
- Structural and social policies:
  - To lay the foundations for a more inclusive and resilient growth, implement policies to mitigate the pandemic scars, particularly on human capital.
  - Advance reforms to attract private financing to help meet the Sustainable Development Goals.
  - Continue efforts to advance the climate change agenda and integrate green public finance management initiatives.
- Program and reform implementation:
  - The Policy Coordination Instrument (PCI) will support fiscal sustainability, fiscal transparency and risk management, bolster domestic revenue mobilization (DRM), and modernize the monetary policy framework.

*Source: Executive Summary of IMF staff report for Rwanda (December 20, 2021).*

### 6. The FY20/21 budget execution overperformed the target (Figure 7,

### 6. The FY20/21 budget execution overperformed the target (Figure 7,

### FY20/21 budget execution — key findings
- Higher-than-expected interest payments and lower grants were offset by overperforming revenues reflecting:
  - the buoyant recovery,
  - the impact of the one-off bonus on income tax collection,
  - weaker execution of capital expenditure.
- The FY20/21 debt-creating overall balance was –8.2 percent of GDP, well below the –9.2 percent of GDP target.
- Despite the lower deficit, domestic financing and accounts payable were higher due to lower than expected external financing.
- External grants and loans amounting to US$87.4 million (0.9 percent of GDP) did not materialize.
  - Of that shortfall, US$12 million was disbursed in FY21/22, while the remainder was not disbursed due to delays in meeting performance benchmarks.
- Data for Q1 FY21/22 indicates:
  - revenues were negatively impacted by the July lockdown, VAT exemptions on construction material imports, and the reduction in the fuel levy in May;
  - expenditure was in line with expectations.

### Fiscal balances and fiscal stance
- Overall balance (GFSM 1986) reported: –9.2 and –8.6 (table entries shown as –9.2 and –8.6).
- Net acquisition of nonfin. assets: 12.6 and 12.2 (percent of GDP entries).
- Net lending (+) / borrowing (–): –7.9 and –7.5 (percent of GDP entries).
- Net incurrence of liabilities: 11.0 and 8.9 (percent of GDP entries).
  - Domestic: 1.0 and 2.5 (percent of GDP entries).
  - o/w Accounts payable (arrears): –0.3 and 0.2 (percent of GDP entries; positive sign indicates increase in liabilities/arrears).
  - Foreign: 10.0 and 6.4 (percent of GDP entries).
- Total Covid-19 spending: 3.7 and 3.7 (percent of GDP entries).
- Debt-creating overall balance (excl. PKO, GFSM 1986): –9.2 and –8.2 (percent of GDP entries).

### Fiscal consolidation and SDR use (medium-term stance)
- Staff and authorities agreed to relax the FY21/22 fiscal deficit by 0.5 percentage points of GDP to accommodate urgent spending needs.
  - This additional one-off spending will be financed by about 70 percent (1.3 percent of GDP) of the SDR allocation (SDR 153.5 million).
  - The remaining 30 percent (0.5 percent of GDP) will be saved as reserves and used to retire the remaining 2013 Eurobond at its maturity in 2023.
- Partially offsetting factors:
  - increased non-tax revenue from administrative fees associated with the economy reopening;
  - a slower ERF-2 rollout (COVID-19-related spending);
  - lower wages and salaries reflecting slowdown in hiring and promotions under the new civil service employment framework.
- Revenue losses due to:
  - temporary tax incentives under the Manufacture and Build to Recover Program (MBRP);
  - temporary reduction in the fuel levy.

### Policy adjustments and medium-term fiscal strategy
- Fiscal consolidation strategy largely as agreed at the 4th PCI review with revisions in composition:
  - Tax revenues are slightly lower than previously estimated due to updated MTRS yields and temporary tax exemptions to support the recovery.
  - Wages and salaries projected to be lower compared to the 4th PCI review.
  - Subsidies slightly less than previously assumed.
- On financing:
  - The remainder of the SDR allocation will be used to retire external debt in FY22/23.
  - External financing is still anticipated to remain a significant source for financing the deficit in the near term.

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### Financial sector — resilience and vulnerabilities
- The financial sector remains profitable, well-capitalized, and liquid as of end-September 2021.
- Capital adequacy ratios:
  - Banks: 22.2 percent (above prudential requirement of 12.5 percent).
  - Microfinance institutions (MFIs): 36.0 percent (above prudential requirement of 15.0 percent).
- Key liquidity indicators remained above minimum prudential requirements.
- Credit risks remain elevated:
  - Nonperforming loans (NPLs) ratio for banks and MFIs fell from 6.6 and 7.7 percent at end-March 2021, respectively, to 5.1 and 6.4 percent at end-September 2021, mainly due to growth in gross loans.
  - Performance of loans restructured due to the pandemic has steadily improved as the economy reopened, with close to 2/3 of COVID-related restructured loans servicing their obligations as of end-September 2021.
  - About 5.3 percent of gross loans are still in moratorium, including those to hotels that benefited from partial refinancing through the ERF.
- Banks have increased provisioning levels since March 2021 in recognition of higher credit risk.
- Recent stress tests confirmed resilience of the bank sub-sector, prompting BNR to remove restrictions on the payment of dividends.

### Program performance and reforms
- Program performance has been satisfactory:
  - All end-June 2021 quantitative targets (QTs) and continuous targets were met.
  - Inflation remained within the inner band set in the monetary policy consultation clause (MPCC).
- Reform targets (RTs) through end-November 2021 faced delays:
  - Selection of an advisory firm to review RSSB asset allocation (end-June RT) delayed due to procurement.
  - Hiring of a consultant for a legal assessment to inform the GMRA rollout (end-November RT) delayed due to procurement.
  - Automation of risk-based verification of VAT refunds was completed in November 2021 with a one-month delay.
- The delayed RTs are proposed to be reset.

### Outlook and risks — summary projections and risks
- Growth:
  - Growth is projected to rebound to 10.2 percent in 2021.
  - Growth is expected to return to its pre-pandemic trend by 2023 once the services sector fully recovers.
- Inflation:
  - Headline inflation is projected to increase from very low levels in the near term.
  - The 12-month average is expected to be below the lower bound of BNR’s tolerance band in 2021.
  - Inflation is projected to move towards the benchmark level and be within the upper bound of BNR’s tolerance level in 2022.
- Fiscal stance:
  - Near-term fiscal position is projected to worsen by 0.5 percent of GDP relative to the 4th PCI review to accommodate increases in social spending to support the recovery.
  - Overall and debt-creating fiscal balances are projected to gradually improve as COVID-19 fiscal support is phased out and fiscal consolidation measures are implemented after the crisis abates.
- External position:
  - Current account deficit is projected to widen temporarily in 2022 as pickup in capital and intermediate goods imports and high oil prices outweigh recovery in exports (particularly tourism).
  - Gross official reserves are expected to decline due to higher capital and intermediate goods imports, while remaining adequate at marginally above 4 months of prospective imports.
  - Over the medium term, the external position is expected to improve through increases in domestic savings and productivity growth supported by structural reforms.
- Risks (downside and upside):
  - Downside risks: repeated COVID-19 waves, new variants, pandemic scars, higher oil prices, subdued external demand (especially tourism), climate-related shocks — could stress external positions, heighten financial sector risks and contingent liabilities, and delay fiscal adjustment.
  - Upside risk: faster containment of the pandemic from a speedier vaccination rollout domestically and globally would boost confidence and economic activity.
- The SDR allocation provides some needed policy space.

*Source: Rwandan authorities and IMF staff estimates as presented in the cited chapter.*

### 13. The consolidation strategy will see the debt anchor of 65 percent

### 13. The consolidation strategy will see the debt anchor of 65 percent of GDP reached in 2028, earlier than previously expected.

### Fiscal consolidation summary and drivers
- Debt anchor of 65 percent of GDP reached in 2028, earlier than previously expected.
- Cumulative reduction in the overall headline deficit is 6.1 percentage points of GDP during FY 22/23–FY 25/26.
- Consolidation commences one year later due to the temporary relaxation of the FY21/22 deficit to support the economic recovery.
- Consolidation is projected to be growth-friendly, driven mainly by domestic revenue mobilization following the launch of the MTRS and reductions in recurrent spending with capital spending declining slightly but remaining high; social spending broadly protected.

- Main drivers from FY22/23 onwards:
  - Phase-off of COVID-19 and SDR-financed spending expected to contribute 2.1 and 1.3 percentage points of GDP, respectively, toward consolidation.
  - Domestic resource mobilization (DRM) expected to add 1.5 percentage points of GDP from MTRS measures, the unwinding of temporary exemptions, and cyclical factors.
  - Potential consolidation measures identified on expenditure side, including subsidies, goods and services, and grants; goods and services expenses expected to temporarily increase in FY22/23 then decline thereafter.
  - Capital expenditures expected to decline slightly as Eurobond-linked projects are completed and efficiency gains from World Bank PER and IMF PIMA are realized.
  - Savings from better targeting and cost-effectiveness in social spending could be allocated to protect human capital investments in health and education.

- Implementation timeline and supporting reforms:
  - Authorities plan to start legislating and finalizing fiscal consolidation measures as part of FY22/23 budget.
  - DRM measures under the MTRS expected to be approved by Cabinet by end-January 2022.
  - PER underway (delayed); PIMA delayed to January 2022 with recommendations early in 2022 to feed into FY22/23 budgetary process.
  - Ongoing PFM reforms: migration to accrual accounting, roll-out of IFMIS, performance-based budgeting.

### Fiscal numbers and selected projections (from Text Table / fiscal paths)
- Cumulative headline consolidation: 6.1 percentage points of GDP during FY22/23–FY25/26.
- Fourth PCI Review Baseline — Overall deficit (percent of GDP): 2020/21 -9.2; 2021/22 -8.6; 2022/23 -7.5; 2023/24 -5.1; 2024/25 -4.0; 2025/26 -3.0.
- Fourth PCI Review Baseline — Public debt (percent of GDP): 2020/21 79.1; 2021/22 81.3; 2022/23 81.1; 2023/24 79.5; 2024/25 76.5; 2025/26 74.0; 2026/27 71.4; 2027/28 68.5; 2028/29 65.7; 2029/30 64.4; 2030/31 63.2.
- 5th PCI Fiscal Path — Overall deficit (percent of GDP): 2020/21 -8.6; 2021/22 -9.1; 2022/23 -7.5; 2023/24 -5.0; 2024/25 -4.0; 2025/26 -3.0; 2026/27 -3.0; 2027/28 -3.0; 2028/29 -3.0; 2029/30 -3.5; 2030/31 -4.0.
- 5th PCI Fiscal Path — Public Debt (percent of GDP): 2020/21 74.6; 2021/22 77.2; 2022/23 77.9; 2023/24 75.7; 2024/25 73.1; 2025/26 71.1; 2026/27 68.2; 2027/28 65.0; 2028/29 62.1; 2029/30 60.5; 2030/31 59.1.
- Annual adjustments (consolidation + = fiscal tightening) shown: 2020/21 0.5; 2021/22 -0.5; 2022/23 1.7; 2023/24 2.4; 2024/25 1.1; 2025/26 0.9; 2026/27 0.0; 2027/28 0.0; 2028/29 0.0; 2029/30 -0.5; 2030/31 -0.5.

- Fiscal items (selected percentage point contributions to GDP by year 2021/22–2025/26, as presented in the earlier table fragment):
  - Total revenue and grants: 0.4, -0.1, 0.2, -0.5, -0.6
  - Taxes: -0.4, -0.4, -0.4, -0.2, -0.6
  - Grants: -0.1, 0.5, 0.7, -0.2, 0.1
  - Other revenue: 0.9, -0.1, -0.1, -0.1, -0.2
  - Expense: 0.2, -1.0, -0.2, -0.1, -0.5
  - Compensation of employees: -0.5, -0.6, -0.5, -0.5, -0.5
  - Use of goods & services: 0.7, 0.3, 0.6, 0.4, 0.2
  - Net acquisition of nonfinancial assets: 1.2, 0.9, -0.1, -0.4, -0.1
  - Policy lending (financial assets equity, loans): -0.6, -0.1, 0.4, 0.0, 0.0
  - Overall balance (GFSM comparators): -0.5, 0.1, 0.1, 0.0, -0.1
  - Net domestic financing: -3.3, 0.2, 0.4, 0.8, 0.3
  - Net foreign financing: 3.8, -0.3, -0.4, -0.8, -0.2
  - Of which SDR financing: 1.3, 0.5, 0.0, 0.0, 0.0
  - Of which eurobond: 2.4, -0.5, 0.0, 0.0, 0.0

### Debt sustainability and financing operations
- Rwanda’s debt remains sustainable with a moderate risk of debt distress; stress tests show elevated solvency risks.
- Debt will fall below the East African Monetary Union Protocol’s present value (PV) of debt convergence criterion of 50 percent by 2027.
- US$620 million Eurobond issuance in August, mostly used to buyback 85 percent of the outstanding US$400 million Eurobond maturing in 2023 and to retire existing expensive commercial debt.
  - Remaining US$147.5 million proceeds from the Eurobond would be used to finance investment in projects the authorities deem key to supporting economic recovery in agriculture.
- SDR allocation used to repay the Eurobond maturing in 2023 will help reduce near-term liquidity risks.
- Timely return to credible fiscal consolidation, containment of fiscal risks, and reliance on concessional resources remain critical to limit debt service burden.

### Domestic revenue mobilization (DRM) and tax measures
- Tax exemptions introduced in January 2021 under the MBRP over FY21/22 and FY22/23 projected to cost RWF 40 billion (0.3 percent of GDP) in forgone revenues.
- Temporary fuel subsidies through a reduction in the fuel levy will cost RWF 16 billion (0.1 percent of GDP) this fiscal year before being phased out at the beginning of July 2022.
- Permanent tariff reductions under the African Continental Free Trade Agreement expected to reduce revenue by 0.2 percent of GDP per year once fully implemented.
- MTRS (spanning FY 21/22–FY 23/24) expected to be approved by Cabinet in January 2022 with the goal of permanently increasing the revenue-to-GDP ratio by 1 percentage point through tax policy and administration reforms once temporary COVID-19 related exemptions are unwound.
- Draft laws revising personal and corporate income taxes and VAT awaiting Parliament and Cabinet approval.
- First review of MTRS implementation due by end-December 2022.

- Policy caution:
  - Authorities should monitor the impact of tax exemptions on MTRS yields and consider accelerating their withdrawal if revenue losses are larger than anticipated.
  - Footnote: Tax exemptions under the MBRP are expected to negatively impact MTRS measures aimed to increase tax compliance over and beyond their direct DRM impact.

### Fiscal risks, transparency, and governance measures
- SOE oversight and fiscal risk management:
  - Authorities expect to finalize stress tests for some high-risk SOEs by end-March 2022 and plan to conduct SOE “health-checks” quarterly including some subsidiaries.
  - Refinements and expansion of mitigation measures to be included in FY22/23 budget and fiscal risk statement.
  - With IMF TA support, expansion of fiscal risk statement to include PPP fiscal risks informed by PFRAM (end-April 2022).
- Legal strengthening:
  - New Organic Budget Law (OBL) expected to be approved by Parliament in 2022Q1, institutionalizing fiscal risk management practices, clarifying Fiscal Risk Committee role, empowering Minister to appoint members, and mandating annual fiscal risk statement publication.
  - Presidential Order expected by June 2022 to strengthen monitoring and oversight of SOEs, harmonize financial reporting to fiscal year, and establish deadlines and sanctions for publication of financial statements.
  - Authorities prefer these legal instruments rather than publishing a SOE Ownership Policy.
- Transparency and reporting:
  - Plans to expand published fiscal data, including historical series of consolidated government finance statistics for the non-financial public sector (NFPS) by end-December 2021 are on track.
  - Review of RSSB asset allocation delayed: short list approved October 2021; final selection expected end-January 2022 (reset RT); RSSB asset allocation review delayed to end-June 2022 (reset RT).
- Public procurement and beneficial ownership:
  - Enhancements to E-Procurement and integration with IFMIS to improve contract management and reduce inefficiencies and corruption risks.
  - Proposal being prepared to advance disclosure on beneficial ownership for all public contracts; staff advised to align beneficial ownership provisions with FATF standards and publish information on E-Procurement platform; IMF TA available if needed.

### Authorities’ views
- Near-term fiscal strategy should prioritize containing the spread of COVID-19 and supporting the recovery.
- Authorities welcomed using part of SDR allocation to finance urgent spending needs while reaffirming commitment to medium-term fiscal consolidation path.
- Authorities believe existing budgetary mechanisms, commitment to DRM, and reforms to accounting, budgetary, and legal frameworks will bolster implementation capacity and mitigate risks.

### Monetary and financial sector policies
- Monetary policy stance:
  - Current accommodative monetary policy has been appropriate and should remain data dependent.
  - Headline inflation projected to turn positive and overshoot the benchmark in 2022; 12-month average expected to be within the upper bound of BNR’s tolerance level at 5.7 percent by year end.
  - BNR kept policy rate unchanged in November MPC meeting; decision appropriate given inflation expectations and need to support recovery.
- Interest rate-based framework and market reforms:
  - Efforts to implement interest rate-based monetary policy continue; reforms to deepen money markets face delays.
  - Progress depends on banks signing Global Master Repurchase Agreement (GMRA); GMRA operationalization delayed by six months now expected by end-December 2022.
  - Interbank market activity increased in 2021 due to higher demand for liquidity from faster credit growth; BNR uses reverse repos to meet banks’ liquidity demands.
- Financial stability and inclusion:
  - Regulatory forbearance measures introduced in 2020 expired end-September 2021; loan classification and provisioning returned to pre-pandemic regulatory standards.
  - With IMF TA, BNR improving review expertise on ICAAP and ILAAP to inform targeted support and recapitalization needs.
  - Staff advice to BNR:
    - Ensure regulations governing credit classification and provisioning are not misused to mask asset quality issues.
    - Deploy targeted and time-bound interventions to hard-hit sectors to contain imminent credit risks.
    - Maintain regulatory limits, prudential standards, supervisory and reporting efforts.

_International Monetary Fund — Rwanda: excerpts from chapter 13 of the IMF staff report (text and tables provided in the source content)._

### 23. The authorities are staying the course in advancing the financial

### 23. The authorities are staying the course in advancing the financial

### Financial inclusion and digitalization
- Retail e-payments as a share of GDP increased by 17.3 percent y/y in June 2021 to reach 95.5 percent.
- Increase components:
  - mobile payments increased by 64 percent;
  - internet banking services increased by 26 percent.
- Other initiatives to scale up digital financial services:
  - upgrade of the payment systems with access to MFIs and Savings and Credit Cooperatives (SACCOs);
  - interoperability of instant payments for 2022;
  - education and onboarding of merchants;
  - strengthening regulations of security and BCP;
  - digitalization of complaints handling.
- BNR indicated the study on consumer payment behavior and the pricing of digital payment services is on track (end-December 2021 RT) to inform policy measures to encourage cashless payments.

### AML/CFT framework and FATF technical compliance
- Financial Intelligence Center (FIC) became operational in December 2020 with the principal mission of conducting financial intelligence to counter money laundering, the financing of terrorism, and the financing of proliferation of weapons of mass destruction and related crimes.
- Authorities have initiated targeted measures and passed several laws and regulations in response to shortcomings identified in Rwanda’s first 2014 ESAAMLG mutual evaluation and subsequent progress reports.
- Priority actions recommended:
  - further align the legal framework with FATF standards;
  - ensure effective implementation of targeted financial sanctions and AML/CFT measures by designated non-financial businesses and professions (DNFBPs);
  - strengthen FIC’s capacities (including staffing and training).
- Rwanda is preparing for the second mutual evaluation round planned for October 2022, which will assess progress on technical compliance and effectiveness of the AML/CFT regime.

### External sustainability and exchange rate flexibility
- International reserves at end-2021 are projected at 5.2 months of prospective imports (4.5 months of prospective imports, excluding the 2021 SDR allocation), above the recommended range for the Fund’s reserve adequacy metric for credit-constrained economies.
- Staff highlights importance of:
  - exchange rate flexibility;
  - steadfast implementation of post-pandemic fiscal consolidation; and
  - structural reforms to improve the business climate and boost competitiveness.
- BNR commitment:
  - limit foreign exchange market interventions to minimizing excessive exchange rate volatility and maintaining adequate reserve levels.
- Authorities’ view:
  - commitment to exchange rate flexibility in line with the monetary policy framework.

### Structural policies for inclusive and resilient recovery
- Policy priorities to mitigate pandemic scars and foster inclusive growth:
  - reverse learning and earning losses caused by the pandemic, especially for children and women under the ERP;
  - step up pre-pandemic efforts to accelerate human capital accumulation;
  - improve health, education, and early childhood development services;
  - boost female employment and entrepreneurship;
  - narrow the digital gap.
- Social policies under the ERP include:
  - expanding programs to support poor pregnant and lactating women and reduce child stunting and malnutrition;
  - improving quality and retention in primary and secondary schooling through construction of new and less remote schools, stronger teacher training, and adoption of digital technologies;
  - providing training and facilitating access to finance to female entrepreneurs under the ERF-2.
- The PER focuses on increasing targeting and cost-effectiveness of social spending, especially in health and education, to sustain human capital investments and support fiscal consolidation.

### Climate action and Green PFM initiatives
- Rwanda’s NDC goals amount to US$10 billion by 2030.
- Government initiatives:
  - setting up the Rwanda Green Fund;
  - prioritizing and implementing climate-resilient initiatives under the budget through an Environment and Climate Change Monitoring Statement.
- Green PFM approach (high-level features):
  - integrate climate into PFM systems: budget preparation (medium-term budget frameworks, budget circulars), budget execution (tagging of climate expenditures), public investment management, control and audit, and legal frameworks.
- Planned actions and diagnostics:
  - release an Environment and Climate Change (ECC) Monitoring Statement in the FY 22/23 budget;
  - introduce a climate budget tagging system to attach a tag or code to budget lines to better identify climate or environmental spending;
  - undertake a PIMA in January 2022 (IMF-led) and a comprehensive climate diagnostic with the World Bank (CCDR) to further integrate climate and development and explore financing solutions.

### Financing SDGs and development needs
- Additional resources needed to meet SDGs by 2030:
  - about 21¼ percent of GDP per year, against 15.7 percent of GDP per year pre-pandemic.
- Policy recommendations to attract private financing and manage fiscal risks:
  - enhance the cost-effectiveness of fiscal incentives;
  - share associated fiscal risks of incentives with the private sector and development partners;
  - maintain greater prioritization and value-for-money of public investment projects;
  - promote regional integration to address constraints from Rwanda’s small market size.

### Program modalities, conditionality, and monitoring
- Program monitoring instruments: QTs, RTs, standard continuous targets, and an MPCC (monitored semi-annually).
- Program adjustors introduced to accommodate uncertainties related to timing in execution of projects financed by the recent Eurobond issuance and SDR allocation; adjustors to be reassessed during the 6th PCI review.
- Specific conditionality and target adjustments:
  - end-December 2021 QTs proposed to be modified and new end-June 2022 QTs set in line with updated macroeconomic framework;
  - floor on net foreign assets proposed to be modified to exclude swaps with resident institutions with original maturity of one year or less, and with nonresident institutions (TMU, ¶4);
  - two new RTs on publishing the MTRS approved by the Cabinet and conducting the first review of the MTRS implementation and impact are proposed for end-January 2022 and end-December 2022, respectively;
  - the missed end-June 2021 RT on selection of an advisory firm to conduct the review of RSSB’s asset allocation is proposed to be reset to end-January 2022; the end-December 2021 RT on the review of RSSB asset allocation has been proposed to be reset to end-June 2022;
  - the end-November 2021 RT on the legal assessment for GMRA rollout is proposed to be reset to end-March 2022, with cascading GMRA RTs proposed to be reset to end-June 2022 and end-December 2022, respectively.
- Program financing stance:
  - Rwanda is not seeking financial assistance from the Fund and the program is fully financed, with firm commitments of financing in place over the next 12 months and good financing prospects for the remainder of the program.
  - Risks to program implementation remain high but are mitigated by robust public health response, ERP implementation, targeted pandemic-related aid and expenditures, contingency planning, oversight, and strong track record in implementing Fund-supported programs.

### Safeguards, capacity development, and statistics
- Safeguards Assessment (October 2021, remote):
  - BNR maintains a relatively strong safeguards framework; autonomy supported by legal framework aligning audit and reporting practices with international standards.
  - Recommendations: amend reserves management policy to discontinue inclusion of domestic issuers’ instruments as foreign reserves; periodic reviews of program monetary data for consistency with PCI TMU definitions.
  - Previous safeguards assessment in 2016 had all recommendations implemented.
- Capacity Development (CD) recent focus:
  - TA to strengthen FPAS, improve government finance statistics, design the MTRS, strengthen fiscal risk management, strengthen implementation of Basel core principles and IFRS for MFIs, and strengthen internal procedures for review of banks’ IT risk.
- Planned CD priorities:
  - conduct a PIMA, a PFRAM, an MTRS follow-up, an IPSAS rollout, performance-based budgeting, and follow-up on FSSR recommendations.
- Statistics:
  - e-GDDS implemented since 2017; authorities expressed interest in subscribing to the SDDS in 2022.
  - Current focus to improve quality, coverage, and frequency of monetary, external, and fiscal data, and to expand coverage of public sector debt statistics.

### Staff appraisal (key judgements)
- The economy is showing signs of recovery but the pandemic risks reversing Rwanda’s hard-won social gains; unemployment and poverty have risen, especially among women; learning losses from school closures risk permanent reductions in earnings, productivity, and potential growth.
- Authorities’ sustained policy measures (health, fiscal, monetary, financial sector) are attenuating pandemic impact; vaccination rollout is accelerating and facilitating lifting of restrictions.
- Macroeconomic and financial conditions:
  - recovery appears to be strengthening despite many risks;
  - inflation is low;
  - the banking system is stable and liquid;
  - borrowing remains predominantly on concessional terms;
  - public debt is sustainable at a moderate risk of debt distress with limited buffers.

*Source: IMF staff report excerpt provided in the content unit.*

### 39. With pandemic risks still on the horizon, the outlook remains uncertain. Uncertainties

### 39. With pandemic risks still on the horizon, the outlook remains uncertain. Uncertainties

### Outlook and Pandemic Risks
- Pandemic-related uncertainties on the pace of vaccinations across the region, emerging new variants and prospect of repeated COVID-19 waves could undermine confidence and the economic recovery.
- Authorities relaxed the FY21/22 budget to accommodate additional pandemic resilience spending given the uncertainties surrounding the recovery underway.

### Program Performance
- Program performance remains satisfactory despite the difficult environment.
- All quantitative targets have been met.
- Some reform targets are facing delays.
- Staff supports the authorities’ decision to relax the FY21/22 budget to accommodate additional pandemic resilience spending.
- Staff supports the completion of the fifth review.

### Fiscal policy and consolidation (recommendations and requirements)
- The authorities’ commitment to safeguard debt sustainability by adopting a gradual and growth-friendly fiscal consolidation over the medium term remains central to achieving the program objectives.
- Critical actions requested of the authorities:
  - Legislate and adopt the revenue and spending efficiency measures beyond the annual budget process before the end of the program to support the credibility of the fiscal consolidation strategy.
  - Closely monitor fiscal risks from SOEs and PPPs and put in place mitigating measures.
  - Closely monitor credit risks to safeguard financial stability.
  - Deploy targeted and time-bound interventions, as needed, to contain the materialization of credit risks without relaxing regulatory and supervisory requirements.

### Monetary policy guidance
- Monetary policy should remain data dependent.
- Inflation remains subdued, but the rising inflation outlook for 2022 and the need to continue to support the recovery would require BNR to closely monitor price developments and keep monetary policy data-dependent.

### External position, competitiveness, and governance reforms
- Rwanda’s external position in 2021 was substantially weaker than implied by fundamentals and desirable policy.
- Authorities’ commitment to safeguard external sustainability through a flexible exchange rate, credible fiscal consolidation post-COVID, and reforms to strengthen Rwanda’s external competitiveness are central to improving the external position.
- Decisive actions should be taken to advance macro-critical reforms, including:
  - Limit pandemic scars.
  - Strengthen fiscal transparency.
  - Strengthen domestic revenue mobilization.
  - Advance the interest rate-based monetary framework.
  - Publish information on beneficial ownership of companies awarded government procurement contracts to further strengthen governance.
  - Seize the opportunity to build a greener economy to mitigate and adapt from climate-related risks, supporting near-term and resilient growth.

### Consultations and timing
- Staff recommends that the next Article IV consultation be held on the 24-month consultation cycle in accordance the Executive Board decision on consultation cycles for members with Fund arrangements.

*Source: IMF staff report excerpt (Rwanda).*

### 1. Ceiling on the debt-creating overall balance, including grants

### 1. Ceiling on the debt-creating overall balance, including grants

### Program targets and continuous targets
- Aggregate reported target entries as presented:
  - " -884-92710-937-847Met"
  - "2. Floor on stock of Net Foreign Assets 7461,024-539711,181Met"
  - "3. Ceiling on net accumulation of domestic arrears 00-0.2Met"
  - "4. Ceiling on stock of external payment arrears (US$ million) 000Met"
- Monetary Policy Consultation Band / CPI Inflation target and bounds:
  - "CPI Inflation target 5.05.04.2Met"
  - "Inflation, upper inner-bound, percent 8.08.0"
  - "Inflation, lower inner-bound, percent 2.02.0"
  - "Inflation, upper bound, percent 9.09.0"
  - "Inflation, lower bound, percent 1.01.0"
- Continuous targets and other program notes:
  - "Monetary Policy Consultation Band 1,4"
  - Footnotes and technical definitions are governed by the Technical Memorandum of Understanding (TMU) (footnote indicator 1).

### Memorandum items and fiscal figures (as reported)
- Total priority spending:
  - "9709701,067Met"
- Floor on domestic revenue collection:
  - "1,6871,7391,798Met"
- Total budget support (US$ million):
  - "777711627"
- Budget support grants (US$ million):
  - "308284274"
- Budget support loans (US$ million):
  - "469427353"
- PV of budget and project loans dedicated to COVID-19 vaccine interventions (US$ million):
  - "...3028"
- Budget and project grants dedicated to COVID-19 vaccine interventions (US$ million):
  - "...43"
- Total spending dedicated to COVID-19 vaccine interventions:
  - "...175"
- RWF/US$ program exchange rate:
  - "937972972"
- Additional reported item lines:
  - "01,149449Met"
  - "135Met"
  - "Stock of new external debt contracted or guaranteed by nonfinancial public enterprises (US$ million) 3"

### Notes on cumulative definitions and adjustments
- "All items, including adjusters, are defined in the Technical Memorandum of Understanding (TMU)." (footnote 1)
- "Numbers are cumulative from June 30, 2020. Targets for priority spending were inadvertently not cumulative and were corrected to include priority spending until end-December 2020." (footnote 2)
- "Ceiling is cumulative from the beginning of calendar year 2021." (footnote 3)
- "Floor is adjusted to exclude UN peace keeping operations, in line with the TMU." (footnote 5)
- COVID-19 vaccine interventions defined per TMU. (footnote 6)
- Specific loan composition included: "This includes USD 34 million of budget loan from AFD with a grant element of 33 percent and USD 15 million of project loan from the World Bank/IDA with a grant element of 53 percent." (footnote 7)

### Ceiling on present value (PV) of new public and publicly guaranteed external debt
- Reported entries:
  - "5. Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million) 3"
  - Numeric lines: "4851,149" and "end-June 2021 700700"

### Review schedule under the Policy Coordination Instrument (PCI), 2019–23
- Key dates:
  - Board discussion of a PCI request: "June 28, 2019"
  - First Review: "June 30, 2019" (Test Date) — "December 15, 2019" (Review Date)
  - Second Review: "December 31, 2019" — "June 15, 2020"
  - Third Review: "June 30, 2020" — "December 15, 2020"
  - Fourth Review: "December 31, 2020" — "June 15, 2021"
  - Fifth Review: "June 30, 2021" — "December 15, 2021"
  - Sixth Review: "December 31, 2021" — "June 15, 2022"
  - Seventh Review: "June 30, 2022" — "December 15, 2022"
  - Eight Review: "December 31, 2022" — "June 15, 2023"

### Reform targets (selected implementation status highlights)
- Fiscal:
  - "Produce annual tax expenditure report with updated methodology, and a description of broad categories of beneficiaries": end-Jun. 2019 — Met
  - "Procure an IT system that will capture all RSSB processes": end-Jun. 2019 — Met
  - "Produce a report outlining detailed options for improving functioning of VAT, including measures that could be implemented in FY20/21.": end-Dec. 2019 — Met
  - "Automating the risk-based verification process for refund claims.": end-Dec. 2019 — Not Met; end-Dec. 2020 — Not Met; end-Oct. 2021 — Not Met
  - "Begin producing quarterly budget execution reports in GFS 2014 format.": end-Dec. 2019 — Met
  - "Produce a comprehensive fiscal risk analysis statement.": end-Jun. 2020 — Met
  - "Conduct a 'health-check' assessment of fiscal risks from SOEs using available data and submit the outcome and mitigation options to the fiscal risk committee.": end-May 2021 — Met
  - "Select advisory firm to conduct a review of RSSB asset allocation": end-Jun. 2021 — Not Met
- Monetary and Financial:
  - "Improve communication for monetary policy by organizing quarterly outreach after each MPC meeting...": end-Dec. 2019 — Met
  - "Publish macro projections for MPC decision making in quarterly inflation reports...": end-Jun. 2020 — Met
  - "Introduce a platform for issuing government securities using mobile phones.": end-Jun. 2020 — Not Met; end-Jun. 2021 — Met
  - "Expand industrial and market expectation surveys... begin collecting data to construct a purchasing manager's index...": end-Dec. 2020 — Met
  - "Conduct a legal assessment to identify gaps in the regulatory framework for true repo ahead of Global Master Repurchase Agreement (GMRA) rollout.": end-Nov. 2021 — Not Met

### Annex I — Pandemic Scars: impact, model, and key simulation results
- Main channels of scarring:
  - Persistent increases in poverty and inequality; reductions in potential growth via human capital loss.
  - Human capital channels: learning losses from school interruptions; reduced returns to education; premature youth employment; prolonged unemployment; deteriorating health.
  - Women and female-headed households disproportionately affected.
- Model setup:
  - Endogenous growth model where human capital H evolves with depreciation 훿 and new formation S at rate ω; social spending T affects S through parameters 휌 and elasticity 휙, with student population share N and elasticity ξ.
  - Core equations (as reported):
    - "퐻퐻_{i i} = (1−훿_{i i}) 퐻퐻_{i i −1} + 휔_{i i} S_{i i −1}" (equation 1)
    - "S_{i i} = (1−휔_{i i}) S_{i i −1} + ( (휌_{i i} T_{i i −1}) )^{\phi} N_{i i −1}^{\xi}" (equation 2)
- Parameter shocks considered:
  - Human capital diffusion parameter baseline: "0.090.10" with "7 percent higher than the baseline" reported.
  - Human capital depreciation baseline: "0.050.08" with "50 percent higher than the baseline"
  - Elasticity of new human capital formation w.r.t. social spending baseline: "0.540.275" with "50 percent lower than the baseline"
  - Elasticity of new human capital formation w.r.t. student population baseline: "0.510.265" with "50 percent lower than the baseline"
- Scenario outcomes:
  - Even temporary (5-year) human capital scarring can affect growth and debt through the end of the decade.
  - Combined temporary shock (scenario A-5): 
    - Growth "0.3 percentage points below" baseline in 2030.
    - Public debt "4 percentage points above" baseline in 2030.
    - SDG financing gap: additional grant needs increase "about 1 percentage point relative to the baseline."
  - Active policies scenario (combination of domestic revenue mobilization, spending reallocation to SDGs, private sector participation):
    - Per capita income "8.1 percent higher"
    - Real GDP growth rate "1.9 points above"
    - Public debt as a share of GDP "4.2 points below" the baseline scenario with pandemic scars
    - Even with active policies, meeting SDGs by 2030 remains unlikely; additional concessional financing is crucial.

### Policy interventions considered to reduce SDG financing gaps
- Five government interventions (as described):
  - (i) Additional domestic revenue mobilization.
  - (ii) Reallocation of spending to SDG programs resulting from savings and spending efficiencies in non-SDG programs.
  - (iii) Combination of (i) and (ii).
  - (iv) Policies to increase private sector participation in SDG programs.
  - (v) Full combination of active policies, including fiscal measures and policies to attract private financing.
- Aggregate finding:
  - All policy scenarios improve GDP per capita and real GDP growth and partially offset pandemic scars, but are unlikely alone to enable Rwanda to meet SDGs by 2030 without increased concessional financing.

### Annex II — 2019 Article IV Consultation commitments: selected status
- Fiscal policy commitments:
  - Adopt fiscal stance supporting NST implementation while maintaining low debt risks: PCI introduced fiscal rule of 5.5 percent of GDP ceiling (5-year rolling average); rule suspended at COVID-19 onset in favor of a consolidation path converging to a debt anchor of "65 percent of GDP."
  - Bolster domestic revenues: progress in costing tax incentives, improving tax compliance, increased use of technology; delays remain in automating the VAT refund risk-based verification process.
  - Improve PFM and fiscal risk management: creation of fiscal risk committee; publication of fiscal risk statements; fiscal risk registry; SOE health-checks initiated; migration to GFSM 2014 for quarterly reporting; expansion of fiscal reporting coverage; RSSB IT modernization in progress; RSSB asset allocation review expected by "June 2022."
- Monetary policy commitments:
  - Strengthen transmission, deepen markets, improve access to financial services: progress in FPAS development, external communication, short-term rate transmission, interbank market activity; challenges remain for transmission to longer-term rates and liquidity forecasting; steps underway to deepen money and bond markets (bond reopening, repo infrastructure upgrades, GMRA rollout, increased reverse repos); financial inclusion advancing via digital financial services uptake.

### Annex III — Risk Assessment Matrix (selected risks and policy responses)
- Key external and domestic risks (relative likelihood and policy responses summarized):
  - Unexpected shift in the Covid-19 pandemic — Relative Likelihood: "High" — Expected Impact: Downside (strong containment needed; insufficient policy response amid dwindling space) / Upside (faster recovery if effective vaccine) — Policy response: Strengthen data-driven monetary policy framework and MTRS; facilitate exports.
  - Reduced output in agriculture, job loss, higher contingency spending — Relative Likelihood: "Medium/High" — Policy response: Accelerate targeted government fiscal and financial interventions; prioritize infrastructure projects with high fiscal multipliers; strengthen regional coordination; continue mobilizing international community support.
  - Monetary policy normalization in AEs and tightening external financial conditions — Relative Likelihood: "Medium" — Expected Impact: Faster rebound of external demand; higher borrowing cost; capital outflow — Policy response: Strengthen data-driven monetary policy framework and MTRS; facilitate exports.
  - Higher oil prices / oil market volatility — Relative Likelihood: "Medium" / "Low" depending on scenario — Policy response: Ensure strategic fuel reserves are adequate.
  - Cyber-attacks — Relative Likelihood: "Medium/Low" — Policy response: Ensure financial service providers frequently upgrade IT systems.
  - Natural disasters related to climate change — Relative Likelihood: "Medium" — Policy response: Include contingency spending plans in fiscal framework and strengthen food security programs.
  - Widespread social discontent and political instability — Relative Likelihood: "Medium/Low" — Policy response: Increase access and benefits, improve targeting of social safety nets; bring forward job creation and vocational training measures; pursue tax reforms to broaden tax base.
  - Intensified geopolitical tensions and security risks — Relative Likelihood: "Medium" — Policy response: Diversify economic and export structure; strengthen regional security surveillance programs.

*Sources: Rwandan authorities and IMF staff estimates and projections.*

### Annex IV. Monetary Policy Framework Implementation

### Annex IV. Monetary Policy Framework Implementation

### Monetary policy framework and implementation
- BNR implements an interest rate-based monetary policy framework adopted in January 2019 with a medium-term headline inflation target of 5 percent and an inflation target band of ±3 percentage points.
- Framework objective: transition to a price-based framework to develop a data-driven and forward-looking monetary policy.
- The framework informed a 50-basis-point cut in the policy rate at the onset of the COVID-19 pandemic.
- Challenges: high uncertainty and difficulty in timely data collection owing to COVID-19 have constrained implementation.

### Forecasting Policy and Analysis System (FPAS)
- Developing an FPAS has been a priority; IMF technical assistance (TA) supported deployment of key modeling and forecasting tools.
- Milestones:
  - Post-MPC meeting outreach started in November 2019.
  - Since 2020, quarterly monetary policy reports include macroeconomic projections.
  - A fully functioning quarterly core model for forecasting inflation, output, the exchange rate, and the short-term interest rate has been established.
- Remaining needs:
  - Strengthen nowcasting.
  - Increase the role of sectoral experts in the forecasting process.
  - Improve design and implementation of alternative model scenarios.
  - Refine external communication to better anchor expectations.

### Monetary operations and financial market development
- Transmission improvements:
  - Short-term rates broadly track the policy rate.
  - Since 2019, BNR uses reverse repos to meet banks’ liquidity demand.
- Market infrastructure and instruments:
  - Upgrades to the repo market infrastructure; change of ownership during repo transactions allowed since November 2020.
  - Steps to extend repos to non-bank financial institutions and roll out the Global Master Repurchase Agreement (GMRA) with World Bank TA support.
  - Bond re-openings since 2018 and efforts to broaden the investor base to develop the government securities market.
- Constraints to strengthening transmission:
  - Excess liquidity in the banking system.
  - Incomplete transmission to lending rates.
  - Inefficient collateral pricing.
  - Liquidity forecasting weaknesses.

### Exchange rate policy
- Rwanda’s exchange rate regime is de facto classified as “crawl-like” arrangement.
- Recommendation: A market-determined exchange rate and FX interventions limited to stemming excessive exchange rate volatility will support the monetary policy framework.
- IMF TA could support BNR to:
  - Identify steps to develop an open FX market.
  - Address FX supply shortages.
  - Gradually reduce the role of BNR in intermediating FX.

### Annex V — External sustainability assessment (selected findings)
- 2021 current account deficit is estimated to end up at 11 percent of GDP.
- Drivers in 2021:
  - Trade deficit close to 2020 level; strong economic recovery increased imports while metals and manufacturing exports rebounded.
  - Very strong remittance growth boosted the current account; tourism receipts remained weak.
- Reserves and financing in 2021:
  - International reserves projected to increase further in 2021, partly reflecting the SDR allocation.
  - Reserves projected to be more than US$1.8 billion by year-end, equivalent to 5.2 months of prospective imports.
- 2022 outlook and medium term:
  - Current account deficit expected to widen in 2022 due to increased imports from public capital spending and large average y-o-y energy price increases; one-off COVID-related remittance boost would start to wane.
  - Resumption of construction projects and improved manufacturing prospects should attract higher FDI.
  - Over the medium term, planned fiscal consolidation should narrow the current account deficit and allow reserve coverage to remain above 4 moths of prospective imports.
- External position assessment:
  - REER depreciated starting mid-2020 and continued through 2021, supported by nominal depreciation against US dollar and low domestic inflation.
  - EBA-Lite CA model:
    - 2021 multilaterally consistent CA norm: 7.3 percent of GDP.
    - Cyclically adjusted current account deficit: 12.1 percent of GDP.
    - Current account gap: -4.8 percentage points of GDP.
    - Estimated real overvaluation: 23 percent (given estimated trade elasticities).
  - REER model indicates REER close to equilibrium but is considered less reliable for Rwanda due to short time series.
- International investment position (IIP):
  - By end-2020, external liabilities amounted to 91 percent of GDP, exceeding reserve assets by 67 percentage points of GDP.
  - BOP developments suggest IIP deterioration continued into 2021 and may persist into next year.
  - Medium-term expectation: narrowing current account deficit driven by fiscal consolidation should stabilize net IIP; composition of external liabilities should improve as FDI becomes more important.
- Competitiveness indicators:
  - Rwanda ranks favorably on many sub-indicators relative to peers per World Economic Forum’s 2019 Global Competitiveness Index (GCI):
    - GCI institutional quality rank: 36th out of 141 countries.
    - GCI business dynamism rank: 46th.
  - Main weaknesses: labor skills and innovation capability; constrained by market size.
- Adequacy of international reserves:
  - At end-2021, international reserves projected at 5.2 months of prospective imports, above the adequate level.
  - ARA-CC indicates an optimal range of 3.8–4.9 months of imports with a flexible exchange rate classification.
  - Staff considers reserves in the range of 4.0–5.0 months optimal; given Rwanda’s crawl-like arrangement, the upper end may be more relevant.

### Annex VI — Climate change goals and financing (selected findings)
- Vulnerability and policy context:
  - Rwanda is highly vulnerable to climate change due to reliance on rainfed agriculture and livestock, rapid urbanization, and depletion of forest and water resources.
  - National commitments:
    - Updated Nationally Determined Contribution (NDC) goals: reduce Green House Gas emissions by 38 percent compared to business-as-usual projection.
    - National Environment and Climate Change Policy enacted in 2019; NDC updated in 2020; Green Growth and Climate Resilience Strategy currently being revised.
- Investment needs and costs:
  - Achieving NDC goals estimated to cost US$11 billion through 2030:
    - Mitigation costs: US$5.7 billion.
    - Adaptation costs: US$5.3 billion.
  - Mitigation measures include hydroelectric generation, energy efficient cooktops, electric vehicles, greater use of solar, improved livestock feed, prevention of soil erosion, and improved livestock management.
  - Priority adaptation sectors: water, agriculture, land, forestry, human settlement, transport, health, and mining.
  - Note: costings have positive development spillovers; adaptation spending estimates vary internationally due to overlap with general development spending.
- Financing challenges and composition:
  - To fully meet NDC goals, financing costs will be more than 10 percent of GDP annually through 2030.
  - Rwanda classifies measures by finance source: 60 percent conditional on external support and 40 percent unconditional/domestic resources.
  - For conditional resources, planned sources include bilateral and multilateral support, climate finance, and international cooperative approaches.
- Institutional vehicle:
  - Rwanda Green Fund (FONERWA) coordinates climate change project financing and has funded over 45 projects.
  - FONERWA developing private sector instruments: hybrid funds, guarantee fund, leasing and securitization vehicles, planned green bonds to be issued in 2022, and business incubator/accelerator programs.

### Annex VII — Enhancing cost-effectiveness of fiscal incentives (selected findings)
- Role of fiscal incentives:
  - Fiscal incentives (tax incentives, grants, subsidies, guarantees) are central to attracting private investment, including FDI, SEZs, SOEs, and PPPs in strategic sectors.
  - Used to correct market failures and address hindrances: high transport and energy costs, low agricultural productivity given small, land-locked, mountainous geography.
  - Use reinforced by limited progress attracting FDI relative to peers despite business environment improvements and a new Investment Code Law (Law N° 006/2021, approved in February 2021).
- Tax incentives structure and magnitude:
  - Incentives include preferential corporate income tax (CIT) rates, tax holidays, exemptions from capital gains tax and customs duties, VAT refunds, accelerated depreciation allowances, and immigration incentives.
  - Generosity increases with project size; large projects often receive discretionary concessions.
  - Tax expenditures amounted to 3.2 percent of GDP in FY19/20:
    - CIT incentives: 0.4 percent of GDP (part of the 3.2 percent total).
  - Rwanda: Tax Expenditures (percent of total / percent of GDP)
    - VAT: 2017/18 60.7; 2018/19 51.5; 2019/20 46.4 (percent of total) and 1.5; 1.5; 1.5 (percent of GDP).
    - Income tax: 2017/18 11.8; 2018/19 12.9; 2019/20 13.6 (percent of total) and 0.3; 0.4; 0.4 (percent of GDP).
    - Import duties: 2017/18 27.5; 2018/19 35.5; 2019/20 40.1 (percent of total) and 0.7; 1.1; 1.3 (percent of GDP).
    - Total tax expenditures: 2017/18 100.0; 2018/19 100.0; 2019/20 100.0 (percent of total) and 2.4; 3.0; 3.2 (percent of GDP).
    - Memo: Total (RWF billion) 2017/18 194.3; 2018/19 258.8; 2019/20 304.2. Total GDP (RWF billion): 2017/18 8,016; 2018/19 8,718; 2019/20 9,402.
- Pandemic-related extensions:
  - Manufacture and Build to Recover Program (MBRP) adopted January 2021 to fast-track private investments in manufacturing and construction; incentives temporary and set to expire in June 2023.
  - MBRP incentives include:
    - VAT exemptions on imported construction materials not available in the East African Community and on domestically sourced construction materials.
    - Tax credits on the 2021 personal and corporate income taxes and on export revenues.
    - Unspecified incentives for investments in agro-processing, factor construction, greenfield and brownfield projects above a given threshold.
  - Estimated tax expenses for FY 21/22 and FY 22/23: 0.17 and 0.14 percent of GDP, respectively.

*Source: 1rwaea2022001 - Annex IV. Monetary Policy Framework Implementation*

### 4.      Cost-effective tax incentives are well-targeted, designed and transparent (IMF, 2015).

### 4.      Cost-effective tax incentives are well-targeted, designed and transparent (IMF, 2015).

### Tax incentives: assessment and reform direction
- Findings:
  - Tax incentives targeted at sectors producing for domestic markets or extractive industries generally have less impact than those geared toward export-oriented sectors subject to mobile capital.
  - Incentives that lower the cost of investment (e.g., accelerated depreciation allowances, tax credits) are often to be preferred over profit-based incentives (e.g., tax holidays, exemptions, preferential rates).
  - The former increase the number of profitable projects at the margin; the latter may forgo revenue by making viable projects even more profitable.
  - To be transparent, incentives should be granted based on established laws, vetted by the Ministry of Finance and Economic Planning, and their fiscal costs subject to annual tax-expenditure reviews.
- Rwanda-specific findings:
  - Rwanda’s redundancy ratio (the amount of investment that would have occurred without tax incentives) has been shown to be 98 percent.
  - A review of the 2015 Investment Code found that most tax incentives benefitted profitable firms that would have undertaken the investment anyway.
  - Several tax incentives target extractive industries, are profit-based, long-lasting, and their impact is not regularly assessed.
  - Transparency has increased since 2019 through the publication of annual tax expense reports.
  - Current incentives target mainly export-oriented firms, have clear sunset clauses, and aim at reducing the cost of capital.
- Planned reforms under the Medium-Term Revenue Strategy (MTRS) (envisaged):
  - (i) reducing the CIT rate to 20 percent;
  - (ii) full expensing for capital expenditure;
  - (v) indefinite carry forward of losses; and
  - (vi) the introduction of a minimum alternative tax.

### Government guarantees: scale, risks, and management
- Key statistics:
  - Government loan guarantees to SOEs stand at about 4.1 percent of GDP (broadly split between domestic and external loan guarantees to SOEs).
  - Peers (Kenya, Uganda, and Tanzania) had government guarantees as of end-2020 standing at less than 1 percent of GDP.
- Findings and recommendations:
  - Guarantees can be less costly than subsidies when extended to multiple beneficiaries, since not all guarantees are likely to be called.
  - Minimizing the likelihood of guarantees being called is critical for cost-effectiveness.
  - Target only projects expected to generate positive returns and avoid moral hazard by beneficiaries.
  - To contain moral hazard, design guarantees to cover risks the private sector cannot control, diversify away or insure against, and require deductibles, collateral payments, or risk-based fees.
  - Effective management requires a complete understanding of the guarantee portfolio and associated risks; evaluation tools/techniques for proposals; appropriate risk mitigation measures; and suitable budgeting, accounting, and disclosure.
- Rwanda-specific capacity actions:
  - SOEs should be subject to periodic risk assessments; such assessments started to be conducted in the last fiscal year and were reported in annual fiscal risk statements.
  - Extend assessments to SOE subsidiaries for better risk quantification and mitigation.
  - Regular and timely publication of audited financial statements for SOEs is an important pre-requisite.
  - Greater reliance on risk-sharing mechanisms such as deductibles could defray some costs.
  - Set annual legal limits for the overall guarantee portfolio and regularly update the fiscal risk registry and statement with the likelihood of newly contracted guarantees to tighten approval processes and manage exposure.
  - Note: The issuance of guarantees is governed by Rwanda’s Organic Budget Law, which does not limit their total value.

### Public-Private Partnerships (PPPs)
- Key statistics and facts:
  - The government has signed 58 PPP agreements amounting to about more than US$1.8 billion (17.5 percent of GDP), of which 93 percent in the energy sector.
  - PPP tax incentives target firms in transport, logistics, ICT, energy, and affordable housing.
  - To date, PPPs have only been extended payment guarantees amounting to about RWF 176 billion (1.6 percent of GDP).
  - No loans or demand/revenue guarantees have been reported to be extended to PPPs to date.

### De-risking and blending arrangements
- Findings:
  - Blending arrangements shift part of costs and risks to a third party (usually a development finance institution) by combining concessional financing from donors with public commercial finance to catalyze private commercial finance.
  - The blending paradigm accepts that some projects may be profitable for the private sector only with subsidies, which may result in outright “losses” for donors.
- Rwanda examples:
  - Compact with Africa Initiative (CwA) blending arrangements have targeted mostly private investments in affordable housing and agriculture.
  - Affordable Housing: With support from the World Bank (US$150 million), the government set up an affordable housing scheme managed by the Rwanda Development Bank (BRD), whereby BRD on-lends funds at subsidized rates to participating financial institutions to be channelled at affordable long-term rates.
  - Agriculture: The Rwanda Agriculture De-Risking and Financing Facility (RWADEFF), developed with support from the World Bank, USAID, and AfDB, aims to strengthen the linkage between credit and agriculture insurance to address limited credit and minimal insurance penetration in agriculture.

### Capacity development priorities related to fiscal and revenue management
- Public Financial Management (PFM) objectives and TA focus:
  - Improve fiscal transparency and accountability; enhance coverage and quality of fiscal reporting; strengthen identification, monitoring, and management of fiscal risks; develop performance-based budgeting (PBB); improve public investment management and PFM laws and institutions.
  - Past TA: strengthening analysis, reporting and management of fiscal risks from SOEs; modeling macro-fiscal impact of COVID-19; support on Organic Law on State Finances and Property drafting; developing PBB; enhancing financial reporting via IPSAS accrual standards; rollout of IFMIS to local governments; expanding coverage of public sector debt statistics; SDG costing and financing analysis.
  - Planned TA: expand SOE health checks and stress tests to more entities and subsidiaries; introduce non-financial performance metrics for SOEs; Public Investment Management Assessment (PIMA) to inform spending rationalization; improve fiscal data quality, coverage, frequency, and timeliness; support macro-fiscal framework and IPSAS roadmap implementation.
- Tax Policy and Revenue Administration objectives and TA:
  - Objectives: improve domestic revenue mobilization by strengthening core tax and customs administration functions and improving tax and non-tax revenue policy.
  - Past TA: support to Rwanda Revenue Authority (RRA) for diagnostic reviews informing the MTRS; VAT gap model updates; training on post-clearance audit; capacity for auditing financial institutions; data science and big data analytics in customs.
  - Planned TA: finalize and implement the MTRS to support fiscal consolidation; fine-tune VAT gap model and VAT refund forecasting; develop capacity to audit telecommunications and manufacturing sectors; implement risk-based enforcement; strengthen control of special regimes and exemptions; improve tax compliance via review of compliance improvement plan and penalty regime; develop mirror data analysis using trade statistics; assess IT systems functionality for modernization.
- Monetary policy and financial sector TA:
  - Monetary policy: strengthen BNR capacity to implement monetary policy, FPAS support, forecasting and scenario design, FX operations capability.
  - Financial sector: implement Basel II/III; strengthen risk-based supervision, stress-testing, financial market infrastructure, financial safety net and crisis preparedness; planned TA on operational resilience, cybersecurity, payment systems, macroprudential framework, and insurance supervision adjustments.

*IMF staff assessment and recommendations as presented in the provided document.*

### 1.      This Program Statement describes the recent economic developments as well as the

### 1rwaea2022001 - 1.      This Program Statement describes the recent economic developments as well as the

### Recent developments and COVID-19 context
- The Program Statement describes recent economic developments and the authorities’ priorities under the Policy Coordination Instrument (PCI) aiming to maintain macroeconomic stability and advance the reform agenda while supporting the economy through the COVID-19 crisis.
- The COVID-19 pandemic continues to affect population and livelihoods; a third wave led to a two-week lockdown in July in the City of Kigali and in high-infection districts. Some movement restrictions remain; public offices, transportation, and private businesses operate below full capacity and gatherings are limited.
- Education disruptions from school closures risk permanent declines in expected years of schooling and lifetime earnings, with adverse implications for poverty reduction, human capital accumulation, and potential growth.

### Economic activity and sectoral performance (recent outturns)
- Real GDP: contracted by 3.4 percent y/y in 2020; recorded an increase of 11.6 percent y/y in 2021H1.
- Sectoral growth in 2021H1:
  - Agriculture: 7.0 percent y/y
  - Industry: 19.0 percent y/y
  - Services: 10.8 percent y/y
  - Manufacturing: 15.2 percent y/y
  - Construction: 22.5 percent y/y
  - Trade and transport: 15.0 percent y/y
  - Hotels and restaurants: contracted by 16.4 percent y/y
- Recovery drivers: gradual lifting of restrictions, accelerated vaccination, government support, recovery in global demand; downside risks from low vaccination rates elsewhere.

### Policy actions to contain the pandemic and support recovery
- Vaccination
  - Strategy prioritizes high-infection districts including Kigali; accelerated rollout since July.
  - Vaccination targets and coverage:
    - Achieved target of covering 30 percent of total population with two doses in December 2021.
    - As of December 16: 54.6 percent received at least one dose; 34.7 percent fully vaccinated (includes 99 percent of adult population in Kigali).
    - Overall target: inoculation of 70 percent of the population by December 2022, absent vaccine supply and access issues.
  - Eligibility expanded to children of 12 years and above.
  - Financing: vaccination campaign financed through grants and concessional loans; engagement with private firms and development partners to become a regional vaccine manufacturing hub.
- Social protection and human capital
  - Scaled up social programs: emergency transfers, public works, direct support to vulnerable groups.
  - Remote learning programs to mitigate learning losses.
  - Door-to-door food distribution to children under two years, pregnant women, and lactating mothers via nutrition-sensitive direct support.
  - Temporary reduction of tax levy on fuels to stabilize pump prices; commitment to end this subsidy by end-June 2022.
- Support to firms and investment
  - Launching ERF-2: new investment window for agro-processing, construction, light manufacturing and supply chains, and scaled-up support to microbusinesses; will inject US$250 million in fresh capital over the next three years.
  - Manufacture and Build to Recover Program (MBRP) launched January 2021, offering tax incentives linked to KPIs, set to expire June 2023; 56 companies applied and were approved, 5 companies have started claiming tax exemptions upon new investments.
- Financial sector measures
  - IFRS 9 regulatory capital and relief measures guideline (issued June 2020) expired September 2021; banks required to return to regulatory requirements for classification of restructured loans (restructured loans with principal and interest of more than 90 days treated as non-performing) and to the limit of renegotiating a loan twice during its lifetime.
  - Authorities will continue to assess recovery of hardest-hit sectors and deploy targeted, time-bound support when necessary to prevent large scale insolvencies while ensuring financial stability.

### Fiscal and monetary outturns and financial sector resilience
- Fiscal balance: fiscal deficit was lower than projected in H2 FY20/21 due to revenue overperformance (income tax) and under-execution of capital spending (delayed donor disbursements); however domestic financing and accounts payable increased owing to delayed budget support.
- Inflation:
  - Headline inflation: increased by 1.0 percent y/y in November.
  - Inflation dynamics: negative between May–September due to low food prices and base effects; 0.6 percent y/y in October compared to –0.9 percent y/y in the previous month.
  - November drivers: education (+19.2 percent y/y), hotels and restaurants (+3.9 percent y/y), transports (+3.8 percent y/y).
  - Government fuel levy reduction helped limit pass-through from rising international oil prices.
- Financial sector resilience and indicators (as of end-September 2021 unless otherwise noted):
  - Banking sector: profitable with buffers above regulatory minima.
  - Capital Adequacy Ratio (CAR): 22.2 percent (minimum prudential requirement 15 percent).
  - Liquidity Coverage Ratio (LCR): 221.4 percent (minimum prudential requirement 100 percent).
  - Microfinance institutions (MFIs): CAR 36 percent (minimum 15 percent); liquidity ratio 105.1 percent (minimum 30 percent).
  - Insurance: aggregate solvency ratio of private insurers 107 percent (prudential minimum 100 percent).
  - Non-performing loans (NPLs) for banks: declined from 6.6 percent in March 2021 to 5.7 percent in June 2021 and 5.1 percent in September 2021.
  - NPLs in nominal terms: increased y/y by 14.5 percent to RWF 172 billion in September 2021 from RWF 142 billion in September 2020.
  - COVID-restructured loans: represented 23.2 percent of gross loans as at end-September 2021; 22.8 percent of these were still under moratorium (down from 40.9 percent in March 2021).

### External sector developments
- Trade (January–September 2021):
  - Exports (excluding gold and re-exports): increased by 41.3 percent y/y, driven by mining receipts and higher commodity prices.
  - Imports (excluding gold and re-exports): rose by 10.5 percent y/y, driven by strong public capital spending, demand for capital and intermediate goods, and higher imported food prices.
- Reserves and exchange rate:
  - Foreign exchange reserves: 5.5 months of import cover as of end-September 2021.
  - Rwandan franc: depreciated by 2.6 percent against the US dollar as of end-September 2021 since the beginning of the year.
  - BNR FX sales to banks: US$165 million in 2021H1, a 32 percent y/y increase.

### Debt management and SDRs
- Eurobond issuance:
  - August 2021: issued a 10-year Eurobond raising US$620 million to buy back 85 percent of an outstanding US$400 million Eurobond maturing in 2023, retire expensive commercial debt, and finance priority investments for recovery and climate resilience.
  - The bond was oversubscribed by almost 3 times and priced at 5.5 percent (2013 Eurobond rate was 6.6 percent).
- SDR allocation:
  - Rwanda received SDR allocation share of US$219 million (1.9 percent of GDP) in August 2021.
  - A Memorandum of Understanding between BNR and MINECOFIN will specify institutional arrangements for the 2021 SDR allocation.
  - Revision of the Finance Law for FY 21/22 budget in early 2022 will establish MINECOFIN as the owner and beneficiary of the 2021 SDR allocation to allow use for budget financing.
  - Planned use of SDRs in FY21/22:
    - About 70 percent of the SDR allocation (1.9 percent of GDP) to supplement FY21/22 efforts.
    - About 25 percent (0.4 percent of GDP) to temporarily increase recurrent social protection spending and retrofit public offices.
    - About 45 percent (0.9 percent of GDP) for capital spending to execute delayed high-quality investment projects in targeted social sectors and repair infrastructure damage from a recent volcanic eruption.
    - Remainder 30 percent (0.6 percent of GDP) retained as reserves to be used in retiring the remaining 2013 Eurobond amount maturing in 2023.
  - Commitment to transparency: disclose relevant information and report use of SDRs via quarterly and annual budget execution reports and audited financial reports of the auditor general.

### Program performance and reforms (implementation status)
- Quantitative and continuous targets:
  - All quantitative targets through end-June 2021 met; standard continuous targets met; monetary policy consultation clause observed.
- Reform targets (RTs) status through end-November 2021:
  - E-Sub platform for issuing government securities introduced on June 4; deployed to other investors in August and currently running.
  - Rwanda Social Security Board (RSSB): delays in procurement to recruit advisory firm to review asset allocation; firm yet to be selected (expected completion by end-January 2022).
  - Legal assessment for true repo and GMRA rollout: delayed due to procurement; expected finalization by end-March 2022.
  - Automation of risk-based verification of VAT refunds: completed with a one-month delay in November 2021.

### Outlook and projections
- Growth
  - Real GDP growth projected at 10.2 percent y/y in 2021, reflecting strong 2021H1 performance, vaccination acceleration, pickup in external demand, government support, and base effects.
  - Growth drivers: agriculture (good food crop performance), industry recovery (notably mining due to rising commodity prices), resumption of construction activities.
  - Services expected to reach pre-COVID level in 2022 as restrictions continue to ease.
  - Downside risks remain elevated due to pandemic duration and vaccine availability uncertainties.
- Inflation
  - Headline inflation y-o-y is projected to increase in the fourth quarter of 2021; the 12-month average expected to be below the lower bound of BNR’s tolerance band in 2021 owing to low food prices, pump price stabilization measures, and base effects.
  - In 2022, inflation projected to pick up and reach the benchmark level, driven by increased domestic activity, global demand, and commodity prices; core inflation pressures from domestic costs and imported costs in H1 2022; food and energy inflation impacted by rising international food and oil prices.
- Current account
  - CAD projected to widen to 11.5 percent of GDP in 2022 (from 11 percent in 2021) driven by higher oil prices and increased imports of capital and intermediate goods despite recovery in travel and tourism receipts.
  - CAD expected to narrow in the medium term due to increased domestic savings from fiscal consolidation, economic diversification, and productivity-enhancing structural reforms.
  - Financing: mainly through FDI and concessional loans; FDI projected to grow at a faster pace and increase its share in the financial account.
  - Reserves coverage projected: 5.2 months of imports in 2021 and remain above 4 months in the medium term.

### Fiscal policy stance and consolidation strategy
- Near-term fiscal strategy:
  - Geared to containing COVID-19 spread and mitigating impacts, supported by the 2021 SDR allocation.
  - Budget framework accommodates COVID-19-related spending: vaccine rollout, education, health, support to private investment under ERF-2, and support to distressed SOEs.
  - Plan to use about 70 percent of the SDR allocation in FY21/22 as detailed above.
- Fiscal projections and debt:
  - Overall deficit in FY21/22 projected to reach 9.1 percent of GDP (0.5 percentage points of GDP higher than agreed under the 4th PCI review).
  - Authorities maintain a fiscal consolidation path consistent with the 4th PCI review, treating additional FY21/22 spending as one-off and phasing down COVID-related spending over FY21/22–FY23/24.
  - Debt-to-GDP ratio expected to converge to the anchor of 65 percent by FY 27/28.
- Transparency and accountability: commitment to disclose SDR use and ensure sound management and reporting.

### Fiscal structural reforms, revenue mobilization, and spending rationalization
- Domestic Revenue Mobilization (DRM)
  - Medium-Term Revenue Strategy (MTRS) covering FY 21/22 to FY 23/24 completed consultations and submitted to Cabinet; expected approval by end-January 2022 (proposed new RT).
  - MTRS measures expected to yield 1 percent of GDP and to start becoming effective with FY2022/23 at the latest.
  - Draft laws: revisions in personal and corporate income taxes being discussed in Parliament; draft law revising VAT awaiting Cabinet approval.
  - Rwanda Revenue Authority (RRA) action: all measures for the year incorporated in RRA FY 21/22 action plan; RRA has hired a consultant to align its strategic plan with MTRS.
  - Plan to conduct first review of MTRS implementation by end-December 2022 (proposed new RT) and a full evaluation prior to MTRS expiration with IMF and development partner support.
- Spending rationalization
  - Use forthcoming national planning and budget consultations and Public Investment Committee (PIC) to identify rationalization measures across broad economic categories.
  - MINECOFIN and line ministries to analyze priority and rationalization areas considering medium-term macro projections and sectoral strategies; produce an outlook paper by end-2021 to guide budget submissions.
  - Priority spending to be protected during budget execution if revenues or financing fail to materialize.
  - Measures to focus on cost-savings and efficiency gains including:
    - Digitalization in public goods and services delivery.
    - Strengthening oversight and governance of SOEs to gradually reduce subsidies and budget support.
    - Improvements in selection and prioritization of public investments to achieve greater value-for-money and leverage private sector involvement.
  - Analytical inputs: ongoing World Bank Public Expenditure Review (PER) and forthcoming IMF Public Investment Management Assessment (PIMA) expected in January 2022; both exercises delayed but expected to conclude by the 6th PCI review.
  - PER focus: increase targeting and cost-effectiveness of social spending, especially in health and education, to sustain human capital investment and support fiscal consolidation.

_Italic: Source — Program Statement and related sections from the provided PDF content unit._

### 19.      Sustaining our progress in strengthening our public financial and management (PFM)

### 19.      Sustaining our progress in strengthening our public financial and management (PFM)

### PFM reform agenda and implementation progress
- Guided by the seven-year sector strategic plan (PFM SSP 2018–24), the reform agenda includes (i) migration to accrual accounting using the International Public Sector Accounting Standards (IPSAS); (ii) roll-out of the Integrated Financial Management Information System (IFMIS); and (iii) implementation of performance-based budgeting (PBB).
- Migration to accrual accounting using IPSAS
  - Main goal: improve the quality and harmonization of financial reporting of flows and stocks across government entities to allow consolidation of public sector accounts and better control of spending rationalization measures beyond the central government.
  - Expected completion: fully completed by FY 23/24.
- IFMIS roll-out
  - Purpose: automate and integrate all PFM stages (planning, budget preparation, budget execution, revenue management, accounting, auditing, and reporting) across different government levels.
  - Progress: IFMIS already covers all central and local government budget agencies (such as ministries, agencies, districts, and embassies) and all non-budget agencies (such as district hospitals, sectors, and health centers) and is being rolled out in public schools.
  - Importance: Sustained progress is critical to ensure the credibility of the medium-term expenditure framework and budget and hence for implementation of fiscal consolidation.
- Performance-based budgeting (PBB)
  - Development: PBB systems developed to support implementation of NST1 over the last two years.
  - Implementation: completed PBBs for all 16 sectors were published as an annex to the Finance Law for FY 21/22, with a monitoring and evaluation framework developed and to be operationalized through IFMIS.
  - Expected benefits: identification of key strategic programs and their contribution to NST1 to strengthen expenditure prioritization and analysis during the budget review process; identification of cross-cutting areas such as gender and climate change to prevent excessive impact during fiscal consolidation.
  - IMF support: request to continue into 2022 to ensure PBB plays a prominent role in future budget processes.

### Fiscal risk management, SOE oversight, and analytical work
- Institutional reforms
  - Organic Budget Law (OBL): expected approval timeline noted as Cabinet by end-December 2021 and Parliament in the first quarter of 2022.
  - OBL provisions: institutionalizes management of fiscal risks by clarifying role of the Fiscal Risk Committee (FRC), mandating the Minister of Finance and Economic Planning to appoint their members, and requiring publication of an annual Fiscal Risk Statement (FRS) as part of annual budget documents.
  - Presidential Order: expected by June 2022 to harmonize financial reporting for all public institutions, including SOEs, to the fiscal year, and establish deadlines for publication of financial statements and sanctions for non-compliance.
  - Broader SOE governance effort: development of SOE guidelines for investment decisions, financial management, human resources, procurement, and capacity building.
- Analytical measures and stress-testing
  - SOE health-check assessment: first assessment finalized end-May 2021.
  - Stress tests: started on high-risk SOEs with a first set expected to be finalized by end-March 2022.
  - Automation and frequency: plan to automate and conduct SOE “health-checks” quarterly and gradually extend them starting this fiscal year to include some SOE subsidiaries.
  - Integration with budgeting: refine recommendations to contain and manage fiscal risks to reduce budgetary impact in time to be included in the FY 22/23 budget and fiscal risk statement.
  - IMF technical assistance: mission requested and scheduled for March 2022 to help expand next year’s FRS with a summary of PPP fiscal risks and mitigation measures using the IMF’s Public Fiscal Risk Assessment Model (PFRAM) by end-April 2022 (RT).

### Transparency, RSSB, and procurement
- Fiscal reporting transparency priorities under PCI arrangement
  - Plans: (i) publish consolidated historical fiscal statistics for public corporations, the general government, and the non-financial public sector by end-December 2021; (ii) expand coverage of quarterly budget execution reports to include the whole general government by end-March 2023.
  - RSSB asset allocation review: hiring of an advisory firm faced procurement delays; expected firm selection by end-January 2022 and conclusion of review by end-June 2022. Request to reset two reform targets from end-June 2021 and end-December 2021 to these new deadlines.
- Procurement transparency and oversight
  - Legal framework: procurement practices carried out according to the Law Governing Public Procurement and E-Procurement system.
  - E-Procurement disclosures: publicly available information on all awarded government contracts, including names of companies that participated in the tender, each initial bid, the name and price of the winning bid, the total amount of the contract, and the delivery period.
  - Contract management: integration of electronic information on invoices and deliveries with IFMIS to reduce offline and physical contacts and contain inefficiencies and corruption risks.
  - Beneficial ownership (BO) transparency: Kigali Financial Centre highlights BO importance; Office of the Registrar General and Rwanda Public Procurement Authority (RPPA) proposing advances on BO disclosure in procurement process and system.
  - Audit coverage: following the OBL, the Office of the Auditor General will audit all government expenditures and procurement tenders, including those linked to the pandemic.

### Public debt stance and debt management priorities
- Debt distress rating: risk of external and overall public debt distress continues to be rated as “moderate”.
- Eurobond usage: part of proceeds of the US$620 million Eurobond issued in August was used for debt management purposes to reduce near-term liquidity risks and preserve debt sustainability.
- Policy priorities: strengthen debt management capacity, enhance fiscal risk monitoring, develop domestic bond markets, prioritize concessional resources, and adopt a growth-friendly fiscal consolidation path once the crisis abates.

### Monetary and exchange rate policy stance and forecasting capacity
- Monetary policy stance
  - Expected stance: accommodative to continue supporting economic recovery.
  - Policy rate history: MPC kept policy rate unchanged since the 50 basis-point cut implemented at the onset of the pandemic.
  - Policy rate level: decision to keep the policy rate unchanged at 4.5 percent in November.
  - Inflation outlook: inflation is projected to increase to the benchmark level and the 12-month average is expected to be back within the MPCC band next year; possible upside risks noted.
  - MPC meetings: will continue to meet on a quarterly basis or as necessary.
- Forecasting and Policy Analysis System (FPAS)
  - Progress: building FPAS capacity with IMF support and developing new nowcasting tools for monthly analysis of inflation.
  - Next steps: integrate FPAS fully into monetary policy decision-making, develop sectoral expertise and scenario design capacity, complement QPM forecasts with labor market analysis, document near-term forecasting tools, and strengthen external communication.
- Financial market deepening and GMRA rollout
  - Cooperation: signed cooperation agreement with World Bank/IFC in June 2021 to perform a diagnostic of the money market and market-making framework for government debt securities.
  - Timetable changes due to procurement delays:
    - Assessment completion now expected by end-March 2022 (consultant hired).
    - Study on regulatory feasibility of extending true repo to non-bank financial institutions now expected by end-June 2022 (was end-March 2022).
    - Capacity building and signature of GMRA by all banks delayed from end-June 2022 to end-December 2022.
  - Proposal: reset RTs according to this new timeline.

### Financial sector supervision, inclusion, and credit risk management
- Credit risk monitoring and supervisory measures
  - Actions: scrutinize banks’ assessment of borrowers’ likeliness to pay, reinforce loan classification and provisioning, step up supervisory and reporting requirements, and perform stress tests.
  - ICAAP/ILAAP: banks to continue submitting annual Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) subject to the Supervisory Review and Evaluation Process (SREP).
  - Near-term priority: mitigate credit risks following the unwinding of relief measures (which expired end-September 2021); assess impact on hardest-hit sectors and borrowers; implement additional targeted and time-bound measures as necessary.
- Financial inclusion progress and targets
  - FinScope 2020 findings: mobile financial services key driver of inclusion gains; COVID-19 accelerated adoption.
  - Mobile financial services statistics:
    - Active mobile payment subscribers increased by 25 percent to 6.1 million in June 2021.
    - Number of mobile payment transactions increased by 42 percent to 424 million in 2021H1.
    - Value of transactions increased by 100 percent to RWF 5.2 trillion in 2021H1.
    - Share of merchant payments in total value of mobile payments increased from 6 percent to 22 percent.
  - Inclusion target: increase formal financial inclusion from 77 percent in 2020 to 90 percent by 2024.

### Structural policies, recovery, gender, and climate agenda
- Macroeconomic recovery and NST1
  - NST1 macro framework: required an average growth rate of 9.1 percent for economic transformation.
  - Pre-pandemic growth: GDP growth rates of 8.6 percent and 9.5 percent in 2018 and 2019, respectively.
  - Pandemic impact and recovery: ERP interventions supported recovery with growth reaching 3.5 and 20.6 percent in Q1 and Q2 (year unspecified in this extract); growth expected to converge back to pre-pandemic trend by 2023.
  - Social progress: access to water and sanitation increased by close to 90 percent.
  - Policy implications: limit pandemic scars, enable infrastructure investments with private sector support, accelerate technology adoption and IT skills upgrades, adjust work organization, and transition to greener technologies and climate adaptation.
- Pandemic scarring mitigation and gender equity
  - Focus areas: (i) strengthen health services to reduce stunting and malnutrition; (ii) improve quality and retention in primary and secondary schooling; (iii) enhance coverage, benefit, targeting, and delivery of social protection.
  - ERF-2 and support for women entrepreneurs:
    - ERF-2 designed to support female entrepreneurs through targeted awareness campaigns, training, and business development support addressing gender-specific constraints.
    - Training structured to consider transport, childcare, and family responsibilities.
    - Women’s Guarantee Fund (WGF) under the Business Development Fund will facilitate loans by providing up to 75 percent of credit guarantees and a grant of 15 percent of the total loan disbursed.
    - Expected impact: lasting positive impact in deepening women-owned/led MSME markets.
- Climate action agenda
  - Commitment: 38 percent reduction of greenhouse gas emissions compared to business as usual by 2030, equivalent to an estimated mitigation of up to 4.6 million tons of carbon dioxide equivalent (tCO2e).
  - Sectors and measures: energy production and use, industrial processes and product use, waste management, transport, agriculture, nature-based conservation initiatives, and adaptation in water, agriculture, land and forestry, human settlement, health, transport, and mining.
  - Financing needs: approximately US$11 billion total—US$5.7 billion for mitigation and US$5.3 billion for adaptation—expected from both domestic and external sources.
  - Institutional steps and instruments: Ministry of Environment accredited to the Green Climate Fund and the Adaptation Fund; Rwanda Green Fund (FONERWA) set up to provide green investment funding and training; FONERWA collaborating with Rwanda Development Bank to set up a Green Investment Facility.
  - Other actions: promotion of e-mobility, a “Measure, Report, and Evaluate” framework, green spending review of the budget, and inter-institutional capacity building to promote best green practices in public procurement and other areas.

*Source: 1rwaea2022001 - 19.      Sustaining our progress in strengthening our public financial and management (PFM)*

### 1. Ceiling on the debt-creating overall balance, including grants

### 1. Ceiling on the debt-creating overall balance, including grants

### Program exchange rates (from June 30, 2021)
- Rwanda Franc (per US$) 987.1
- Euro 1,188
- British Pound 1,386
- Japanese Yen (per US$) 110.5
- SDR 1,426

### Scope and measurement of the ceiling on the debt-creating overall fiscal balance
- Applicable to the budgetary central government, excluding Peace-Keeping Operations and including grants.
- The ceiling for December 31, 2021 is cumulatively measured from June 30, 2021 and the ceiling for June 30, 2022 is cumulatively measured from June 30, 2021.
- Definition: the debt-creating overall fiscal balance is the overall fiscal balance, valued on a commitment basis including grants and excluding:
  - (i) any transaction in expense and/or financial assets added to the budgetary central government arising from debt assumption of called loan guarantees for which the corresponding guaranteed loan had already been included in the Debt Sustainability Analysis of the IMF and World Bank (DSA); and
  - (ii) all expenses in UN peace-keeping operations (PKO) and disbursed PKO financing.
- The overall fiscal balance is defined according to the GFSM 2014 as net lending/net borrowing after transactions in assets and liabilities are adjusted for transactions deemed to be for public policy purposes (policy lending).
- Budgetary central government expenditure is defined based on payment orders accepted by the Treasury, as well as those executed with external resources.

### Adjustors to the debt-creating overall fiscal balance ceiling
- Upward adjustment by the amount of any shortfall between actual and programmed budgetary grants (as defined in Table 1a of the PS) not related to COVID-19 vaccine interventions, up to a maximum of RWF 116 billion.
- Upward adjustment, up to a maximum of RWF 116 billion, for foreign financed net acquisition of non-financial assets financed with a drawdown of accumulated government deposits.
- Upward adjustment by the amount of unexpected public expenditures (expenses, and/or net acquisition of non-financial assets) on food imports in the case of a food emergency.
- Upward adjustment by the amount of any shortfall between actual and programmed grants dedicated to COVID-19 vaccine interventions or by the amount of unbudgeted spending directly related to the cost of COVID-19 vaccine interventions not financed by unbudgeted grants dedicated to COVID-19 vaccine interventions; the need for this adjustment will be assessed in the context of the 6th review of the PCI program.
- Upward (downward) adjustment by the amount of any delays (acceleration) in spending relative to the programmed amount on projects that are identified as COVID-19-related and financed by the 2021 general allocation of Special Drawing Rights (SDRs), up to a maximum of RWF 103 billion; the need for this adjustment will be assessed in the context of the 6th review of the PCI program.
- Upward (downward) adjustment by the amount of any delays (acceleration) in spending relative to the programmed amount on projects programmed to be financed by 2021 Eurobond proceeds amounting to RWF 83 billion; the need for this adjustment will be assessed in the context of the 6th review of the PCI program.

### Floor on Net Foreign Assets (NFA) of the National Bank of Rwanda (BNR)
- A floor applies to the NFA of the BNR for December 31, 2021 and June 30, 2022.
- Definition: NFA of the BNR in Rwandan francs is defined, consistent with the e-GDDS template, as external assets readily available to, or controlled by, the BNR net of its external liabilities.
- Exclusions from NFA:
  - Pledged or otherwise encumbered reserve assets (including swaps with resident institutions with original maturity of one year or less, and with non-resident institutions).
  - Reserve assets used as collateral or guarantee for third party external liabilities.
  - Reserve’s assets corresponding to undisbursed project accounts.
  - Holdings of Eurobonds issued by the Government of Rwanda.
- Currency conversion rules:
  - Foreign assets and foreign liabilities in U.S. dollars are converted to Rwandan francs by using the U.S. dollar/Rwanda franc program exchange rate.
  - Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate.
- Adjustors to the NFA floor:
  - Downward adjustment by the amount of any shortfall between actual and programmed budgetary loans and grants per Table 1a of the PS, capped at RWF 116 billion.
  - Downward (upward) adjustment by the surplus (shortfall) of cash external debt service payments compared to originally scheduled payments.
  - Downward adjustment by the amount of unexpected public expenditures on food imports in the case of a food emergency.

### Ceiling on the stock of external payment arrears
- A continuous ceiling applies to non-accumulation of payment arrears on external debt contracted or guaranteed by the budgetary central government and entities that form part of the budgetary process.
- Definition: external payment arrears are overdue external debt service obligations (principal and interest) arising in respect of obligations incurred directly or guaranteed by the budgetary central government and entities that form part of the budgetary process; a payment is overdue when it has not been paid in accordance with the contractual date (taking into account any contractual grace periods).
- Exclusion: Arrears resulting from the nonpayment of debt service for which a clearance framework has been agreed or a rescheduling agreement is sought.

### Ceiling on net accumulation of domestic expenditure arrears of the budgetary central government
- A ceiling applies to the net accumulation of domestic expenditure arrears of the budgetary central government.
- The ceiling for December 31, 2021 is cumulatively measured from June 30, 2021 and the ceiling for June 30, 2022 is cumulatively measured from June 30, 2021.
- Definition: domestic expenditure arrears are unpaid claims that are overdue by more than 90 days.
- Measurement: accumulation of domestic expenditure arrears of more than 90 days is calculated as the cumulative change in the stock of expenditure arrears of more than 90 days at each test date from the stock at the end of the previous fiscal year (June 30).
- Exclusion: Arrears related to claims preceding 1994 will not be counted in the calculation.

### Ceiling on the present value (PV) of new external debt contracted or guaranteed by the government
- A continuous ceiling is applied to the PV of all new external debt (concessional or non-concessional) contracted or guaranteed by the central government, including commitments contracted or guaranteed for which no value has been received.
- The ceiling for December 31, 2021 is cumulative from January 1, 2021 and the ceiling for June 30, 2022 is cumulative from January 1, 2022.
- Exclusions from this target:
  - (a) Normal import-related commercial debts having a maturity of less than one year;
  - (b) Rescheduling agreements;
  - (c) External borrowing for the sole purpose of refinancing existing public sector external debt that helps improve the repayment profile;
  - (d) IMF disbursements.
- Contracting rule: a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda.
- Currency valuation: value in U.S. dollars of new external debt is calculated using the program exchange rates.
- PV calculation:
  - Discounting of all future debt service payments (principal and interest) on the basis of a program discount rate of 5 percent, taking account of loan conditions (maturity, grace period, payment schedule, front-end fees and management fees).
  - The PV is calculated using the IMF model for this type of calculation.
  - Debt is considered concessional if on the date contracted the ratio of its present value to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent).
  - For loans with grant element zero or less than zero, the PV is set equal to the face value.
- Variable-rate debt PV calculation:
  - Use program reference rate plus fixed spread specified in the debt contract.
  - Program reference rate for the six-month USD LIBOR is 0.46 percent and will remain fixed for the duration of the program.
  - Spread of six-month Euro LIBOR over six-month USD LIBOR is -100 basis points.
  - Spread of six-month JPY LIBOR over six-month USD LIBOR is -50 basis points.
  - Spread of six-month GBP LIBOR over six-month USD LIBOR is -50 basis points.
  - For interest rates on currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -50 basis points.
  - Where the variable rate is linked to a benchmark interest rate other than the six-month USD LIBOR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
  - These rates will remain fixed and will not be revised until every Fall edition of the World Economic Outlook (WEO).
- Adjustors and special provisions:
  - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies in case deviations are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees) of a debt or debts; the adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed.
  - The ceiling on the PV of new external debt will be adjusted upward for the full amount of any unbudgeted external loan financing dedicated to COVID-19 vaccine interventions; the authorities will consult with IMF staff on any planned external borrowing for this purpose before the loans are contracted or guaranteed by the government. The need for this adjustment will be reassessed in the context of the 6th review of the PCI program.

*Sources: Kigali, Rwanda, December 20, 2021; Attachment II. Technical Memorandum of Understanding; Rwandan authorities and IMF staff estimates and projections.*

### 20.      Reporting Requirement. The authorities will inform IMF staff of any planned

### 20. Reporting Requirement

### Reporting obligations for external borrowing
- The authorities will inform IMF staff of any planned external borrowing and the conditions on such borrowing before the loans are either contracted or guaranteed by the government.
- Data on the contracting and guaranteeing of new non-concessional external borrowing with non-residents will be transmitted on test dates.
- The data excludes external borrowing by two state-owned banks, the Bank of Kigali and Rwanda Development Bank (RDB), which are assumed not to seek or be granted a government guarantee.
- The data also apply to private debt for which official guarantees have been extended, including future swaps involving foreign currency loans guaranteed by the public sector, and which, therefore, constitute a contingent liability of the public sector.
- The data will exclude external borrowing which is for the sole purpose of refinancing existing public-sector debt and which helps to improve the profile of public sector debt.
- The data will also exclude on-lending agreement between Government of Rwanda and public-sector enterprises.
- Planned external borrowing and the conditions are listed in Table 2 reporting (Frequency: SA).

### Notification of policy changes and program performance
- The authorities will inform the IMF staff in writing prior to making any changes in economic and financial policies that could affect the outcome of the financial program. Such policies include, but are not limited to, customs and tax laws, wage policy, and financial support to public and private enterprises.
- The authorities will inform the IMF staff of changes affecting respect of continuous QTs.
- The authorities will furnish a description of program performance according to QTs as well as reform targets within 8 weeks of a test date.
- The authorities engage to submit information to IMF staff with the frequency and submission time lag indicated in Table 2 of the TMU.
- The information should be mailed electronically to the Fund (email to the Resident Representative and the Mission Chief).

### Monetary Policy Consultation Clause (MPCC)
- MPCC headline inflation is defined as the year-on-year rate of change of monthly Consumer Price Index (CPI), averaged for the past 12-months, as measured by National Institute of Statistics of Rwanda (NISR).
- If the observed headline inflation falls outside the ±3 percentage point range around the mid-point of target band value for end-December 2021 and end-June 2022, the authorities will conduct discussions with the Fund staff.
- If the observed headline inflation falls outside the ±4 percentage point range around 5 percent for end-December 2021 and end-June 2022 test dates as specified in Table 1a in the PS, the authorities will complete a consultation with the Executive Board which would focus on:
  - (i) the stance of monetary policy and whether the Fund-supported program remains on track;
  - (ii) the reasons for program deviation, taking into account compensating factors; and
  - (iii) proposed remedial actions if deemed necessary.

### Data reporting timelines and definitions
- For program monitoring, the Government of Rwanda will provide the data listed below and in Table 2.
- Unless specified otherwise:
  - weekly data will be provided within seven days of the end of each week;
  - monthly data within five weeks of the end of each month;
  - quarterly data within eight weeks.
- Data on priority expenditure will be transmitted on a quarterly basis.
  - Priority expenditure is defined as the sum of those recurrent expenditures, domestically-financed capital expenditures, and policy lending that the government has identified as priority in line with the NTS.
  - Priority expenditure is monitored through the Integrated Financial Management System (IFMS) which tracks priority spending of the annual budget at the program level of the end of each quarter.
- Detailed data on domestic revenues will be transmitted on a monthly basis.
  - Domestic revenue is defined according to GFSM 2014 taxes and other revenues, per the budgetary central government statement of operations table, but including:
    - (a) local government taxes (comprised of business licenses, property tax, and rental income tax); and
    - (b) local government fees;
  - and excluding receipts from Peace Keeping Operations.
- The authorities transmit stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and BNR (Frequency: SA).
- Comprehensive list of domestic arrears of the government is reported (Frequency: SA).
- Revenue, Expenditure, Balance and Composition of Financing – Budgetary Central Government (Frequency: Q).
- Exchange Rates, International Reserve Assets and Reserve Liabilities, Reserve/Base Money, Central Bank Balance Sheet and other monetary data are transmitted at frequencies indicated in Table 2 (Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I)).

### Special reporting and exclusions
- The data on non-concessional external borrowing exclude debts of the Bank of Kigali and Rwanda Development Bank (BRD) from government guarantees (Table 2 footnote).
- External debt reporting should indicate reserve assets pledged or otherwise encumbered as well as net derivative positions. Balances for project accounts and swaps with original maturity less than one year should be indicated.

*RWANDA STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION AND FIFTH REVIEW UNDER THE POLICY COORDINATION INSTRUMENT—INFORMATIONAL ANNEX. Prepared By The African Department. December 20, 2021.*

### 1. Rwanda’s public and publicly-guaranteed (PPG) external debt-to-GDP ratio increased by

### 1. Rwanda’s public and publicly-guaranteed (PPG) external debt-to-GDP ratio increased by

### Debt trends and composition
- PPG external debt-to-GDP increased by 33 percentage points of GDP over the last 6 years.
- Increase drivers:
  - Borrowing to meet National Strategy for Transformation (NST) development needs and a comprehensive public investment strategy including three large projects (Kigali Convention Center, RwandAir expansion, Bugesera airport).
  - Robust COVID-19 response.
- Specific contributions:
  - The three large projects contributed to an increase of 21.7 percentage point in the five years preceding the COVID crisis.
  - COVID-19 related fiscal deficit increase led to an additional 11.3 percentage point increase in 2020.
- Levels and composition (2020):
  - External PPG debt: 55.6 percent of GDP (up from 22.6 percent of GDP in 2014).
  - Present value (PV) of external PPG debt-to-GDP ratio: 33.6 percent in 2020.
  - Total PPG debt: 71.3 percent of GDP in 2020 (higher than the 2020 DSA projections of 65.9 percent of GDP).
  - External debt continues to be dominated by multilateral lending on concessional terms.
- Market and domestic financing:
  - August 2021 Eurobond issued: US$620 million at 5.5 percent yield.
  - Interest rates on domestic T-bills and T-bonds range from 6.7 percent (28 days) to 12.5 percent (15 years).

### Coverage, guarantees, and contingent liabilities
- DSA coverage includes the central government, guarantees, and state-owned enterprises (SOEs).
- MINECOFIN publishes annual debt data covering domestic and external debt of the central government, guarantees, and external debt held by SOEs.
- No debt from extra budgetary funds, long-term central bank financing of the government, nor the state-owned social security fund. Local government debt is marginal and subject to MINECOFIN approval.
- External debt defined on a currency basis.
- Contingent liabilities shock used in tailored stress test: 7 percent of GDP (accounts for realization of liabilities from corporations where the government has a minority stake and possible incidence of a financial crisis).
- PPP stock: 2.6 percent of GDP (below 3 percent threshold referenced for certain tests).

### Macroeconomic assumptions and projections (baseline)
- Pandemic impact and rebound:
  - 2020: output contracted by 3.4 percent.
  - 2021: output projected to grow by 10.2 percent.
  - Long-term growth assumptions:
    - Converging to growth of 6.5 percent over the long term.
    - Long-term growth averaged 6.8 percent between 2026-41.
    - 10-year historical average (excluding 2020): 7.1 percent.
  - Total PPG debt projected to converge back to the debt anchor of 65 percent of GDP by 2028.
- Fiscal and policy assumptions:
  - Baseline reflects: larger 2020 contraction, stronger 2021 rebound, sizable fiscal support followed by medium-term fiscal consolidation, and current account improvement from 2021 onward.
  - Fiscal measures and timing:
    - Large cumulative reduction in the headline deficit amounting to 6.1 percentage points of GDP between FY 2022/23 and FY 2025/26.
    - Domestic revenue mobilization measures under the MTRS expected to be approved by Cabinet by end-2021.
    - Spending measures to be adopted in FY 2022/23 budget.
- Financing mix and concessionality:
  - Continued bilateral and multilateral concessional support in the near term.
  - From 2028 onwards: projected gradual shift from concessional to market-based financing and from external to domestic financing.
  - Grant-equivalent new net external financing projected to decline from 66 percent in 2022 and 52 percent in 2031 to under 35percent by 2041.

### Debt management actions and one-off operations
- August 2021 Eurobond proceeds (US$620 million) used as follows:
  - Buy-back of 85 percent of the Eurobond maturing in 2023: US$374.5 million including associated fees and premium.
  - Retire relatively expensive commercial loans: US$98 million.
  - Remaining proceeds to finance investment projects: US$148 million (expected to add to debt level).
- General SDR allocation and planned use:
  - SDR allocation amount noted: about US$219 million.
  - Baseline assumes authorities will spend 70 percent of their SDR resources (1.3 percent of GDP) in FY 2021/22 on a one-off basis for volcanic eruption damage response, social protection, and social sector projects (which will add to the debt level).
- World Bank concessional disbursement as of December 7, 2021:
  - Disbursed US$98.2 million in FY2021/22 (out of US$991.2 million IDA allocation over this and the next fiscal year).

### Risks, realism assessment, and policy implications
- Past drivers of debt dynamics:
  - Higher-than-anticipated primary deficits, unanticipated debt outside central government, and lower-than-expected GDP growth led to higher-than-expected debt accumulation of almost 25 percentage points of GDP over the past five years.
- Risk management priorities:
  - Mitigate unanticipated fiscal developments outside the central government (a key pillar of the PCI).
  - Focus on the path of the primary fiscal deficit and real GDP growth, which will dominate future debt evolution.
- Realism tools and fiscal adjustment assessment:
  - Planned fiscal adjustment is ambitious: a 3-year fiscal consolidation in the primary balance expected to reach more than 5 percentage points of GDP from 2022 to 2025.
  - Such adjustment lies well into the top quartile of past LIC consolidations, signaling an ambitious path.
  - Credibility of adjustment hinges on implementation of reforms under the PCI program on domestic revenue mobilization and improvements in spending efficiency.
- Policy measures cited to support adjustment and growth:
  - Phase-off of COVID-19 and SDR-financed spending.
  - Tax policy and administration measures under MTRS (FY 2021/22 to FY 2023/24).
  - Spending savings from efficiency gains, digitalization in public service delivery, and rationalization of public investment projects guided by World Bank PER and IMF PIMA planned for early 2022.
- Government social and recovery measures expected to support medium- to long-term growth:
  - Economic Recovery Plan (ERP) social safety nets reaching over 700 thousand households by September/October 2021.
  - Programs to reverse human capital losses: support for pregnant and lactating women, reduce child stunting and malnutrition, construction of new schools, teacher training, digital technologies adoption.
  - ERF-2 financial support for hard-hit firms and an investment window to support manufacturing and strategic sectors, with a focus on job creation and reducing gender inequities.

_Italic: Source — Rwanda: Debt Sustainability Analysis and macroeconomic framework as presented in the provided content unit._

### 11. Rwanda’s debt-carrying capacity continues to be assessed as “strong” (Text Tables 4a and

### 11. Rwanda’s debt-carrying capacity continues to be assessed as “strong” (Text Tables 4a and

### Debt-carrying capacity (LIC-DSF composite index)
- CI Score for Rwanda: 3.19
- Cut-off value for strong capacity countries: 3.05
- CI inputs sourced from IMF’s October 2021 WEO and updated World Bank CPIA to 2020 levels.
- CI score drivers: high CPIA score and adequate reserve coverage.
- Note: reserve adequacy assessment basis: IMF’s assessment of reserve adequacy.

- CI components and contributions (as presented)
  - CPIA: Coefficients (A) 0.39; 10-year average values (B) 4.08; (A*B) = 1.57; Contribution of components 49%
  - Real growth rate (in percent): Coefficients (A) 2.72; 10-year average values (B) 6.49; (A*B) = 0.18; Contribution of components 6%
  - Import coverage of reserves (in percent): Coefficients (A) 4.05; 10-year average values (B) 38.01; (A*B) = 1.54; Contribution of components 48%
  - Import coverage of reserves^2 (in percent): Coefficients (A) -3.99; 10-year average values (B) 14.45; (A*B) = -0.58; Contribution of components -18%
  - Remittances (in percent): Coefficients (A) 2.02; 10-year average values (B) 2.53; (A*B) = 0.05; Contribution of components 2%
  - World economic growth (in percent): Coefficients (A) 13.52; 10-year average values (B) 3.15; (A*B) = 0.43; Contribution of components 13%
  - CI Score: 3.19 — CI rating: Strong

- Applicable external debt burden thresholds (as presented)
  - PV of debt in % of Exports: 35 55 70
  - PV of debt in % of GDP: 140 180 240
  - Debt service in % of Exports: 30 40 55
  - Debt service in % of Revenue: 10 15 21
  - TOTAL public debt benchmark — PV of total public debt in percent of GDP: 141 823
  (Table entries reproduced as presented in source.)

### External debt — solvency and shock scenarios
- Overall assessment: continued moderate risk of external debt distress; solvency risks are rising relative to December 2020 DSA.
- Under the baseline scenario:
  - Solvency indicators remain below their indicative thresholds.
- Under extreme shocks to exports:
  - Multiple breaches of threshold for PV of external debt-to-exports ratio occur.
- Mitigating factors:
  - Adequate international reserves and available external official financing.
  - Authorities’ actions on climate-related shocks: 2019 National Environment and Climate Change Policy, Nationally Determined Contribution (NDC) goals, Green Growth and Climate Resilience Strategy.
  - Efforts to mitigate pandemic scars to human capital expected to mitigate growth shocks.

- Historical scenario implications:
  - PV of external debt-to-GDP ratio increases sharply.
  - Causes: recurrence of several large external shocks and large external imbalances observed in the past; large current account deficit and negative USD GDP deflator calibrated using historical averages (period included donor withdrawal, commodity prices, drought), corrected over 2015–17 primarily via large exchange rate adjustment under 2016 PSI/SCF-supported program.
  - Policy implication: steady narrowing of current account deficit from elevated 2020–21 levels (as envisaged under baseline, Text Table 2) is key to strengthen debt dynamics.

### Liquidity indicators and gross financing needs
- Liquidity risks: muted, but significant gross financing needs make the country susceptible to adverse market conditions.
- Debt management strategy: smoothing debt servicing profile helped mitigate liquidity risks.
- Debt service-to-exports and debt service-to-revenue ratios:
  - Except for one-off breaches in 2021, they remain below thresholds under most scenarios.
  - 2021 breach in external debt service indicator reflects Eurobond buyback operation in August 2021 (smoothed Eurobond bullet payments due in 2023).
- Risks to monitor:
  - Eurobond rollover risks in 2031.
  - Breach of market-financing risk indicator for gross financing needs (Figure 6).
- Adequate international reserves expected to partly mitigate liquidity risks.

### Public (PPG) debt dynamics
- Solvency risks increased relative to 2020 DSA; buffers to cushion major shocks remain limited.
- Faster near-term debt accumulation led to less favorable near-term debt dynamics relative to 2020 DSA, though risks remain moderate.
- Baseline projections:
  - PV of PPG debt remains below indicative benchmark of 70 percent.
  - PV of PPG debt projected to peak at 56.1 percent of GDP in 2023.
  - PV of PPG debt projected to reach the East African Community Monetary Union Protocol criterion of PV of 50 percent in 2026.
  - Nominal PPG debt-to-GDP ratio (including use of recent SDR allocation for budget financing) projected to peak at 77.9 percent in 2023 and reach the nominal debt anchor of 65 percent in 2028, conditional on successful implementation of policies supporting ambitious fiscal consolidation.
- Under severe shocks:
  - PV of PPG debt does not cross the 70 percent threshold.
- Liquidity in baseline: muted in part due to smoother debt service path from Eurobond issuance; however, debt service costs would remain elevated under severe growth and other country-specific shocks and sensitive to adverse market conditions.

### Assessment and risk rating
- Overall assessment: Rwanda’s debt is assessed to be sustainable with a moderate risk of external and overall public debt distress.
- Granular assessment: limited space to absorb shocks.
- Comparison to 2020 DSA: risk assessment unchanged; solvency indicators deteriorated somewhat due to larger near-term debt accumulation; liquidity risks reduced.
- As a result of moderate risk rating:
  - Limit on stock of new external PPG debt will continue to be monitored under the PCI.

### Downside risks and COVID-19 considerations
- Deterioration risks: economic impact and policy response to COVID-19 are evolving; prolonged pandemic could worsen debt outlook and sustainability.
- Baseline assumption: Rwanda gradually reverts to pre-pandemic growth trend and continues to achieve robust growth over medium term; concessional financing expected to decline gradually in long term.
- Main risks to outlook:
  - External shocks to growth and/or exports.
  - Worse-than-expected external financing conditions.
  - Prolonged pandemic and uneven recovery.

### Policy recommendations and reform priorities
- Overall objective: ensure long-term fiscal sustainability without jeopardizing short-term recovery.
- Sequenced intervention logic (complementing IMF PCI program and World Bank SDFP in FY 2021/22):
  - Near-term focus: strengthen foundations of fiscal risk management and transparency.
  - Medium-term focus: growth-friendly fiscal consolidation once crisis abates.

- Fiscal risk management and transparency (priorities and measures):
  - Improved budgetary control given past significant debt surprises.
  - Strengthen identification, assessment, and management of fiscal risks — central pillar under the PCI to mitigate debt surprises.
  - Progress shown with IMF and World Bank technical assistance; authorities committed to reforms including publishing fiscal risk statements and strengthening fiscal transparency, oversight, and management of SOEs and PPPs.
  - With IMF TA support: new Organic Budget Law expected to be approved in 2022Q1 will mandate annual publication of fiscal risk statements.
  - With World Bank support: authorities committed to publish enhanced semi-annual debt statistics bulletins with expanded coverage of non-guaranteed outstanding SOE debt.
  - Sustain efforts to improve domestic bond market functioning to address worse-than-expected external financing conditions.
    - Note: Rwanda has a 10-year Capital Market Master Plan and receives ongoing TA from the World Bank and IFC through the capital market development program.

- Fiscal consolidation (priorities and measures):
  - Adopt credible fiscal consolidation as soon as COVID-19 crisis abates to facilitate steady decline in debt ratio and restore fiscal buffers.
  - Realism tests raise stronger concerns compared to previous full DSA about credibility of baseline fiscal adjustments given a shortened horizon due to loosened budget deficit in current fiscal year.
  - Ensure COVID-support measures are strictly one-off.
  - Implement adequate structural revenue and expenditure measures promptly to safeguard credibility of adjustment and reverse recent debt dynamics and external imbalances.
    - Revenue side: timely implementation of the MTRS and unwinding of temporary tax exemptions to support post-pandemic recovery.
    - Spending side: rationalize spending through efficiency gains, digitalization, and better prioritization of existing public project pipeline via adoption of a medium-term investment program.

*Source: IMF Rwanda DSA excerpt (text provided).*

### 19. The authorities broadly agree with the results of the DSA and the overall assessment of a

### 1rwaea2022001 - 19. The authorities broadly agree with the results of the DSA and the overall assessment of a

### Authorities' assessment and strategy
- The authorities broadly agree with the results of the DSA and the overall assessment of a moderate risk of external and overall debt distress.
- They expect their current liability management strategy of converting short term external debt into long term domestic debt to shield the portfolio from refinancing risk stemming from external shocks.
- They consider the recent Eurobond buyback of 85 percent of the existing US$400 million Eurobond with bullet payment in 2023 at favorable terms to significantly reduce the liquidity risks in the near term.
- Going forward, the authorities’ debt management strategy will continue to be based on maximizing external concessional funding to avoid pressures on the debt repayment profile, while also implementing prudent spending and revenue measures agreed under the PCI to bring the debt level to the anchor of 65 percent debt-to-GDP, which they expect to build buffers to absorb shocks and reduce solvency risks.

### Baseline DSA — key projections and indicators (selected)
- External debt (nominal) 1/: 76.6; 79.9; 84.1; 85.6; 86.6; 85.5; 84.7; 70.8; 52.5; 42.6; 80.9 (presented in table for 2020–2041).
- of which: public and publicly guaranteed (PPG): 55.6; 58.6; 62.4; 63.9; 64.7; 63.5; 62.2; 48.7; 30.7; 31.4; 58.9.
- Change in external debt: 13.6; 3.3; 4.1; 1.5; 1.0; -1.0; -0.9; -3.7; -1.7.
- Identified net debt-creating flows: 11.1; 1.5; 2.9; 0.7; -0.6; -1.6; -1.9; -0.9; -3.5; 6.5; -0.3.
- Non-interest current account deficit: 9.8; 8.7; 9.1; 7.9; 6.4; 5.4; 3.1; 5.2; 2.9; 9.5; 5.9.
- Exports (percent of GDP series shown across table): 18.7; 18.9; 24.4; 26.7; 27.7; 31.5; 33.3; 33.5; 29.7.
- Imports (percent of GDP series shown across table): 34.6; 35.6; 40.9; 41.2; 41.7; 44.0; 43.5; 42.1; 32.6.
- Net current transfers (negative = inflow): -6.0; -8.0; -7.3; -6.5; -7.7; -7.2; -7.1; -4.1; -1.5; -7.4; -6.2.
- Net FDI (negative = inflow): -1.0; -2.2; -3.2; -3.5; -3.6; -3.6; -2.7; -3.5; -5.4; -2.6; -3.2.
- Endogenous debt dynamics: 2.3; -5.0; -3.0; -3.7; -3.4; -3.4; -2.3; -2.6; -1.0 (components include contribution from nominal interest rate: 2.2; 2.3; 2.3; 2.4; 2.6; 2.6; 2.6; 2.3; 2.2; and contribution from real GDP growth: 2.1; -7.3; -5.4; -6.1; -5.9; -6.0; -4.9; -4.9; -3.2).
- Residual 3/: 2.5; 1.8; 1.2; 0.7; 1.6; 0.6; 1.0; -2.8; 1.8; -0.5; -0.2.
- Sustainability indicators:
  - PV of PPG external debt-to-GDP ratio: 33.6; 36.1; 39.2; 40.9; 41.5; 40.9; 40.4; 31.9; 22.1.
  - PV of PPG external debt-to-exports ratio: 179.7; 190.9; 160.5; 153.3; 149.9; 130.0; 121.1; 95.1; 74.5.
  - PPG debt service-to-exports ratio: 10.6; 34.5; 7.8; 9.0; 8.2; 8.5; 8.3; 12.8; 9.6.
  - PPG debt service-to-revenue ratio: 10.6; 34.4; 9.9; 12.9; 11.9; 13.6; 14.1; 19.4; 11.5.
- Gross external financing need (Billion of U.S. dollars): 1.5; 1.9; 1.4; 1.4; 1.3; 1.3; 1.2; 2.5; 2.6.
- Key macroeconomic assumptions:
  - Real GDP growth (in percent): -3.4; 10.2; 7.2; 7.9; 7.5; 7.5; 6.1; 7.2; 6.5; 6.1; 7.4.
  - GDP deflator in US dollar terms (change in percent): 3.2; -2.9; -0.2; 1.0; 0.3; 0.5; 0.7; 2.0; 2.0; -0.6; 0.8.
  - Effective interest rate (percent) 4/: 3.4; 3.2; 3.1; 3.1; 3.2; 3.2; 3.2; 3.4; 4.5; 3.5; 3.2.
  - Growth of exports of G&S (US dollar terms, in percent): -14.4; 8.4; 38.2; 19.2; 11.8; 22.8; 13.1; 6.3; 8.1; 11.4; 14.5.
  - Growth of imports of G&S (US dollar terms, in percent): -4.3; 10.2; 22.9; 9.6; 9.3; 13.9; 5.7; 5.2; 6.3; 8.5; 10.3.
- Grant element of new public sector borrowing (in percent): 26.3; 39.8; 33.4; 43.0; 41.8; 39.2; 31.0; 19.3; 38.7 (values presented across table).
- Government revenues (excluding grants, in percent of GDP): 18.8; 19.0; 19.1; 18.7; 19.1; 19.7; 19.7; 22.3; 25.0; 14.9; 20.4.
- Aid flows (in Billion of US dollars) 5/: 0.5; 1.2; 1.3; 1.1; 1.4; 1.2; 1.2; 0.9; 0.9.
- Grant-equivalent financing (in percent of GDP) 6/: 9.8; 9.3; 8.0; 8.7; 7.3; 6.8; 3.3; 1.3; 6.4.
- Grant-equivalent financing (in percent of external financing) 6/: 50.9; 65.9; 59.1; 69.4; 69.6; 70.3; 52.1; 34.5; 63.7.
- Nominal GDP (Billion of US dollars): 10; 11; 12; 13; 14; 15; 16; 25; 58 (presented across table).
- Nominal dollar GDP growth: -0.2; 7.0; 7.0; 8.9; 7.8; 8.1; 6.8; 9.3; 8.6; 5.4; 8.3.
- Memorandum items:
  - PV of external debt 7/: 54.6; 57.5; 60.9; 62.6; 63.4; 63.0; 62.8; 54.0; 44.0.
  - In percent of exports: 292.4; 303.9; 249.4; 234.4; 228.8; 199.9; 188.3; 160.9; 148.1.
  - Total external debt service-to-exports ratio: 31.2; 55.9; 24.5; 24.3; 23.1; 21.7; 21.0; 25.3; 23.5.
  - PV of PPG external debt (in Billion of US dollars): 3.5; 4.0; 4.6; 5.3; 5.8; 6.1; 6.5; 7.9; 12.8.
  - (PVt-PVt-1)/GDPt-1 (in percent): 5.1; 5.9; 5.4; 3.8; 2.7; 2.2; 0.4; 0.9.
  - Non-interest current account deficit that stabilizes debt ratio: -3.8; 5.4; 5.0; 6.5; 5.4; 6.4; 4.0; 8.9; 4.6.

### Stress tests, scenarios, and risks (high-level)
- The DSA presents alternative scenarios, bound tests (e.g., shocks to real GDP growth, primary balance, exports, one-time 30 percent nominal depreciation), and tailored tests (e.g., combined contingent liabilities, market financing).
- Tables and figures show projected paths for indicators such as PV of debt-to-GDP, PV of debt-to-exports, debt service-to-exports, and debt service-to-revenue under baseline and most-extreme shock scenarios for 2021–31.
- Figure panels and sensitivity tables identify the most extreme shocks for different indicators (e.g., Combination, Exports, Growth) and present threshold comparisons and qualification of the moderate category for 2020–31.

### Policy implications and near-term actions (implicit from text)
- Continue liability management to convert short-term external debt into long-term domestic debt to reduce refinancing risk.
- Maintain use of favorable buybacks (example: Eurobond buyback of 85 percent of US$400 million) to reduce near-term liquidity risk.
- Prioritize maximizing external concessional funding to lessen pressures on the repayment profile.
- Implement prudent spending and revenue measures agreed under the PCI to achieve the debt anchor of 65 percent debt-to-GDP and build buffers to absorb shocks and reduce solvency risks.

*Sources: Country authorities; and staff estimates and projections.*

### 1. Our Rwandan authorities thank IMF Executive Board, Management, and staff for the

### 1rwaea2022001 - 1. Our Rwandan authorities thank IMF Executive Board, Management, and staff for the

### Acknowledgment of IMF Support
- The authorities thank IMF Executive Board, Management, and staff for continued support.
- Emergency assistance under the Rapid Credit Facility (RCF1 and RCF2) in 2020 helped Rwanda cope with COVID-19 economic and social fallout.
- Debt service relief under the Fund’s Catastrophe Containment and Relief Trust (CCRT) strengthened the external position and provided additional fiscal space.
- The historical 2021 SDR allocation increased international reserves, reinforced the recovery, and supported targeted social spending while strengthening buffers.

### Recent Developments and Outlook
- Recovery trajectory:
  - Rwanda’s economy significantly rebounded in 2021 and recovery is expected to continue in 2022, supported by stepped up vaccination efforts, a rise in external demand, and accommodative macroeconomic policies.
  - The economy remains highly vulnerable to external shocks and subject to scarring effects of COVID-19 and new variants.
  - Authorities will pursue macroeconomic objectives under the Policy Coordination Instrument (PCI).
- Pandemic response and social protection:
  - Fiscal and monetary support to business activity, scaling up social safety nets through emergency cash transfers, and improving coverage and targeting of social protection were implemented.
  - Government will invest in health, education, and other social sectors to limit lasting negative effects on social and development indicators.
- Economic performance:
  - Real GDP declined by more than 3 percent in 2020 due to near halt in tourism and decreased domestic demand from containment measures.
  - The economy rebounded sharply after 2020 and 2021H1.
  - Real GDP is estimated to have grown by 10.2 percent y/y in 2021, mainly driven by base effects from recovering activities in industry and services.
  - Inflation remains subdued, with the 12-month average within below the outer lower band established in the monetary policy consultation clause.
- Vaccination progress (targets and coverage):
  - Achieved the COVID-19 vaccination target of covering 30 percent of the total population with two doses by end-December 2021.
  - As of January 3rd, 2022:
    - 42.5 percent of the population has been fully vaccinated.
    - 59.5 percent has received at least one dose of vaccine.
    - 99 percent of adult population in the capital city Kigali has received at least one dose.
    - 201,113 booster doses have been administered.
- External position:
  - Current account deficit projected at 11.1 percent of GDP in 2021, driven by a strong rebound in imports.
  - FDI inflows remained subdued as some large investment projects were delayed.
  - Gross international reserves stood at 5.2 months of prospective imports at the end of September 2021, bolstered by the recent SDR allocation.
  - External position expected to improve through increases in domestic savings from envisaged fiscal consolidation and productivity gains underpinned by structural reforms.
- Downside risks:
  - Significant downside risks include new COVID-19 variants given significant unvaccinated population share, a protracted pandemic, higher oil prices, and more subdued external demand than expected.
  - Pandemic scars could hamper longer-term growth and worsen fiscal, debt, and external outlooks, and impact human capital.

### Program Performance Under the PCI
- Overall assessment:
  - Program performance under the PCI remains satisfactory despite challenging circumstances.
  - All end-June 2021 quantitative targets have been met.
  - Inflation remains within the monetary policy consultation clause.
- Structural and reform progress:
  - Most comprehensive reform agenda targets have been met, including mitigation of fiscal risks from SOEs, strengthening domestic revenue mobilization, and deepening financial markets.
  - Issuance of public securities: a cell phone platform has been set up.
  - VAT claims: risk-based verification process has been computerized.
- Implementation delays and resets:
  - Delays in procurement for hiring experts led to two reform targets through end-November 2021 not being met:
    - Review of Rwanda Social Security Board (RSSB)’s asset allocation reset to end-January 2022.
    - Legal assessment for the Global Master Repurchase Agreement (GMRA) rollout reset to end-March 2022.

### Macroeconomic Policies for 2022 and Beyond

Fiscal Policy and Debt Management
- Policy stance:
  - Authorities committed to the policies and reforms embedded in the PCI and to identifying credible revenue and spending measures for growth-friendly fiscal consolidation once the crisis abates.
  - They will advance the structural reform agenda while preserving policies to reduce debt vulnerabilities and maintain macroeconomic and financial stability.
- Fiscal support and priorities:
  - Fiscal policy in 2022 will continue to support the nascent recovery, prioritizing social and investment spending while safeguarding fiscal sustainability and containing debt vulnerabilities.
  - Efforts to ensure expenditure is well-targeted and cost-effective, mobilize more domestic revenues, and secure concessional financing.
  - Authorities intend to start legislating and finalizing fiscal consolidation measures as part of their FY22/23 budget.
  - A medium-term revenue strategy is expected to be approved by the Cabinet by early-January 2022.
- Fiscal outlook and measures:
  - Fiscal deficit projected to increase this fiscal year partly reflecting additional spending to withstand the COVID-19 shock and repair damages from a recent volcanic eruption near the border with the Democratic Republic of Congo.
  - Part of the 2021 SDR allocation will be used to support these expenditures.
  - Rwanda’s debt remains sustainable with a moderate risk of debt distress.
  - Medium-term fiscal consolidation will end recently introduced measures such as reduction in fuel levy and tax exemptions, and introduce credible domestic revenue mobilization and spending rationalization measures.
  - Authorities will monitor social programs and sustain human capital investments to limit pandemic scars and foster inclusive and resilient growth.
- Fiscal risks from SOEs and PPPs:
  - Risks are keenly monitored; comprehensive reports on performance will be pursued and remedial actions recommended by the Fiscal Risk Committee will be adopted.
  - Contingent measures will be reinforced to prepare for any worsening of the pandemic.

Monetary and Financial Sector Policies
- Monetary policy:
  - Will remain data-dependent, anchored by inflation expectations, and broadly supportive of recovery.
  - Authorities will closely monitor inflation to inform policy rate adjustments and entrench the interest-rate-based framework.
  - Commitment to exchange rate flexibility in line with the monetary policy framework.
- Financial system stability:
  - Banking system remains stable, liquid, and well-capitalized while NPLs are declining.
  - Authorities will adopt international best practices, strongly monitor credit risks, pursue prudent loan classification and provisioning, and maintain intensive supervisory oversight.
  - Commitment to addressing gaps in the AML/CFT framework and improving compliance with FATF standards to reduce financial sector risks.
- Statistics and technical support:
  - Authorities are dedicated to improving the quality and transparency of national statistics, particularly monetary and balance-of-payments statistics.
  - They request continued technical support from the IMF in identified domains.

### Structural Reform Agenda
- Importance and objectives:
  - Sustaining structural reforms is vital to minimize pandemic scars and foster inclusive, resilient growth.
  - Further measures needed to attract private financing, address post-pandemic development needs, and protect social programs.
- Fiscal framework reforms:
  - Reforms to accounting, budgetary, and legal frameworks will bolster fiscal implementation capacity and mitigate budget risks.
- Addressing pandemic scars and inclusion:
  - Reforms will aim to mitigate long-term individual earnings losses and aggregate productivity damages.
  - Continued emphasis on promoting gender equity.
  - Focus on deepening financial markets, expanding digital payments, and increasing financial inclusion to mobilize domestic savings.
- Climate and environment:
  - Rwanda has made impressive progress in the past decade and stands ahead of regional peers in climate change adaptation readiness.
  - The 7-  year Government’s National Strategy for Transformation (NST1) Program spanning 2017–24 prioritizes natural resource and environment management.
  - Actions taken: endorsing the National Environment and Climate Change Policy in 2019, updating National determined contribution (NDC) goals in 2020, efforts to reduce emissions and adapt to climate change, and revision of the Green Growth and Climate Resilience Strategy.
- Business environment and private investment:
  - Strong actions have reduced the cost of doing business and promoted competitiveness, expected to boost private investment and private sector development.
  - Emphasis on improved selection and prioritization of public investments for greater value-for-money and leveraging private sector involvement.
  - Pursuing blending arrangements through the Compact with Africa Initiative, targeting private investments in affordable housing and agriculture with support of development partners.

### Conclusion and Requests
- The Rwandan authorities look forward to further engagement with the Fund to reinforce macroeconomic gains under the PCI and to support their development agenda.
- They request Executive Directors’ support for the conclusion of the 2021 Article IV consultation and completion of the Fifth Review under the PCI.

*Source: 1rwaea2022001.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rwaea2022001.pdf_