## 1rwaea2022002 - Executive Summary ## Source details **Canonical URL:** [1rwaea2022002 - Executive Summary](https://www.imf.org/-/media/files/publications/cr/2022/english/1rwaea2022002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1rwaea2022002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1rwaea2022002.pdf.json) --- ### Recent economic developments - Growth and pandemic scars - Growth rebounded to 10.9 percent in 2021. - Growth projected to decline to 6 percent in 2022 due to lower external demand and higher global commodity prices. - "Has emerged from the COVID-19 pandemic with scars that would likely take time to reverse." - Inflation and monetary policy - Headline inflation projected to rise from 0.8 percent in 2021 to 9.5 percent in 2022. - Inflation reached 9.9 percent (y-o-y) in April 2022. - The 12-month average inflation reached 2.4 percent in April 2022. - National Bank of Rwanda (NBR) raised the policy rate by 50 basis points in February 2022 to 5 percent. - NBR kept the policy rate unchanged in May 2022 despite projecting inflation to exceed its upper tolerance band (8 percent) in 2022. - External sector and reserves - Trade deficit narrowed to 15 percent of GDP in 2021. - Rwandan franc depreciated by 3.9 percent, year-on-year, against the US dollar at end-April 2022. - International reserves increased at end-2021 after the 2021 SDR allocation and Eurobond issuance, but declined to 4.2 months of imports at end-April 2022. - Employment, food security, and social impact - Unemployment is 24 percent as of Q4 2021 (pre-COVID level around 15 percent). - Female unemployment rate about 7 percentage points higher than for males. - 35 percent of the population is under-nourished (sub-Saharan average 20 percent). - Pandemic-related uncertainties increased reliance on short-term contracts and day laborers. ### Program implementation and fiscal developments - Program performance - All quantitative and standard continuous targets through end-December 2021 met, except for inflation (MPCC triggered). - All six reform targets (RTs) due through end-April 2022 were completed; two met on time. - Staff recommends completion of the Sixth Review under the Policy Coordination Instrument (PCI). - H1 FY21/22 fiscal outturns (selected items; percent of GDP rows correspond to two columns as in source) - Revenue: 12.4 11.4 - Taxes: 7.4 7.2 - Grants: 3.2 2.5 - of which vaccine: 0.4 0.9 - Other revenue: 1.6 1.7 - Expense: 11.4 9.7 - of which purchases of goods and services: 3.0 2.4 - of which subsides: 2.3 1.7 - of which grants: 2.9 2.5 - Net acquisition of nonfin. assets: 6.1 5.6 - Net lending (+) / borrowing (-): -5.1 -3.9 - Net acquisition of financial assets: 2.3 3.4 - Net incurrence of liabilities: 7.3 7.6 - Domestic: -0.1 1.2 - o/w Accounts payable (arrears): -0.2 1.2 - Foreign: 7.4 6.4 - Total Covid-19 spending: 1.1 2.1 - Overall balance (GFSM 1986): -5.6 -4.2 - Debt-creating overall balance (excl. PKO, GFSM 1986): -5.5 -4.1 - SDR and budgetary spending - MoU for the 2021 SDR allocation signed in February 2022. - Revised FY21/22 budget allocated about 70 percent of the SDR allocation (1.3 percent of GDP) to urgent pandemic needs. - H1 FY21/22 fiscal deficit lower than anticipated owing to weak expenditure execution; lower grants offset by lower-than-expected goods and services and capital expenses. - Debt outlook - Change in World Bank IDA20 terms increases loan volume and debt-to-GDP ratio, but marginal impact on present value of debt path due to higher concessionality. ### Monetary, financial sector, and external sector performance - Banking sector resilience and risks - Banking sector profitable, well-capitalized, and liquid as of end-March 2022. - Nonperforming-loan (NPL) ratio: 4.7 percent (below NBR benchmark 5 percent). - Loans under “Watch” increased since September 2021 due to reclassification and expiry of moratoria; provisioning levels increased. - Credit risk elevated but stable compared to Q4 2021. - Monetary operations and liquidity - Demand for reserves continues to grow, lowering excess reserves. - Sustained demand for reverse repo from NBR; repo and reverse repo operations used to inject liquidity. ### Outlook, risks, and spillovers - Geopolitical and commodity price shocks - Spillovers from the war in Ukraine compound pandemic challenges: weigh on growth, increase inflationary pressures and social needs, strain fiscal balances, raise food insecurity concerns. - Spillovers expected to depress consumption and investment, worsen terms of trade, and could widen the trade deficit by reducing external demand. - Near-term uncertainty and medium-term prospects - Near-term outlook marred by geopolitical uncertainty that could prolong spillovers; medium-term outlook remains favorable, supported by authorities’ commitment to structural reforms. ### Key macroeconomic projections and indicators (selected rows as presented) - Real GDP growth (percent): 2019 9.5; 2020 -3.4; 2021 10.2; 2022 6.0; 2023 7.9; 2024 6.7; 2025 7.5; 2026 7.0; 2027 7.5; 2028 7.5; 2029 7.5; 2030 6.1; 2031 6.1; 2032 6.1 - CPI inflation, average (percent): 2019 2.4; 2020 7.7; 2021 0.7; 2022 0.8; 2022 (5th Review) 5.7; 2022 (6th Review) 9.5; 2023 6.8; 2024 8.0; 2025 5.0; subsequent years 5.0 - Overall fiscal balance (% of GDP), FY basis: 2019 -8.1; 2020 -9.1; 2021 -8.6; 2022 -8.6; FY21/22 (6th review) -8.7; FY22/23 (6th review) -6.9; FY23/24 -5.0; FY24/25 -6.1; FY25/26 -4.0; FY26/27 -4.9; FY27/28 -3.0; FY28/29 -3.6; FY29/30 -3.4 - Total public debt incl. guarantees (percent of GDP): 2019 56.8; 2020 72.4; 2021 74.6; 2022 73.3; 2023 77.2; 2024 73.1; 2025 77.5; 2026 75.2; 2027 75.7; 2028 59.3; 2029 73.1; 2030 74.2; 2031 71.1; 2032 73.6 - Current account balance (% of GDP): 2019 -11.9; 2020 -12.1; 2021 -11.0; 2022 -10.9; 2022 (6th review) -12.6; 2023 -10.3; 2024 -11.7; 2025 -9.0; 2026 -10.3; 2027 -8.0; 2028 -8.9; 2029 -5.7; 2030 -7.8; 2031 -7.3 - Gross international reserves (months of imports): 2019 5.6; 2020 5.9; 2021 5.2; 2022 5.0; 2022 (6th review) 4.6; 2023 4.6; 2024 4.3; 2025 4.4; 2026 4.3; 2027 4.5; 2028 4.4; 2029 4.3; 2030 4.4; 2031 2.4; 2032 4.1 ### Policy recommendations (selected) - Fiscal policy - Implement targeted measures to protect the vulnerable from rising food and fuel prices. - Make the reduction in the fuel levy temporary and phase it out by end-FY22/23, if not sooner. - Advance spending rationalization measures for FY22/23 and implement the medium-term revenue strategy (MTRS). - Given current debt level and uncertain outlook, step up efforts to contain risks. - Monetary and financial policies - NBR should tighten monetary policy more aggressively to curb inflation expectations and help ensure return of inflation to the target by end-2023. - Implement the interest-rate-based monetary policy framework, deepen money and government securities markets, promote more flexible exchange rates, and safeguard financial stability. - Structural reforms - Continue policies to mitigate pandemic scars and advance the climate resilience agenda to lay foundations for more sustainable, inclusive, and resilient growth. ### Monetary policy, MPCC, and technical items - MPCC and inflation bands - CPI Inflation target: 5.0 - Inflation, upper inner-bound: 8.0 percent; lower inner-bound: 2.0 percent. - Inflation, upper bound: 9.0 percent; lower bound: 1.0 percent. - The 12-month headline inflation average fell below the outer lower bound in 2021, triggering the MPCC. - NBR actions and staff view - NBR raised policy rate to 5 percent in February 2022 and kept it unchanged in May 2022. - NBR's May quarterly inflation forecast projected headline inflation to peak at 11.8 percent in Q4 2022, remain above 8 percent until Q3 2023, and decline to 5 percent in Q1 2024. - Staff view: additional and possibly more aggressive tightening warranted to better anchor expectations and fend off second-round effects; strengthen communications. ### Fiscal consolidation, MTRS, and DRM - Fiscal consolidation targets and sequencing - Cumulative reduction in the overall deficit estimated at 5.1 percent of GDP during FY22/23–FY25/26. - MTRS approved by Cabinet in May 2022; goal to increase tax-revenue-to-GDP ratio by 1 percentage point now expected in FY25/26. - Draft laws for PIT and VAT revisions submitted to Parliament; draft excise law to Cabinet by end-July 2022; draft CIT revisions to Cabinet by end-January 2023 (proposed RTs). - Tax administration measures effective in FY21–22; tax policy measures to start in FY22/23. - Fiscal consolidation quantitative adjustments (annual adjustments, percentage points of GDP) - Total tax revenue: 2021/22 -0.1; 2022/23 -0.2; 2023/24 0.5; 2024/25 0.5; 2025/26 0.8; 2026/27 0.3 - Medium-term revenue strategy: 2021/22 0.1; 2022/23 0.1; 2023/24 0.0; 2024/25 0.5; 2025/26 0.5; 2026/27 0.1 - Fuel levy impact: 2021/22 -0.2; 2022/23 -0.1; 2023/24 0.3 - Policy and administration measures for MTRS and other items listed in the source text. ### Fiscal risks, transparency, and governance - Institutional reforms - Organic Budget Law (OBL) approved by Cabinet in April; expected Parliamentary approval by end-May (source text). - OBL defines role of the Fiscal Risk Committee (FRC), mandates publication of Fiscal Risk Statement (FRS), and harmonizes financial reporting. - Presidential Order expected by June 2022 to strengthen SOE monitoring, harmonize reporting, and introduce sanctions for non-compliance. - Transparency and audits - Office of the Auditor General published its annual audit report for FY20/21 in May 2022 covering government expenditures and procurement, including COVID-related spending. - Next OAG audit expected to cover SDR-financed government spending in FY21/22. ### Social, sectoral, and climate-related measures - Social protection and subsidies - Fuel levy eliminated in April 2022; domestic prices increased by around 20 percent since May 2021; authorities plan to eliminate the subsidy by end-June 2023. - Subsidy estimated to reduce tax revenues by 0.2 and 0.3 percent of GDP in FY21/22 and FY22/23, respectively. - Fertilizer subsidy to absorb about 60 percent of the international price increase; FY22/23 budget envisages increase of 0.1 percent of GDP. - Public transport subsidies amount to 0.1 percent of GDP in FY22/23. - Social protection programs spending projected at 0.9 percent of GDP in FY22/23 (increase by 0.1 percent of GDP). - Climate agenda and public investment - C-PIMA TA (April 2022) to integrate climate criteria into public investment management. - Rwanda Green Fund funded 44 projects by April 2022. - Climate financing needs estimated at US$11 billion by 2030 (US$5.7 billion mitigation; US$5.3 billion adaptation). - Commitment to a 38 percent reduction of greenhouse gas emissions compared to “business as usual” by 2030. ### Program modalities, conditionality, monitoring, and financing - Program monitoring - Semi-annual monitoring through quantitative tests (QTs), reform targets (RTs), standard continuous targets, and an MPCC. - Adjustors and conditionality - Adjustor on debt-creating overall balance proposed to accommodate concessional project loans, subject to preserving PV of debt path. - Adjustors related to COVID-19 vaccines, SDR allocation, and Eurobond proceeds proposed to be maintained. - Proposed operational RT changes: reset RSSB asset allocation review RT; replace MTRS first-review RT with two RTs on excise and CIT legal revisions; introduce RT to incorporate fiscal sustainability analysis into fiscal risk assessment by end-April 2023. - Program financing and risks - Rwanda not seeking Fund financial assistance; program fully financed with firm commitments over next 12 months and good prospects thereafter. - Risks mitigated by robust public health and economic response, contingency planning, and track record in implementing Fund-supported programs. ### Staff appraisal: near-term priorities and medium-term recommendations - Near-term priorities - Respond to war in Ukraine with targeted fiscal measures using existing social safety nets. - Phase out fuel subsidies by end-FY22/23; consider more targeted social protection coverage. - Monetary recommendation - NBR should be ready to tighten policy to bring inflation back to target by end-2023; keep policy data-dependent and strengthen communications. - Fiscal and PFM recommendation - Fast-track credible fiscal consolidation plan, broaden tax base via MTRS, phase off tax exemptions, and identify spending rationalization and efficiency gains (digitalization, SOE oversight, investment prioritization). - Other recommendations - Contain fiscal and financial sector risks, increase transparency (RSSB, BO in procurement), align AML/CFT legal framework with FATF standards, continue monetary market reforms, and sustain structural reforms for climate resilience and greener growth. *IMF staff; Rwanda: Executive Summary (June 3, 2022).* ### EXECUTIVE SUMMARY ### 1rwaea2022002 - EXECUTIVE SUMMARY ### Recent economic developments - Growth and pandemic scars - Growth rebounded to 10.9 percent in 2021. - Lower external demand and higher global commodity prices are projected to lower growth to 6 percent in 2022. - The economy "has emerged from the COVID-19 pandemic with scars that would likely take time to reverse." - Inflation and monetary policy - Headline inflation is projected to rise from 0.8 percent in 2021 to 9.5 percent in 2022, exceeding the central bank’s benchmark level (5 percent). - Inflation reached 9.9 percent (y-o-y) in April 2022. - The 12-month average inflation reached 2.4 percent in April 2022. - The National Bank of Rwanda (NBR) raised the policy rate by 50 basis points in February 2022, bringing the policy rate to 5 percent. - NBR decided to keep the policy rate unchanged in May 2022 despite projecting inflation to exceed its upper tolerance band (8 percent) in 2022. - External sector and reserves - The trade deficit narrowed to 15 percent of GDP in 2021. - The Rwandan franc depreciated by 3.9 percent, year-on-year, against the US dollar at end-April 2022. - International reserves increased at end-2021 after the 2021 SDR allocation and Eurobond issuance, but declined to 4.2 months of imports at end-April 2022. - Employment, food security, and social impact - Unemployment is 24 percent as of Q4 2021, relative to the pre-COVID level of around 15 percent. - Female unemployment rate is about 7 percentage points higher than that for males. - 35 percent of the population is under-nourished (compared with the sub-Saharan average of 20 percent). - Pandemic-related uncertainties have increased reliance on short-term contracts and the share of day laborers, amplifying employment fluctuations. ### Program implementation and fiscal developments - Program performance - Program performance remains broadly satisfactory with all quantitative and standard continuous targets through end-December 2021 met. - The 12-month headline inflation average triggered the monetary policy consultation clause (MPCC) as average inflation in 2021 fell below the outer lower bound of NBR’s inflation benchmark. - All six reform targets (RTs) due through end-April 2022 were completed, but only two were met in a timely fashion. - Staff recommends completion of the Sixth Review under the Policy Coordination Instrument (PCI). - Fiscal outturns H1 FY21/22 (selected items from Operations table) - Revenue: 12.4 11.4 - Taxes: 7.4 7.2 - Grants: 3.2 2.5 - of which vaccine: 0.4 0.9 - Other revenue: 1.6 1.7 - Expense: 11.4 9.7 - of which purchases of goods and services: 3.0 2.4 - of which subsides: 2.3 1.7 - of which grants: 2.9 2.5 - Net acquisition of nonfin. assets: 6.1 5.6 - Net lending (+) / borrowing (-): -5.1 -3.9 - Net acquisition of financial assets: 2.3 3.4 - Net incurrence of liabilities: 7.3 7.6 - Domestic: -0.1 1.2 - o/w Accounts payable (arrears): -0.2 1.2 - Foreign: 7.4 6.4 - Total Covid-19 spending: 1.1 2.1 - Overall balance (GFSM 1986): -5.6 -4.2 - Debt-creating overall balance (excl. PKO, GFSM 1986): -5.5 -4.1 - SDR and budgetary spending - A Memorandum of Understanding (MoU) for the 2021 SDR allocation was signed in February 2022. - The revised FY21/22 budget allocated about 70 percent of the SDR allocation (1.3 percent of GDP) to urgent pandemic needs. - H1 FY21/22 fiscal deficit was lower than anticipated owing to weak expenditure execution; lower grants were more than offset by lower-than-expected goods and services and capital expenses. - Debt outlook - The change in World Bank financing terms under IDA20 will increase the volume of loans and hence the debt-to-GDP ratio for Rwanda, but given the higher concessionality of the loans, the expected impact on the present value of debt path is marginal. ### Monetary, financial sector, and external sector performance - Banking sector resilience and risks - The banking sector remained profitable, well-capitalized, and liquid as of end-March 2022, despite an increase in loan write-offs after forbearance measures expired. - Nonperforming-loan (NPL) ratio: 4.7 percent (below NBR’s benchmark of 5 percent). - Loans under “Watch” have increased since September 2021 due to reclassification of COVID-19-related restructured loans and expiry of moratoria, and provisioning levels have increased. - Credit risk remains elevated but stable compared to Q4 2021. - Monetary operations and liquidity - Demand for reserves continues to grow, lowering excess reserves. - Sustained demand for reverse repo from NBR; use of repo and reverse repo operations to inject liquidity. ### Outlook, risks, and spillovers - Geopolitical and commodity price shocks - Spillovers from the war in Ukraine are compounding pandemic challenges by weighing on growth, increasing inflationary pressures and social needs, and straining fiscal balances amid high uncertainty and rising food insecurity concerns. - The war’s spillovers are expected to depress consumption and investment, worsen terms of trade, and could widen the trade deficit by reducing external demand for Rwanda’s goods and services. - Near-term uncertainty and medium-term prospects - While the near-term outlook is marred by uncertainty from geopolitical risks that could prolong spillovers from the war in Ukraine, the medium-term outlook remains favorable, supported by the authorities’ commitment to structural reforms. ### Policy recommendations - Fiscal policy - Implement a targeted approach to protect the vulnerable from rising food and fuel prices. - The reduction in the fuel levy to mitigate pass-through of higher energy import costs should be temporary and phased out by end-FY22/23, if not sooner. - Advance implementation of spending rationalization measures for FY22/23 and the medium-term revenue strategy (MTRS) as planned. - Given the current debt level and uncertain outlook, step up efforts to contain risks. - Monetary and financial policies - NBR should tighten monetary policy more aggressively to curb inflation expectations and help ensure the return of inflation to the target by end-2023. - Policies should focus on implementing the interest-rate-based monetary policy framework, deepening money and government securities markets, promoting more flexible exchange rates, and safeguarding financial stability. - Structural reforms - Continue policies to mitigate pandemic scars and advance the climate resilience agenda to lay foundations for more sustainable, inclusive, and resilient growth. *IMF staff; Rwanda: Executive Summary (June 3, 2022).* ### 9. All quantitative and standard continuous targets through end- ### 9. All quantitative and standard continuous targets through end- ### Targets compliance and reform targets (RTs) - All quantitative and standard continuous targets through end-December 2021 were met except for inflation. - All six RTs through end-April 2022 were completed, but only two were met in a timely fashion. - The 12-month headline inflation average fell below the outer lower bound, triggering the monetary policy consultation clause (MPCC). - RTs met on time: - Fiscal risk assessment of public-private partnerships (end-April 2022 RT). - Legal assessment to identify gaps in the Global Master Repurchase Agreement (GMRA). - Other RTs and deliverables: - Publication of consolidated fiscal statistics completed in March. - Selection of an advisory firm for Rwanda’s Social Security Board (RSSB) asset allocation review completed in April. - Study on consumer payment behavior and approval of the MTRS by Cabinet completed in May. - RSSB procurement delays: selection of firm done in April (end-January 2022 RT); asset allocation review now expected to be completed by end-September (revised RT). - Consolidated historical fiscal statistics for public corporations, general government, and the non-financial public sector (end-December 2021 RT) were published with a three-month delay. ### External developments and reserves - Reserves were boosted by the SDR allocation and the Eurobond issuance. - Gross international reserves expected to remain adequate above 4 months of prospective imports. - EAC real effective exchange rates: The real effective exchange rate depreciated on the back of low inflation. - Foreign exchange market pressures driving nominal exchange rate depreciation remained subdued during 2021. - Trade: The trade deficit is estimated to have narrowed modestly in 2021. ### Outlook and risks - Growth projections: - Growth is projected to decline to 6.0 percent in 2022. - Output gap projected to close in mid-2023. - With fiscal consolidation measures implemented, private consumption and investment would be the main growth drivers in the medium term. - Inflation projections: - Headline inflation is projected to rise from 0.8 percent in 2021 to 9.5 percent in 2022. - Core inflation rose to 9.1 percent in April (second-round effects likely). - Inflation is projected to moderate to 8.0 percent in 2023, provided monetary policy is tightened to fend second-round effects. - Fiscal and external balances: - Fiscal deficit for FY21/22 is expected to be 8.7 percent of GDP, 0.4 percentage below the program target. - Current account deficit projected to widen to 12.6 percent of GDP in 2022; start narrowing thereafter. - Financial inflows as percent of GDP projected to start declining from 2022 onwards, reflecting a decline in public sector borrowing from fiscal consolidation. - Risks: - Elevated geopolitical risks from the war in Ukraine: prolonged war could lead to higher energy and food prices, exacerbated food insecurity, extended supply chain disruptions, lower availability of concessional resources, and lower external demand. - Downside risks include subdued external demand from monetary tightening in advanced economies and new COVID waves. - Upside possibility: increased mineral export receipts if Russia’s mineral exports decline due to sanctions. ### Key macroeconomic projections and indicators (as presented) - Real GDP growth (percent): 2019 9.5; 2020 -3.4; 2021 10.2; 2022 6.0; 2023 7.9; 2024 6.7; 2025 7.5; 2026 7.0; 2027 7.5; 2028 7.5; 2029 7.5; 2030 6.1; 2031 6.1; 2032 6.1 - CPI inflation, average (percent): 2019 2.4; 2020 7.7; 2021 0.7; 2022 0.8; 2022 (5th Review) 5.7; 2022 (6th Review) 9.5; 2023 6.8; 2024 8.0; 2025 5.0; subsequent years 5.0 - CPI inflation, eop (percent): 2019 6.7; 2020 3.7; 2021 1.9; 2022 1.9; 2022 (6th Review) 8.1; 2023 8.8; 2024 6.8; 2025 5.0; subsequent years 5.0 - Overall fiscal balance (% of GDP), FY basis: 2019 -8.1; 2020 -9.1; 2021 -8.6; 2022 -8.6; FY21/22 (6th review) -8.7; FY22/23 (6th review) -6.9; FY23/24 -5.0; FY24/25 -6.1; FY25/26 -4.0; FY26/27 -4.9; FY27/28 -3.0; FY28/29 -3.6; FY29/30 -3.4 - Total public debt incl. guarantees (percent of GDP): 2019 56.8; 2020 72.4; 2021 74.6; 2022 73.3; 2023 77.2; 2024 73.1; 2025 77.5; 2026 75.2; 2027 75.7; 2028 59.3; 2029 73.1; 2030 74.2; 2031 71.1; 2032 73.6 - Current account balance (% of GDP): 2019 -11.9; 2020 -12.1; 2021 -11.0; 2022 -10.9; 2022 (6th review) -12.6; 2023 -10.3; 2024 -11.7; 2025 -9.0; 2026 -10.3; 2027 -8.0; 2028 -8.9; 2029 -5.7; 2030 -7.8; 2031 -7.3 - Gross international reserves (months of imports): 2019 5.6; 2020 5.9; 2021 5.2; 2022 5.0; 2022 (6th review) 4.6; 2023 4.6; 2024 4.3; 2025 4.4; 2026 4.3; 2027 4.5; 2028 4.4; 2029 4.3; 2030 4.4; 2031 2.4; 2032 4.1 ### Policy discussions and fiscal policy - Policy focus areas: - Near-term policy responses to combined shocks. - Measures to support fiscal consolidation to reduce debt vulnerabilities and promote external stability while preserving policy space. - Containing inflationary pressures, modernizing the monetary policy framework, and safeguarding financial stability. - Supporting policies to foster inclusive, sustainable, and resilient growth. - FY21/22 fiscal position: - Expected to be better than anticipated at the 5th Review. - Higher tax revenues projected due to delayed take-up of exemptions and a lower-than-anticipated impact of AfCFTA. - Externally financed capital projects financed by higher grants expected to be higher. - Interest payments projected to be lower due to lower domestic financing. - FY22/23 fiscal outlook: - Fiscal deficit anticipated to decline to 6.9 percent of GDP, 0.6 percentage point lower than envisaged at the 5th Review. - Drivers: higher budget grants from the UK for the Migration and Economic Development Partnership (MEDP), and lower capital and interest expenses. - Offsets: lower tax revenues, higher recurrent expenses, and changes in World Bank financing terms under IDA20 (lowering World Bank’s grants by 0.7 percent of GDP). - Authorities used fuel, fertilizer, and public transport subsidies and social protection interventions to mitigate rising commodity prices. - Additional unanticipated spending will be accommodated by slowing execution of non-wage current spending and domestic capital spending, while protecting priority spending items. ### Fiscal consolidation and DRM - The cumulative reduction in the overall deficit is estimated to be 5.1 percent of GDP during FY22/23–FY25/26. - MTRS (Medium-Term Revenue Strategy): - Goal to increase the tax-revenue-to-GDP ratio by 1 percentage point is now expected to be achieved in FY25/26, two years later than anticipated at the 5th Review. - MTRS approved by Cabinet in May 2022. - Tax administration measures effective in FY21–22; tax policy measures to start in FY22/23. - Draft laws for PIT and VAT revisions submitted to Parliament. - Draft laws for excise and corporate income tax (CIT) revisions planned for Cabinet by end-July 2022 and end-January 2023, respectively (proposed new RTs). - Authorities requested to replace the end-December 2022 RT on MTRS review with the two new RTs above. - Full MTRS evaluation expected prior to expiration to identify additional DRM measures. - Fiscal consolidation strategy: - Mix of DRM and spending rationalization. - Spending rationalization focuses on improving efficiency of government services and reducing capital expenditure to below pre-COVID-19 levels. - Capital expenditures projected to decline over the medium term as Eurobond and SDR-financed projects are completed and COVID-19 spending is phased off. - Efficiency improvements from digitalization of government services to reduce recurrent expenditures. - Improved oversight and governance of SOEs to limit fiscal risks and help reduce subsidies. - Fiscal consolidation quantitative details (annual adjustments, percentage points of GDP from previous fiscal year): - Total tax revenue: 2021/22 -0.1; 2022/23 -0.2; 2023/24 0.5; 2024/25 0.5; 2025/26 0.8; 2026/27 0.3 - Medium-term revenue strategy: 2021/22 0.1; 2022/23 0.1; 2023/24 0.0; 2024/25 0.5; 2025/26 0.5; 2026/27 0.1 - Policy measures for MTRS: 2021/22 -1.0; 2022/23 -0.0; 2023/24 -0.2; 2024/25 -0.2; 2025/26 0.4; 2026/27 0.4 - Administration measures for MTRS: 2021/22 -1.0; 2022/23 0.1; 2023/24 0.3; 2024/25 0.2; 2025/26 0.0; 2026/27 0.0 - Fuel levy impact: 2021/22 -0.2; 2022/23 -0.1; 2023/24 0.3 - Other items (Manufacturing Build to Recover Exemptions, AfCFTA, buoyancy/judgement) with small impacts as listed in the Text Table. ### Fiscal risks, transparency, and governance - Institutional reforms: - Organic Budget Law (OBL) approved by Cabinet in April; expected to be approved by Parliament by end-May. - OBL defines role of the Fiscal Risk Committee (FRC), empowers Minister of Finance and Economic Planning to appoint members, and mandates publication of Fiscal Risk Statement (FRS) as part of the budget. - A Presidential Order expected by June 2022 to strengthen monitoring and oversight of SOEs, harmonize financial reporting, establish deadlines for publication of financial statements, and introduce sanctions for non-compliance. - Analytical capacity: - SOE health-check assessments integrated into IFMIS and fully automated. - With Fund TA support, stress tests started quarterly in high-risk SOEs informed by SOE “health-checks”. - Fund TA supported the first fiscal risk assessment of PPPs, submitted to the FRC in April and included in FY22/23 FRS as a budget annex. - FRS to be expanded for FY22/23 to include long-term fiscal sustainability analysis (new RT). - Transparency reforms and timelines: - Under the new OBL, financial reports across all public entities will be aligned to the budgetary fiscal year. - RSSB expected to start submitting quarterly financial statements from Q1 FY22/23 (end-March 2023 RT). ### Box 1: Rwanda’s Fiscal Responses to Rising Energy and Food Prices - Fuel subsidies: - Pass-through of international fuel prices to domestic prices moderated since May 2021 through reductions in the fuel levy. - Domestic prices usually adjusted every two months by the Rwanda Utilities Regulatory Authority. - In April 2022, the fuel levy was eliminated while allowing for some pass-through. - Domestic prices have increased by around 20 percent since May 2021. - Authorities plan to gradually adjust domestic prices upward to eliminate the subsidy by end-June 2023. - The subsidy is estimated to reduce tax revenues by 0.2 and 0.3 percent of GDP in FY21/22 and FY22/23, respectively. - Subsidies for agricultural inputs: - Orders for agricultural inputs placed in the Smart Nkunganire System and matched by private sector traders; government provides subsidies if international prices are too high. - International prices almost doubled from a year before and the subsidies were set to absorb about 60 percent of this increase. - FY22/23 budget envisages an increase of 0.1 percent of GDP for this scheme. - Public transport subsidies: - Introduced at onset of COVID-19 to offset losses from reduced passenger capacity; fares also benefitted from reductions in excise taxes. - FY22/23 budget maintains public transport subsidies amounting to 0.1 percent of GDP. - Social protection programs: - Programs (Vision 2020 Umurenge Program, Girinka, Ubudehe) scaled up during the pandemic. - Spending under these programs is projected at 0.9 percent of GDP in FY22/23, an increase by 0.1 percent of GDP from FY21/22. *Source: Rwandan authorities and IMF staff estimates.* ### 18. The authorities continue to take steps to strengthen transparency in ### 1rwaea2022002 - 18. The authorities continue to take steps to strengthen transparency in ### Transparency in the use of public resources - Draft law on public procurement prepared by the Rwanda Public Procurement Authority submitted for Cabinet approval; the law envisages the beneficial ownership (BO) disclosure of tenders. - Authorities amending the Laws governing Companies and Partnerships to capture BO information and developing an electronic reporting portal for BO disclosure to the Registrar General. - Office of the Auditor General (OAG) published in May 2022 its annual independent audit report on all government expenditures and procurement tenders, including those on COVID-related spending, for FY20/21. - Next year’s OAG audit is expected to cover all SDR-financed government spending in FY21/22. ### Monetary policy: recent stance, forecasts, and recommendations - NBR kept the policy rate unchanged at the May meeting. - NBR’s quarterly inflation forecast in May: - projected headline inflation to peak at 11.8 percent in Q4 2022, - remains above the upper bound of 8 percent until Q3 2023, - and decline gradually to the benchmark of 5 percent in Q1 2024 (even with predicted monetary tightening up to Q1 2023). - Staff view: - additional tightening would have been warranted given rising inflationary pressures; - more aggressive tightening may be required going forward to better anchor inflation expectations and mitigate second-round effects; - NBR’s communications should be strengthened to better guide inflation expectations. - Rationale for NBR’s stance: weighed towards avoiding stalling the recovery given expectations of economic activity pressure from higher commodity prices and lower global demand due to the war in Ukraine; inflationary pressures viewed largely as temporary domestic supply side factors from unfavorable weather conditions with limited second-round effects to date. ### Monetary framework, market development, and exchange rate - Reforms to deepen money and government securities markets continue to support the interest-rate-based monetary policy framework. - Technical assistance on Forecasting Policy and Analysis System (FPAS) helped NBR develop a forecasting framework based on the Quarterly Projection Model, improved nowcasting, analyzed the transmission mechanism, and conducted ex-post forecast evaluation. - Interbank market pricing continues to be aligned with NBR’s policy rate; NBR uses reverse repos to meet banks’ liquidity demands. - Further progress expected when banks sign the Global Master Repurchase Agreement (GMRA) and when the diagnostic for money and government debt market development is completed; rollout RTs for GMRA on track for completion by December 2022. - Greater exchange rate flexibility emphasized as key: - exchange rate pressures have increased reflecting a stronger pickup in imports and higher commodity prices; - NBR committed to limiting foreign exchange market interventions to minimizing excessive volatility and maintaining adequate reserve levels; - staff encouraged authorities to seek Fund TA to review functioning of foreign exchange markets for alignment with the price-based monetary policy framework. ### Financial stability, supervision, and inclusion - Supervisory oversight intensified since COVID-19 relief measures expired at end-September 2021. - Loan classification and provisioning returned to pre-COVID standards. - With TA support, NBR will continue to enhance the Supervisory Review and Evaluation Process (SREP) to improve review expertise of ICAAP and ILAAP reports. - SREP reviews, with periodic stress tests, should inform decisions on targeted support and identify recapitalization needs. - Staff advice to NBR: - ensure that banks maintain regulatory limits and prudential standards; - prepare to deploy targeted and time-bound interventions if needed to contain imminent materialization of credit risks; - monitor risks of excessive leverage in specific sectors; - maintain supervisory and reporting efforts. - Digitalization and financial inclusion: - Value and volume of mobile payment grew by 45 and 31 percent, respectively, in 2021. - Authorities aim to scale up digital financial services by upgrading payment systems for MFIs and SACCOs, improving interoperability of instant payments, strengthening security regulations and the Business Continuity Plan, and digitalizing complaints handling. - Study on consumer payment behavior and pricing of digital payment completed in May (end-December 2021 RT delayed by pandemic and data collection). ### Structural policies and climate agenda - Long-term priorities to reverse pandemic learning and earning losses (especially for women) and accelerate human capital accumulation. - Emphasis on improving health and early childhood development services; boosting female employment and entrepreneurship; and narrowing the digital gap. - Regional integration (including construction of the Bugesera International Airport) to address land-locked and small market challenges and attract private investment. - Climate adaptation and mitigation measures described: - adaptation: boost agricultural productivity through improvement in irrigation coverage and soil quality; - mitigation: greater reliance on renewable sources. - Box 2 — Recent Steps on Climate Agenda: - Public Investment Management: TA on Climate Public Investment Management Assessment (C-PIMA) (April 2022) to integrate climate issues into public investment management; incorporate mitigation and adaptation criteria in project appraisal and selection. - Public Financial Management: FY22/23 planning and budget call required institutions to submit plans indicating key environment and climate change interventions and respective budget; MINECOFIN prioritized and implemented climate-resilient initiatives into the budget; MINECOFIN plans to introduce an Environment and Climate Change Monitoring Statement as an Annex to the budget and is looking to introduce a climate budget tagging system. - Climate finance: Rwanda Green Fund funded 44 projects (including 8 private sector projects) by April 2022. - CCDR: Government conducting a joint Climate Change Diagnostic Report (CCDR) with the World Bank. ### Program modalities, conditionality, and financing - Program monitoring: semi-annual through QTs, RTs, standard continuous targets, and an MPCC. - Adjustor on debt-creating overall balance proposed to accommodate concessional project loans to ensure close coordination with the World Bank and other development partners and avoid crowding out concessional project lending, provided the PV of debt path is broadly maintained. - Adjustor applies to financing of projects featured in authorities’ borrowing plan expected to be contracted through end-December 2022; need for adjustor to be assessed during the 7th PCI review. - Footnote: The amount of World Bank grants that is now considered credit under IDA20 amounts 0.7 percent of GDP in FY22/23. - Conditionality updates: - End-June 2022 targets set at the time of the 5th PCI maintained. - Adjustors related to COVID-19 vaccines and to projects financed by the SDR allocation and Eurobond proceeds proposed to be maintained. - New end-December 2022 QTs and adjustors proposed in line with updated macroeconomic framework and new IDA terms. - Proposed operational changes to RTs: - reset RT on conducting an asset allocation review for RSSB from end-June 2022 to end-September 2022; - replace RT on first review of MTRS implementation by end-December 2022 with two RTs: submit to Cabinet revisions to excise tax law by end-July 2022 and CIT law by end-January 2023; - introduce new RT on incorporating a fiscal sustainability analysis into the fiscal risk assessment for end-April 2023. - Program financing and risks: - Rwanda is not seeking financial assistance from the Fund and the program is fully financed, with firm commitments of financing over the next 12 months and good financing prospects for the remainder of the program. - Risks mitigated by robust public health and economic response, commitment to targeted and transparent supports, contingency planning, oversight, and track record in implementing Fund-supported programs. - Capacity development (CD) priorities: fiscal transparency, DRM, implementation of forward-looking monetary policy framework, financial stability; authorities committed to strengthening BOP and monetary statistics; future CD to focus on performance budgeting, fiscal reporting, macro-fiscal capacity, and implementing FSSR recommendations. - Safeguards Assessment: NBR’s safeguards assessment concluded in January 2022; found a well-established governance and control framework with audit and reporting practices aligned with international standards; NBR progressing on recommendations including clarifying some aspects of reserves management policy. ### Staff appraisal: near-term priorities and medium-term recommendations - Macroeconomic context: - Rwanda faces increases in food and fuel prices, spillovers from the war in Ukraine, and pandemic scars (high unemployment, rising poverty, learning losses). - These factors constrain policy space and put pressure on food security and fiscal balance. - Immediate policy priorities: - Respond to impact from the war in Ukraine with more targeted fiscal measures. - Use existing social safety nets (revamped during COVID-19) as basis for response. - Authorities should phase out fuel subsidies by end-FY22/23 as planned and consider a more targeted approach focused on increasing coverage and benefits of existing social protection programs. - Monetary policy recommendation: - NBR should stand ready to tighten monetary policy to bring inflation back to the target by end-2023. - Keep policy data-dependent, contain inflationary pressures more aggressively, and strengthen communication to anchor inflation expectations. - Fiscal policy and public financial management: - Fast-track credible fiscal consolidation plan to anchor medium-term fiscal discipline. - Revisions to excise and CIT laws under the MTRS to broaden the tax base and phase off tax exemptions, together with tax administration measures, to increase the tax-revenue-to-GDP ratio by 1 percentage point. - Identify and cost medium-term spending rationalization measures, explore additional cost-savings and efficiency gains through digitalization, and improve selection and prioritization of public investments. - Continue PFM reforms to strengthen budget costing and prioritization. - Other recommendations: - Continue efforts to contain fiscal and financial sector risks, increase transparency in fiscal reporting, RSSB finances and beneficial ownership in public procurement, and align AML/CFT legal framework with FATF standards. - Continue implementation of the interest-rate-based monetary policy framework and reforms to deepen money and government securities markets. - Greater exchange rate flexibility remains key to ensuring external sustainability and an effective interest-rate-based monetary policy framework. - Sustain commitment to structural reforms to build resilience to climate shocks, pursue greener growth, and attract private financing through cost-effective interventions. *IMF staff summary based on the provided chapter content.* ### 38. Staff supports the completion of the Sixth Review based on the authorities’ ### 38. Staff supports the completion of the Sixth Review based on the authorities’ commitment to reforms and to implementing a credible fiscal path to bring debt down. ### Macroeconomic outlook: growth and prices - Real GDP (annual percentage change): 2019: 9.5; 2020: -3.4; 2021: 10.2; 2022: 10.9; 2023: 7.2; 2024: 6.0; 2025: 7.9; 2026: 6.7; 2027: 7.5. - GDP deflator (annual percentage change): 2019: 2.5; 2020: 6.7; 2021: 2.3; 2022: 2.7; 2023: 5.3; 2024: 9.3; 2025: 7.1; 2026: 8.7; 2027: 5.5. - CPI (period average): 2019: 2.4; 2020: 7.7; 2021: 0.7; 2022: 0.8; 2023: 5.7; 2024: 9.5; 2025: 6.8; 2026: 8.0; 2027: 5.0. - CPI (end period): 2019: 6.7; 2020: 3.7; 2021: 1.9; 2022: 1.9; 2023: 8.1; 2024: 8.8; 2025: 6.8; 2026: 6.5; 2027: 5.0. - Terms of trade (deterioration, -): 2019: -1.8; 2020: -0.9; 2021: 0.1; 2022: 2.5; 2023: 1.9; 2024: 7.5; 2025: -0.5; 2026: -2.9; 2027: -0.8. ### Fiscal position and budget flows (central government, FY basis) - Revenue (percent of GDP): FY19/20: 23.1; FY20/21: 23.3; FY21/22: 25.0; FY22/23: 25.0; FY23/24: 24.6; FY24/25: 25.3; FY25/26: 24.4; FY26/27: 24.6; (proj.) 24.8–24.2 range across projections. - Taxes (percent of GDP): FY19/20: 16.0; FY20/21: 15.7; FY21/22: 15.8; FY22/23: 15.8; FY23/24: 15.4; FY24/25: 15.7; FY25/26: 16.0; FY26/27: 15.4. - Grants (percent of GDP): FY19/20: 3.0; FY20/21: 4.6; FY21/22: 5.5; FY22/23: 5.5; FY23/24: 5.5; FY24/25: 5.9; FY25/26: 5.8; FY26/27: 6.6. - Expense (percent of GDP): FY19/20: 20.5; FY20/21: 20.2; FY21/22: 20.3; FY22/23: 20.3; FY23/24: 20.6; FY24/25: 20.6; FY25/26: 18.8; FY26/27: 19.3. - Net acquisition of nonfinancial assets (percent of GDP): FY19/20: 11.2; FY20/21: 11.0; FY21/22: 12.2; FY22/23: 12.2; FY23/24: 12.0; FY24/25: 12.4; FY25/26: 11.8; FY26/27: 11.0. - Net lending (+) / borrowing (-) (NLB) including grants (percent of GDP): FY19/20: -8.6; FY20/21: -7.9; FY21/22: -7.5; FY22/23: -7.5; FY23/24: -8.0; FY24/25: -7.6; FY25/26: -6.2; FY26/27: -5.7. - NLB excluding grants (percent of GDP): FY19/20: -11.6; FY20/21: -12.4; FY21/22: -13.0; FY22/23: -13.0; FY23/24: -13.5; FY24/25: -13.5; FY25/26: -12.0; FY26/27: -12.4. - Overall fiscal balance (incl. grants, policy lending) (percent of GDP): 2019: -8.1; 2020: -9.1; 2021: -8.6; 2022: -8.6; 2023: -9.1; 2024: -8.7; 2025: -7.5; 2026: -6.9; 2027: -5.0. - Debt-creating overall balance (excl. PKO) (percent of GDP): 2019: -5.5; 2020: -7.8; 2021: -8.2; 2022: -8.2; 2023: -9.1; 2024: -8.7; 2025: -7.4; 2026: -6.9; 2027: -5.0. ### Public debt and debt dynamics - Total public debt including guarantees (percent of GDP): 2019: 56.8; 2020: 72.4; 2021: 74.6; 2022: 73.3; 2023: 77.2; 2024: 73.1; 2025: 77.9; 2026: 75.2; 2027: 75.7. - External public debt (percent of GDP): 2019: 44.3; 2020: 56.4; 2021: 58.6; 2022: 54.5; 2023: 62.4; 2024: 57.6; 2025: 63.9; 2026: 58.0; 2027: 64.7. - Total public debt excluding guarantees (percent of GDP): 2019: 53.0; 2020: 69.3; 2021: 73.7; 2022: 72.6; 2023: 75.4; 2024: 71.8; 2025: 74.5; 2026: 73.1; 2027: 72.2. - External public debt incl. guarantees, present value (PV) (percent of GDP): 2019: 29.7; 2020: 34.0; 2021: 36.1; 2022: 34.9; 2023: 39.2; 2024: 36.1; 2025: 40.9; 2026: 38.2; 2027: 40.9. - Total public debt incl. guarantees, PV (percent of GDP): 2019: 42.9; 2020: 51.1; 2021: 52.9; 2022: 54.4; 2023: 55.3; 2024: 53.0; 2025: 56.1; 2026: 56.6; 2027: 53.5. ### External sector and reserves - Exports of goods and services (percent of GDP): 2019: 21.8; 2020: 18.9; 2021: 18.9; 2022: 19.1; 2023: 24.4; 2024: 23.4; 2025: 26.7; 2026: 25.3; 2027: 27.7. - Imports of goods and services (percent of GDP): 2019: 36.1; 2020: 35.1; 2021: 35.6; 2022: 34.8; 2023: 40.9; 2024: 41.7; 2025: 41.2; 2026: 41.2; 2027: 41.7. - Current account balance (incl grants) (percent of GDP): 2019: -11.9; 2020: -12.1; 2021: -11.0; 2022: -10.9; 2023: -11.5; 2024: -12.6; 2025: -10.3; 2026: -11.7; 2027: -9.0. - Current account balance (excl grants) (percent of GDP): 2019: -14.5; 2020: -14.9; 2021: -15.2; 2022: -14.0; 2023: -15.5; 2024: -17.1; 2025: -13.7; 2026: -14.7; 2027: -13.5. - Gross international reserves (US$ millions): 2019: 1,382; 2020: 1,722; 2021: 1,829; 2022: 1,889; 2023: 1,775; 2024: 1,868; 2025: (multiple year cells) 1,783; 2026: 1,869; 2027: 2,021. - Reserves in months of next year's imports: 2019: 5.6; 2020: 5.9; 2021: 5.2; 2022: 5.0; 2023: 4.6; 2024: 4.6; 2025: 4.3; 2026: 4.4; 2027: 4.3–4.1 across projections. ### Monetary and financial indicators - Broad money (M3) (year-on-year growth): 2019: 15.4; 2020: 18.0; 2021: 14.2; 2022: 17.8; 2023: 15.1; 2024: 15.8; 2025: 18.2; 2026: 14.2; 2027: 15.7; further projection values included up to 2027 with multiple close values (e.g., 13.2, 15.8, 11.3, 11.4). - Reserve money (year-on-year growth): 2019: 16.0; 2020: 21.7; 2021: 14.7; 2022: 30.7; 2023: 15.1; 2024: 4.8; 2025: 16.1; 2026: 12.2; 2027: 15.7; subsequent projection values vary (e.g., 13.2, 15.8, 11.3, 11.4). - Credit to the non-government sector (year-on-year growth): 2019: 12.6; 2020: 21.8; 2021: 15.8; 2022: 14.7; 2023: 16.1; 2024: 11.0; 2025: 14.8; 2026: 11.5; 2027: 18.0; later projections show 21.3, 12.3, 19.4, 7.6, 10.7, 14.5. - Monetary survey: broad money levels in RwF billions and associated growth listed in the monetary tables with year-on-year growth figures above. ### Balance of payments (US$ millions) - Current account balance (incl official transfers): 2021: -1,209; 2022: -1,359; 2023: -1,528; projections for 2024–27: -1,334; -1,533; -1,247; -1,446; -1,201; -1,350; -908; -1,271; -1,275 across years and review columns. - Trade balance (US$ millions): 2021: -1,659; 2022: -1,929; 2023: -2,059; detailed annual export and import f.o.b. values provided, including gold and excl. gold breakdowns (e.g., exports f.o.b. 2021: 1,531; 2022: 2,092; 2023: 2,109). - Current transfers (net) (US$ millions): 2021: 756; 2022: 865; 2023: 985; projections show continued positive transfers. - Gross official reserves (US$ millions): See reserves under External sector; months of prospective imports reported (e.g., 5.0, 4.6, 4.6, 4.3, etc.). ### Staff assessment and policy stance - Staff supports the completion of the Sixth Review based on: - The authorities’ commitment to reforms. - The authorities’ commitment to implementing a credible fiscal path to bring debt down. *Sources: Rwandan authorities and IMF staff estimates and projections.* ### 1. Ceiling on the debt-creating overall balance, including grants ### 1. Ceiling on the debt-creating overall balance, including grants ### Quantitative targets and continuous targets (selected) - Ceiling on the debt-creating overall balance, including grants: -506-648118-765-480Met - Floor on stock of Net Foreign Assets: 835802-1116911,125Met - Ceiling on net accumulation of domestic arrears: 00-0.1Met - Ceiling on stock of external payment arrears (US$ million): 000Met ### Monetary Policy Consultation Band (CPI targets and outcomes) - CPI Inflation target: 5.0 - Inflation, upper inner-bound, percent: 8.0 - Inflation, lower inner-bound, percent: 2.0 - Inflation, upper bound, percent: 9.0 - Inflation, lower bound, percent: 1.0 - Outcome (CPI inflation noted): 5.05.00.8Not Met (as reported in the table) - Note: "When the end-of period year-on-year average inflation is above/below the outer band of the upper/lower bound, a formal consultation with the Executive Board would be triggered." ### Memorandum items (selected) - Total priority spending: 740800748Not Met - Floor on domestic revenue collection: 914964969Met - Total budget support (US$ million): 370414193 - Budget support grants (US$ million): 174216117 - Budget support loans (US$ million): 19619876 - PV of budget and project loans dedicated to COVID-19 vaccine interventions (US$ million): 303030 - Budget and project grants dedicated to COVID-19 vaccine interventions (US$ million): 4241103 - Total spending dedicated to COVID-19 vaccine interventions: 6554127 - Total spending on projects financed by the SDR allocation: 053.40 - Total spending on Eurobond-financed projects: 033.434 - RWF/US$ program exchange rate: 972987987 ### Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million) - end-Dec 2021: Met 1,149 863 860 - Stock of new external debt contracted or guaranteed by nonfinancial public enterprises (US$ million): 700700 ### External payment arrears ceiling - Ceiling on stock of external payment arrears (US$ million): 000Met --- ### Reform targets (June 2019–May 2022) — fiscal, monetary, financial (selected actions and status) - Fiscal: - Produce annual tax expenditure report with updated methodology, and a description of broad categories of beneficiaries — end-Jun. 2019 — Met — Improve DRM - Procure an IT system that will capture all RSSB processes — end-Jun. 2019 — Met — Improve resource efficiency - Produce a report outlining detailed options for improving functioning of VAT, including measures that could be implemented in FY20/21 — end-Dec. 2019 — Met — Improve DRM - Automating the risk-based verification process for refund claims — end-Dec. 2019 — Not Met — Improve DRM - Begin producing quarterly budget execution reports in GFS 2014 format — end-Dec. 2019 — Met — Improve fiscal transparency - Produce a comprehensive fiscal risk analysis statement — end-Jun. 2020 — Met — Mitigate fiscal risks - Contract a diagnostic study on optimal RSSB asset allocation — end-Jun. 2020 — Not Met — Improve resource efficiency - Expand coverage in fiscal reporting in GFS 2014 from budgetary central govt to central govt (i.e. including extrabudgetary entities) and local governments — end-Dec. 2020 — Met — Improve fiscal transparency/ PFM - Select advisory firm to conduct a review of RSSB asset allocation — end-Jun 2021 — Not Met - Publish consolidated fiscal statistics for public corporations, the general government, and the non-financial public sector for FY 16/17 through FY 19/20 — end-Dec. 2021 — Not Met (Completed in Mar. 2022) - Select advisory firm to conduct a review of the RSSB asset allocation — end-Jan. 2022 — Not Met (Completed in Apr. 2022) - Approval of a Medium-Term Revenue Strategy for FY 21/22-23/24 by Cabinet — end-Jan. 2022 — Not Met (Completed in May 2022) - Conduct a fiscal risk assessment of public-private partnerships and submit the outcome and mitigation options to the fiscal risk committee — end-Apr. 2022 — Met — Improve fiscal transparency/PFM - Monetary and Financial: - Improve communication for monetary policy by organizing quarterly outreach after each MPC meeting — end-Dec. 2019 — Met — Support new monetary policy framework - Publish macro projections for MPC decision making in quarterly inflation reports — end-Jun. 2020 — Met — Support new monetary policy framework - Introduce a platform for issuing government securities using mobile phones — end-Jun. 2020 — Not Met; end-Jun. 2021 — Met — Deepen financial markets - Expand industrial and market expectation surveys and begin collecting data to construct a purchasing manager's index — end-Dec. 2020 — Met — Support new monetary policy framework - Conduct a legal assessment to identify gaps in the regulatory framework for true repo ahead of GMRA rollout — end-Nov. 2021 — Not Met; end-Mar. 2022 — Met — Support new monetary policy framework - Produce a study on consumer and merchant payment behavior and the pricing of digital payment services leveraging micro-data — end-Dec. 2021 — Not Met (Completed in May 2022) — Deepen financial markets --- ### Review schedule under the PCI Arrangement (selected) - Board discussion of a PCI request: June 28, 2019 - First Review: Test Date June 30, 2019 — Review Date December 15, 2019 - Second Review: Test Date December 31, 2019 — Review Date June 15, 2020 - Third Review: Test Date June 30, 2020 — Review Date December 15, 2020 - Fourth Review: Test Date December 31, 2020 — Review Date June 15, 2021 - Fifth Review: Test Date June 30, 2021 — Review Date December 15, 2021 - Sixth Review: Test Date December 31, 2021 — Review Date June 15, 2022 - Seventh Review: Test Date June 30, 2022 — Review Date December 15, 2022 - Eight Review: Test Date December 31, 2022 — Review Date June 15, 2023 --- ### Annex I — Risk Assessment Matrix (RAM) (summary) - RAM purpose: Shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - Likelihood categories: "low" (probability below 10 percent), "medium" (probability between 10 and 30 percent), "high" (probability between 30 and 50 percent). - RAM reflects staff views as of the time of discussions with the authorities; non-mutually exclusive risks may interact and materialize jointly. --- ### Annex II — Capacity Development Strategy for FY22/23 (priorities) - Overall focus: Fiscal transparency, DRM, implementation of the new forward-looking monetary policy framework, and financial stability. - Public Financial Management priorities: - Continue to improve fiscal transparency through an expanded fiscal risk statement encompassing risks from SOEs and PPPs. - Improve the budget process through performance-based budgeting and a more strategic budget calendar. - Assist authorities with implementation recommendations of recent PIMA and C-PIMA. - Assist with green PFM and long-term fiscal sustainability analysis (particularly as it relates to climate change). - Government Finance Statistics: - Continue the transition to GFSM 2014 including expanding the coverage of the public sector and reduce the lag to publish general government statistics. - Tax Policy and Revenue Administration: - Assist with implementation of the MTRS announced by the authorities in May 2022, informed by the latest TADAT; VAT gap analysis; assessment of tax expenditures; and an overall diagnostic of the policy and legislative framework. - Monetary Policy: - Provide TA on FPAS to support the move to an interest rate-based monetary framework. - Complete the ongoing forecast evaluation project; complete the build-up of the nowcasting framework; strengthen the framework for analyzing and forecasting the external assumptions; and strengthen the monetary policy process and engagement with policy makers and building policy maker capacity for FPAS. - Financial Supervision and Regulation: - Build on the FSSR to strengthen risk-based supervision and stress-testing; strengthen regulation and supervisory frameworks in risk management and governance; increase capacity in evaluating ICAAP reports to set different capital charges on top of the minimum requirements. - Financial Stability: - Build on the FSSR to strengthen the financial safety net, crisis preparedness and management, resolution frameworks, financial market infrastructure, and government debt and money markets. --- ### Letter of Intent and Program Statement — highlights (as of June 3, 2022) - Economic contraction in 2020: 3.4 percent - Real GDP rebound in 2021: 10.9 percent - Vaccination coverage as of June 1: 66.0 percent vaccinated with two doses; 36.3 percent boosted - Headline inflation: reached 9.9 percent y/y in April (driven by food, hospitality services, and utility prices) - Imported goods index increase: 13.5 percent y/y - Local goods index increase: 8.8 percent y/y - Core inflation accelerated to: 9.1 percent y/y - Fiscal developments H1 FY21/22: fiscal deficit lower than anticipated owing to weak expenditure execution more than offsetting revenue underperformance; domestic financing and accounts payable increased owing to delayed disbursement of budget support loans - SDR allocation use: plan to use about 70 percent of the 2021 SDR allocation in FY21/22 for recurrent spending and capital spending; retain 30 percent (0.6 percent of GDP) as reserves to be used in retiring remaining 2013 Eurobond at maturity in 2023 - Financial sector prudential indicators as of end-March 2022: - Total Capital Adequacy Ratio (CAR): 23.9 percent - Liquidity Coverage Ratio (LCR): 365 percent - Minimum prudential requirements: CAR minimum 15; LCR minimum 100 percent - Microfinance sub-sector metrics: - CAR: 34.7 percent - LCR: 110.7 percent - Minimum regulatory requirements for microfinance: 15 and 30 percent, respectively - Private insurers’ solvency ratio: 142 percent at end-December 2021 (compared to 114 percent in December 2020); regulatory minimum 100 percent - Non-performing loans (NPLs): 4.7 percent in March 2022 (against 6.5 percent in March 2021) - COVID-19 restructured loans still under moratorium: 2.3 percent of the total portfolio *Sources: Rwandan authorities and IMF staff estimates and projections. All items, including adjusters, are defined in the Technical Memorandum of Understanding (TMU).* ### 11.8 percent in the March 2021. Macroprudential policies that cap loan-to-value ratios for residential ### 1rwaea2022002 - 11.8 percent in the March 2021. Macroprudential policies that cap loan-to-value ratios for residential ### Economic performance and external sector - Merchandise exports (i.e., exports, excluding gold) rose by 53.4 percent in 2021 owing to improved external demand and domestic manufacturing and agriculture activities. - Merchandise imports rose by 16.5 percent in 2021 driven by a rebound of domestic economic activities and higher international food and oil prices. - Current account deficit narrowed to 10.9 percent of GDP in 2021 from 12.1 percent of GDP in 2020, supported by rising transfer inflows from remittances and government grants. - The Rwandan franc depreciated against the US dollar by 1.1 percent as of end-April 2022 since the beginning of the year. - Foreign exchange reserves stood at 4.4 months of import cover as of end-April 2022. ### COVID-19 recovery, social and private-sector support - Vaccination - Target to vaccinate 70 percent of the population by end-2022 remains close to being achieved. - Children aged 5–11 years will start to be vaccinated in September. - Vaccine manufacturing facilities under construction; production of COVID-19 vaccine is expected to start in 2023. - Families / Social protection - Scaled up social spending under Vision 2020 Umenge Program (VUP) including emergency cash transfers, food distribution, expanded public works (ePW) program, and direct support to protect the most vulnerable. - ePW supports households, particularly women, through flexible temporary employment opportunities and incentivizes participation in home-based early childhood development (ECD) for children up to the age of five. - Nutrition Sensitive Direct Support (NSDS) provides incentives to families with pregnant women and young children to take up health and nutrition services. - A dynamic social registry is being developed with World Bank support to serve as the backbone of targeting for social protection programs. - Fuel levy temporarily eliminated on April 3 to partially offset pass-through of higher import costs; plan to reassess in June with aim to gradually increase the levy and restore it fully by end-June 2023. - Increased fertilizer subsidies and loans to small farmers to ensure food security. - Firms / Private sector support - Economic Recovery Fund (ERF) second phase (ERF-2) will inject US$ 250 million in fresh capital over the next three years to support private investment. - Manufacture and Build to Recover Program (MBRP) fast-tracked a US$250 million package to support manufacturing and construction; provides tax incentives linked to key performance indicators and set to expire in June 2023. - So far, 76 companies were approved under MBRP with a potential to create 28,000 jobs. ### Program performance and reform implementation - All quantitative and continuous targets through end-December 2021 have been met. - Average inflation in 2021 fell below the outer lower bound, triggering the monetary policy consultation clause (MPCC); the MPCC was not observed as the 12-month headline inflation average fell below the MPCC lower bound due to unanticipated persistence of disinflationary pressures in food prices. - Of six reform targets due through end-April 2022: - Two were met on time and four were implemented with delay. - Legal assessment to identify gaps in the regulatory framework ahead of the GMRA rollout completed on time by end-March. - Fiscal risk assessment of PPPs submitted to the fiscal risk committee on time before end-April. - Publication of the consolidated fiscal statistics due by end-December 2021 completed in March. - Selection of an advisory firm for the RSSB asset allocation due by end-January 2022 completed in April. - Cabinet approval of the MTRS due by end-January 2022 completed in May. - Study on consumer payment behavior to be produced by end-Dec 2021 submitted to NBR in May 2022 (delayed due to mobility restrictions and longer data collection/cleaning). ### Outlook and risks - Real GDP growth projection: 6.0 percent y/y in 2022; weaker global growth and deteriorating terms of trade expected to undermine exports and reduce private consumption and investment. - Inflation projection: average headline inflation y/y projected to increase to 9.5 percent in 2022 driven by high imported costs from surging international food and oil prices following the war in Ukraine; mild pressures on core inflation expected from increasing domestic costs as recovery approaches potential. - 12-month headline inflation average expected to be above NBR’s tolerance benchmark band in 2022, before returning within the band in 2023. - Current account deficit (CAD) projection: widen to 12.6 percent of GDP in 2022 (from 10.9 percent in 2021) mainly driven by higher international oil prices and lower external demand; projected to narrow in the medium term due to real exchange rate depreciation, domestic savings from fiscal consolidation, and competitiveness-enhancing structural reforms. - Financing of the CAD expected mainly through foreign direct investment (FDI) and concessional loans; FDI projected to grow at a faster pace and increase its share in the financial account balance. - Reserves expected to remain above 4 months of imports in 2022 and in the medium term. - Uncertainties: escalation and duration of the Russia-Ukraine conflict could exacerbate the outlook. ### Fiscal policies and consolidation - Near-term fiscal strategy: mitigate impact of external shocks on the most vulnerable while preserving fiscal sustainability. - Fiscal deficit projections: - FY 21/22 fiscal deficit projected at 8.7 percent of GDP (against 9.1 percent program target), primarily due to higher tax revenues. - FY22/23 deficit projected at 6.9 percent of GDP. - FY22/23 budget adjustments and measures: - Temporary elimination of fuel levy amounts to 0.3 percent of GDP. - Increase in fertilizer subsidies by 65 percent relative to the previous fiscal year, amounting to 0.1 of GDP. - Maintain subsidy to private transport operators amounting to 0.1 percent of GDP. - Increase some social protection programs (e.g., home-based ECD, public works, skills development, asset transfer) and prioritize key interventions under the Economic Recovery Plan (ERP) including infrastructure projects in health, education, flood/landslide mitigation, regional trade, and agriculture. - Contingent stance: ready to support affected groups if the war in Ukraine escalates or protracts or if pandemic disruptions persist; such support will be temporary, targeted, transparent, and accommodated within contingent plans by protecting priority spending and reprioritizing non-wage current and domestic capital spending. - Fiscal consolidation path: - Broadly maintained consistent with the 5th PCI review, with one-off additional spending phased off over FY 21/22–FY 23/24. - Use of 2021 SDR allocation and remaining COVID-19-related spending gradually phased-off. - Changes in World Bank IDA20 financing terms favor budget loans over budget grants. - Adjusted debt-to-GDP ratio path expected to converge to the anchor of 65 percent by FY28/29 (convergence reached one year later than previously). - Debt management and financing: - Prudent debt management strategy prioritizing concessional resources. - Strengthen debt management capacity, fiscal risk monitoring, debt reporting, and domestic bond markets. - Prioritize highly concessionally financed projects over domestically or commercially-financed projects where opportunities arise. ### Domestic revenue mobilization and MTRS - Cabinet approved a Medium-Term Revenue Strategy (MTRS) in May to be implemented from FY 21/22 to FY 23/24. - Tax policy measures under MTRS expected to permanently yield 1 percent of GDP in additional revenues from FY 25/26 when all measures become effective. - Tax policy actions: - Draft laws proposing revisions in PIT and VAT submitted to Parliament. - Draft law proposing revisions in excise taxes to be submitted to Cabinet by end-July 2022 (proposed new RT); revisions include: - periodically aligning the excise rate with inflation; - replacing ad valorem taxes on beer, wine, and spirits with a specific excise tax; - increasing the share of specific taxes on cigarettes; - imposing excises levied on sugar content; - increasing the excise tax on older vehicles to incentivize upgrading of Rwanda’s fleet. - Excise tax law expected to become effective in FY 22/23. - Draft law proposing revisions in corporate income tax to be submitted to Cabinet by end-January 2023 (proposed new RT); revisions include: - lowering the statutory CIT rate; - introducing a gross turnover-based MAT; - broadening the business tax base; - introducing full expensing of capital expenditures; - allowing indefinite carry forward of business losses. - Corporate tax reforms expected to become effective in FY 23/24 and start to yield revenues in FY 24/25. - Tax administration measures: - Rwanda’s Revenue Authority (RRA) implementing MTRS measures to tax the shadow economy, improve voluntary compliance through better taxpayer services, and promote compliance improvement plans (CIPs) targeted at manufacturing, large businesses, customs, and to combat aggressive tax planning by individuals. - FY 21/22 implementation focused on improving voluntary compliance via greater digitalization of tax filing, payment, and services. - Measures to tax the shadow economy delayed until FY 22/23 pending approval of the VAT law allowing VAT rebates through electronic billing machines (EBM). - RRA FY 22/23 action plan includes enhancing e-service design, simplifying SME registration, greater reliance on data science, and combating tax evasion via risk-rules for VATs through EBMs and manufacturing firms. - MTRS implementation approach: - Step up outreach and communication to stakeholders to ensure timely implementation. - Align RRA’s strategic plan with MTRS recommendations from a hired consultant. - Request to replace an MTRS review by end-December 2022 (RT) with two new RTs focused on adoption of legal reforms envisaged under the MTRS due to delays. - Commitment to conduct a full evaluation of MTRS implementation prior to its expiration and identify additional domestic revenue mobilization (DRM) measures for subsequent periods. ### Spending rationalization and public financial management (PFM) - FY 22/23 budget marks start of normalization of fiscal policies as COVID-19 support measures are scaled down, while preserving space for development priorities under the National Strategy for Transformation (NST). - Identified spending rationalization and prioritization to be implemented starting in FY 22/23 and reported in FY 22/23 Budget Framework Paper. - Bulk of adjustment in FY 22/23 driven by phasing-off of COVID-related spending amounting to 1.9 percent of GDP. - Additional measures include: - Reductions in recurrent expenses for official travels, in-person workshops and meetings through greater reliance on virtual meetings and remote working. - Reductions in capital expenses by discontinuing underperforming domestic projects and phasing-off Eurobond and SDR-financed projects. - Further refinement of measures informed by World Bank Public Expenditure Review and IMF Public Investment Management Assessment. - Explore additional cost-savings and efficiency gains through (a) digitalization in delivery of public goods and services, (b) strengthening oversight and governance of state-owned enterprises (SOEs) to gradually reduce subsidies and budget support, and (c) improvements in selection and prioritization of public investments to achieve greater value-for-money and leverage private sector involvement. ### Fiscal structural reforms and PFM enhancements - Organic Budget Law (OBL) - New OBL approved by Cabinet in May 2022; expected to be approved by Parliament by June 2022 and become effective in FY 22/23. - OBL will strengthen PFM by improving the budget/medium-term expenditure framework (MTEF), institutionalizing fiscal risk management practices and structures, and harmonizing financial reporting calendars across public entities including SOEs. - Full implementation requires timely issuance of Ministerial Orders and other financial regulations by MINECOFIN. - Other PFM reforms - Migration to accrual accounting using IPSAS on track for implementation by FY 23/24. - IFMIS roll-out continued with integration actions including budget costing framework and public schools. - Performance-based budgeting (PBB) advances include identifying and tracking climate and environment spending as part of broader green PFM initiatives. - Budget and MTEF planning and costing - Setting of expenditure ceilings for line ministries and budgetary agencies will be informed by a budget outlook paper to ensure early setting of expenditure ceilings that reflect policy costs and fiscal objectives. - Supporting documentation (financial regulations, budget call circulars, MTEF user manual) and budget costing framework being developed for FY 23/24 budget/MTEF planning cycle. *International Monetary Fund — Rwanda country document content as provided.* ### 20. We have stayed the course on strengthening the quantification and management of ### 1rwaea2022002 - 20. We have stayed the course on strengthening the quantification and management of ### Strengthening quantification and management of fiscal risks - Institutions - Soon to be enacted OBL will institutionalize management of fiscal risks by: - Clarifying the role of the Fiscal Risk Committee (FRC). - Mandating the Minister of Finance and Economic Planning to appoint FRC members. - Requiring the publication of an annual Fiscal Risk Statement (FRS) as part of the annual budget documents. - OBL together with a Presidential Order expected by end-June 2022 will: - Reinforce legal framework for monitoring and oversight of SOEs by harmonizing financial reporting for all public institutions, including SOEs, to the fiscal year. - Establish deadlines for the publication of financial statements and sanctions for non-compliance. - A National Investment Policy expected to be enacted in FY 23/24 will include guidelines for SOEs on investment decisions, financial management, human resources, procurement, and capacity building. - Capacity Development - Integrated the SOE health-check assessment into IFMIS enabling automatic production of standard ratios for each SOE. - Conducted a first batch of SOE health-check assessment in May 2021 and stress tests in four high-risk SOEs in March 2022. - Summary of assessment and mitigation recommendations included in the FRS under the FY 22/23 budget. - Plan to conduct stress tests on a quarterly basis on at least one high-risk SOE or SOE subsidiary starting from end-December 2022. - With IMF TA support, prepared an assessment of fiscal risks from public-private partnerships submitted with mitigation options to the Fiscal Risk Committee in end-April 2022 (RT) and included in the FY 22/23 FRS. - Plan to expand the FRS to include a long-term fiscal sustainability analysis as part of the FRS in the FY 23/24 budget by end-April 2023 (proposed new RT). ### Fiscal reporting and RSSB transparency - Completed publication of consolidated historical fiscal statistics for public corporations, the general government, and the non-financial public sector due by end-December 2021 in March 2022 (delay due to additional Fund capacity development provided in January 2022). - RSSB reporting and reviews - RSSB expected to start submitting quarterly financial statements (income statement, cash flow statement, and financial position) to MINECOFIN starting on the first quarter of FY 22/23, 60 days after the end of the first quarter by end-December 2022. - This will allow publication of quarterly budget execution reports under GFS 2014 for the whole general government, including RSSB, by end-March 2023 (RT), starting with the report for Q1 FY 22/23. - After procurement delays, RSSB selected a firm to conduct an asset allocation review in April 2022 (RT). - Given delays, RSSB now expects the selected firm to submit the asset allocation review report by end-September 2022 (originally due by end-June 2022 (RT)) so it can be approved by the RSSB Board with RSSB’s strategic plan; proposal to reset this RT accordingly. ### Transparency and beneficial ownership (BO) - Office of the Auditor General audited all government expenditures and procurement tenders, including pandemic-linked, for FY 20/21; results submitted to Parliament on April 28 and made public mid-May. - An independent audit of government expenditures financed by the new SDR allocation expected to be published by end-April 2023 as part of a full audit for FY 21/22. - Actions to strengthen BO transparency for companies awarded public contracts: - Draft law governing public procurement (prepared by RPPA) finalized and submitted for Cabinet approval; law envisages disclosure of BO in tender documents. - Developing an electronic reporting portal for BO disclosure to the Registrar General. - Amending the Company and Partnerships law to capture BO information. - Plan to conduct inspections and audits on entities’ obligations to keep accurate and up-to-date BO information and reliable accounting records. - Will apply sanctions for non-compliance with BO and accounting obligations. ### Monetary and exchange rate policies - Monetary policy stance and inflation - MPC of NBR raised its policy interest rate by 50 basis points to 5 percent in February 2022. - NBR refrained from additional increases at its May 2022 MPC due to: - Expectation that recent domestic price pickup largely reflects (i) a negative and temporary shock in agricultural production driven by unfavorable weather conditions no longer present; and (ii) expectations of a more limited pass-through of external to domestic inflation given upward revisions in domestic agriculture production. - Downward revisions in domestic demand due to a tighter fiscal stance and weakening global demand than projected in the February MPC. - NBR stands ready to take appropriate actions to contain inflation should second round effects from higher imported prices risk de-anchoring inflation expectations and lead to sustained increases in core inflation. - Forecasting and Policy Analysis System (FPAS) - FPAS is the main framework of monetary policy formulation and communication at NBR since adoption of the price-based framework in 2019. - With IMF AFRITAC East (AFE) support, built analytical capacity to operationalize the core quarterly projection model (QPM), develop nowcasting CPI and GDP, analyze transmission mechanisms, conduct ex-post inflation forecast evaluation, and incorporate external assumptions. - Plans to continue developing sectoral expertise, scenario design analysis, integrate labor and financial markets analyses into QPM, enhance monetary policy communication, and strengthen compilation of real, monetary, and balance of payment statistics with Fund TA support. - Financial market deepening and repo market infrastructure - Since November 2020 upgraded RTGS and Central Securities Depository to accommodate repo transactions. - Measures to roll out the Global Master Repurchase Agreement (GMRA) ongoing. - Review of legal and regulatory framework conducted; draft report available in March 2022 (RT); final report finalized in May 2022. - Diagnostic of the money market and market-making framework for government debt securities supported by World Bank and IFC at final stage. - RTs related to GMRA rollout on track for completion in June and December 2022. - Exchange rate flexibility and reserves - Exchange rate considered the first line of defense against external shocks; interventions in FX market will be limited to minimize excessive exchange rate volatility. - Expect slightly higher FX pressures in remainder of 2022 driven by increases in the import bill as economic activity recovers from Covid-19 and impact of the war in Ukraine on commodity prices. - Expect exchange rate pressures to ease over the medium term as supply chain disruptions end and external demand recovers, particularly in the tourism sector. - Reserve coverage expected to remain above the adequate level of 4 months of imports cover. - Plan to request IMF TA to assess and further strengthen functioning of foreign exchange markets in context of the new monetary policy framework. ### Financial sector policies and financial inclusion - Banking supervision and stress testing - Onsite examinations to focus on credit risk, loan classification, and provisioning. - Banks submitted annual ICAAP and ILAAP by end March 2022 and end April 2022 for subsidiaries in banking groups; these will be subject to Supervisory Review and Evaluation Process (SREP). - NBR will conduct stress tests every quarter to assess banks’ ability to withstand market risks and systemic and sector-specific shocks. - Near-term supervisory priorities - Mitigate credit risks following the unwinding of relief measures. - Policy measures requiring banks to increase provisions in line with restructured loans have helped banks hold adequate capital despite elevated credit risks and write-offs. - Sectors not yet recovered include hotels, real estate, transport, and services; exploration of targeted support measures including through the ERF-2. - Financial inclusion and digital financial services - Total bank accounts increased by 21 percent to near 5½ million in December 2021 relative to the previous year, largely reflecting uptake of digital accounts. - Number of active mobile money subscribers increased by 11.3 to near 5 million. - Value of mobile merchant transactions increased by 86 percent to RWF 1,570 billion. - Re-introduction of merchant fees of 0.5 percent on mobile payments impacted person-to-business value of transactions falling by 50 percent. - Efforts to improve payment system interoperability, infrastructure, and automation of SACCOS to support cashless transactions. - Target to increase formal financial inclusion from 77 percent in 2020 to 90 percent by 2024. ### Structural policies and climate agenda - Inclusive growth - Initiatives to reduce unemployment (especially among women), contain pandemic scars in human capital (recuperating learning losses), and improve access and coverage in health and education and targeting of social protection. - Climate agenda - Rwanda’s NST 2017–24 prioritizes natural resource and environment management. - Joint Climate Change Diagnostic Report (CCDR) with World Bank expected to be finalized by June 2022. - Adaptation measures: - Boost agricultural productivity via improved productive inputs use, irrigation coverage, and soil quality. - Enhance resilience in forestry, human settlement, transport, health, and mining. - Developed Rwanda Agriculture De-Risking and Financing Facility with World Bank, USAID, and AfDB. - Enact National Environment and Climate Change Policy (adopted in 2019) and NDC goals (introduced in 2020) and revise Green Growth and Climate Resilience Strategy. - Mitigation commitment: - Committed to a 38 percent reduction of greenhouse gas emissions compared to “business as usual” by 2030. - Planned measures include hydroelectric generation, energy efficient cooktops, proliferation of electric vehicles, greater use of solar, improved livestock feed, prevention of soil erosion, and improved livestock management. - Climate financing needs and institutions: - Climate measures will require approximately US$11 billion by 2030, made up of US$5.7 billion for mitigation and US$5.3 billion for adaptation, expected from domestic and external sources. - Ministry of Environment accredited to the Green Climate Fund (GCF) and the Adaptation Fund. - Rwanda Green Fund (FONERWA) established; has funded 44 projects and is setting up a Green Investment Facility with Rwanda Development Bank; plans to issue green bonds in 2022. - Green PFM initiatives: - Adopted IMF’s Green Public Financial Management approach; undertook IMF-led Climate Public Investment Management Assessment (C-PIMA). - First planning and budget call circular for FY 22/23 required institutions to submit plans indicating key environment and climate change interventions and budgets. - MINECOFIN prioritizing climate-resilient initiatives through an Environment and Climate Change Monitoring Statement to be published as an Annex to the budget. - MINECOFIN looking to introduce a climate budget tagging system (timeline to be specified). - NBR’s newly created Policy and Regulation Department to work on climate risks in the financial sector. ### Program monitoring and monetary policy consultation - Monitoring - Implementation progress under the program will be monitored through QTs, including an MPCC, continuous targets, and RTs; detailed in Tables 1a–2 with definitions in the Technical Memorandum of Understanding. - Monetary policy consultation with IMF Executive Board - NBR adopted a price-based monetary policy framework in January 2019 with an explicit objective of maintaining inflation within a benchmark band of 5±3 percent. - Under the current PCI, NBR’s inflation benchmark is monitored under a Monetary Policy Consultation Clause (MPCC): - Consultation with IMF staff follows NBR inflation band of 5±3 percent. - Consultation with IMF Executive Board is based on a wider band of 5±4 percent. - Inflation developments: - Twelve-month average CPI inflation fell to 0.8 percent in December 2021, below the lower bound of the inflation consultation band of 1.0 percent agreed under the PCI. - Headline inflation trend since 2020Q4: from 8.9 percent in September 2020 to -0.9 percent in September 2021. - Twelve-month average CPI inflation went from 8.2 percent to 1.8 percent during that period. - Twelve-month average CPI inflation reached 0.8 percent (0.2 percentage points below the lower bound) in December 2021 before tilting back to 1.0 percent in January 2022. - This MPCC report: - Explains why inflation breached the lower limit of the inflation consultation band. - Discusses the policy response. - Discusses the inflation outlook. *RWANDA — INTERNATIONAL MONETARY FUND* ### 37. The fall of 12-month average CPI inflation below the lower bound resulted from an ### 1rwaea2022002 - 37. The fall of 12-month average CPI inflation below the lower bound resulted from an ### Causes of the fall in 12-month average CPI inflation - Unanticipated deflationary pressure in food prices and the fading of high transport fares that had resulted from COVID-19 related measures in 2020. - Food inflation averaged 0.3 percent in 2021, as opposed to the 1.8 and 2.4 percent projected during the February 2021 and May 2021 policy rounds, respectively. - Lower outturn of food inflation occurred despite higher-than-expected international food commodity prices and was mainly on account of ample domestic food supply; agricultural production in Seasons A, B and C of 2021, as well as Season A 2022, turned out to be better than projected. - Transport services inflation reduced to -12.4 percent in 2021 from 17.5 percent recorded in 2020. The 2021 deflation in transport services reflected base effects from a government decision in May 2020 to limit carriage capacity of buses (social distancing) followed by a temporary increase in regulated public transport fares per passenger and its subsequent reversal in October 2020 when the government subsidized the sector and kept fares at pre-pandemic levels. ### Monetary policy stance and responses - In April 2020, NBR reduced the Central Bank Rate from 5.0 percent to 4.5 percent anticipating low inflation in 2021. - Despite an accommodative monetary policy stance, inflation fell below the lower bound mainly due to better-than-expected domestic food supply and base effects from regulated transport fares. - The perceived temporary nature of these factors refrained NBR from further reducing policy rates. - NBR raised policy rates in February 2022 to hasten rising inflationary pressures coming from rising global commodity prices due to the pandemic-induced supply-demand mismatch. - Vigilance was stepped up following the war in Ukraine and ensuing rising global commodity prices. The Committee will act should inflation forecasts deviate from the medium-term inflation benchmark on a sustained basis. ### Forecasting, modeling, and policy framework priorities - Progress with modeling under FPAS and implementation of market development measures will enhance forecasting, policy making, and transmission. - Continuous upgrades in nowcasting of CPI and GDP, development of sectoral expertise and scenario analysis, as well as incorporating financial analysis into the QPM, are priorities for policy making. - Monetary authorities remain committed to the MPCC and to ensuring inflation converges to the benchmark in the medium term. ### Key quantitative policy targets and statistics (as presented) - Table 1a highlights (Billions of Rwandan francs, unless otherwise indicated): - end-Dec 2022 Prog.Prog: Ceiling on the debt-creating overall balance, including grants: -1,068-449 - Floor on stock of Net Foreign Assets: 8381,010 - Ceiling on flow of net accumulation of domestic arrears: 00 - Ceiling on stock of external payment arrears (US$ million): 00 - Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million): 6511,269 - CPI Inflation target: 5.05.0 - 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 - Total priority spending: 2 1,560760 - Floor on domestic revenue collection: 2,0611,088 - Stock of new external debt contracted or guaranteed by nonfinancial public enterprises (US$ million): 700700 - Total budget support (US$ million): 554495 - Budget support grants (US$ million): 298260 - Budget support loans (US$ million):256235 - Project loans (US$ million): ...186 - PV of budget and project loans dedicated to COVID-19 vaccine interventions (US$ million): 300 - Budget and project grants dedicated to COVID-19 vaccine interventions (US$ million): 560 - Total spending dedicated to COVID-19 vaccine interventions: 970 - Total spending on projects financed by the SDR allocation: 103.10 - Total spending on Eurobond-financed projects: 64.58.2 - RWF/US$ program exchange rate: 9871,010 ### Program design features and adjustors (selected) - Ceiling on the debt-creating overall balance is cumulatively measured and defined as overall fiscal balance on a commitment basis including grants, excluding certain debt-assumption transactions and UN peace-keeping operations. - Adjustors to the debt-creating overall balance include upward adjustments for: shortfalls in budgetary grants (up to RWF 136 billion), foreign-financed capital expenditure financed with drawdown of government deposits (up to RWF 136 billion), excess concessional project loans disbursed (up to US$ 30 million), unexpected public expenditures on food imports in a food emergency, shortfalls or excesses related to grants dedicated to COVID-19 vaccine interventions, and accelerations/delays in spending financed by 2021 SDR allocation (up to RWF 103 billion) or Eurobond proceeds (RWF 83 billion). - Floor on Net Foreign Assets (NFA) of NBR is defined consistent with e-GDDS: external assets readily available to or controlled by NBR net of external liabilities; excludes pledged/encumbered reserve assets and holdings of government Eurobonds. - Adjustors to NFA floor include downward adjustment for shortfalls in budgetary loans and grants (capped at RWF 136 billion), adjustments for surplus/shortfall of cash external debt service payments, and downward adjustment for unexpected public expenditures on food imports in a food emergency. - Continuous ceiling on non-accumulation of external payment arrears; definition excludes arrears covered by a clearance framework or for which a rescheduling agreement is sought. - Ceiling on net accumulation of domestic expenditure arrears applies to unpaid claims overdue by more than 90 days; a negative target represents a floor on net repayment. - Definition of debt for present value calculations follows Guidelines on Public Debt Conditionality: includes loans, suppliers’ credits, and leases (present value of lease payments), and counts arrears, penalties, and judicially awarded damages arising from failure to pay contractual obligations that constitute debt. *Source: IMF staff report text and supporting tables in the provided content unit.* ### 12. External debt is defined as debt contracted or serviced in a currency other than the ### 12. External debt is defined as debt contracted or serviced in a currency other than the Rwanda Franc. ### External debt ceiling: scope, exclusions, and timing - Continuous ceiling applied to the present value (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 June 30, 2022, is cumulative from January 1, 2022, and the ceiling for December 31, 2022, are cumulative from January 1, 2022. - This quantitative target does not apply to: - Normal import-related commercial debts having a maturity of less than one year; - Rescheduling agreements; - External borrowing which is for the sole purpose of refinancing existing public-sector external debt and which helps to improve the profile of the repayment schedule; and - IMF disbursements. - The ceiling on the PV of new external debt contracted or guaranteed by the central government 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 and the conditions on such borrowing before the loans are either contracted or guaranteed by the government. The need for this adjustment will be reassessed in the context of the 7th review of the PCI. ### Definitions and valuation rules - For program monitoring purposes, a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda. - For program purposes, the value in U.S. dollars of new external debt is calculated using the program exchange rates. - The PV of new external debt is calculated by discounting all future debt service payments (principal and interest) on the basis of a program discount rate of 5 percent and taking account of all loan conditions, including the maturity, grace period, payment schedule, front-end fees and management fees. - The PV is calculated using the IMF model for this type of calculation based on the amount of the loan. - A debt is considered concessional if on the date on which it is 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). - In the case of loans for which the grant element is zero or less than zero, the PV is set at an amount equal to the face value. ### Variable-rate debt: reference rates and spreads - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV of the debt would be calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. - Program reference rates (fixed for the duration of the program and not revised until every Fall edition of the World Economic Outlook (WEO)): - Six-month USD LIBOR: 0.46 percent. - Spread of six-month Euro LIBOR over six-month USD LIBOR: -100 basis points. - Spread of six-month JPY LIBOR over six-month USD LIBOR: -50 basis points. - Spread of six-month GBP LIBOR over six-month USD LIBOR: -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. ### Adjustor and limitations - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies to this ceiling, in case deviations from the performance criterion on the PV of new external debt are prompted by a change in the 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. ### Reporting, monitoring, and data submissions - 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. - 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 (including, but 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 and 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 and to mail the information electronically to the Fund (email to the Resident Representative and the Mission Chief). ### Monetary Policy Consultation Clause (MPCC) - Definition: 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). - Consultation triggers: - If the observed headline inflation falls outside the ±3 percentage point range around the mid-point of target band value for end-June 2022 and end-December 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-June 2022 and end-December 2022 test dates as specified in Table 1a in the PS, the authorities will complete a consultation with the Executive Board focusing 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. ### Memorandum items and other reporting frequencies (summary) - Data provision timing (unless specified otherwise): - Weekly data: 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. - Priority expenditure data: transmitted on a quarterly basis; defined as the sum of those recurrent expenditures, domestically financed capital expenditures, and policy lending identified as priority in line with the NTS and monitored through IFMS at the program level at the end of each quarter. - Detailed data on domestic revenues: transmitted on a monthly basis; domestic revenue 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. *Excerpt from 1rwaea2022002 - 12. External debt is defined as debt contracted or serviced in a currency other than the Rwanda Franc (IMF PDF).* ### 14. While the change in World Bank financing terms under IDA20 will increase the volume of ### 1rwaea2022002 - 14. While the change in World Bank financing terms under IDA20 will increase the volume of ### Debt sustainability and debt management - While the change in World Bank financing terms under IDA20 will increase the volume of loans and therefore the debt-to-GDP ratio, Rwanda’s debt remains sustainable with a moderate risk of debt distress, given that the expected impact on the path of present value of debt would be marginal thanks to the high concessionality of the loans. - The authorities are strongly strengthening debt management capacity to: - enhance fiscal risk monitoring; - strengthen debt reporting; - develop domestic bond markets; - improve the quality of investment spending. ### Public financial management (PFM) reforms and fiscal consolidation - Fiscal consolidation strategy is supported by ongoing PFM reforms, including the new Organic Budget Law (OBL) approved by Cabinet in May 2022. - The OBL will allow: - further improvement of the budget/medium-term expenditure framework (MTEF); - changes in fiscal risk management and transparency; - institutionalization of fiscal risk management practices and structures; - harmonization of financial reporting calendars from all public entities, including state-owned enterprises (SOEs), with the government’s fiscal year to facilitate timely submission of fiscal reporting beyond the central government. - Improved oversight and governance of SOEs and PPPs are closely monitored to mitigate fiscal risks materializing while helping to reduce subsidies. - Contingent measures will be reinforced to prepare for any worsening of the external environment. ### Monetary policy stance and exchange rate framework - The monetary authorities prioritize striking the right balance between containing inflationary pressures and supporting the economic recovery. - They intend to continue to closely monitor inflation developments to inform the need for adjustment of the policy rate and further entrench the interest-rate-based framework. - If inflation forecasts deviate from the medium-term inflation benchmark on a sustained manner, the Committee will stand ready to take appropriate monetary policy measures to ensure that inflation converges to the benchmark. - The authorities reiterate their commitment to exchange rate flexibility as their first line of defense against external shocks and will limit interventions in the foreign exchange (FX) market to minimize excessive exchange rate volatility. - They have indicated planning to seek IMF TA to help them further strengthen the functioning of FX markets in line with their new monetary policy framework. ### Financial sector resilience and supervision - The financial sector remains resilient and stable although still exposed to prolonged pandemic and geopolitical uncertainties. - Banking sector indicators: - The banking sector continues to be well capitalized and liquidity buffers well above the minimum regulatory requirements while profits increased. - The authorities will: - adopt international best practices to ensure financial system stability; - continue to strongly monitor credit risks and pursue prudent loan classification and provisioning; - provide continuous supervision of banks; - exchange financial information in tax matters and anti-money countering the financing of terrorism (AML/CFT); - improve compliance with the FATF standards to reduce financial sector risks. ### Structural reforms and climate resilience - The authorities are committed to structural reforms, including sustaining efforts to build resilience to climate shocks. - They continue implementing more cost-effective interventions to attract private financing and pursuing the transition to greener growth. - They look forward to the joint World Bank’s Country Climate and Development Report (CCDR) to inform policies addressing climate change and building resilience. - Climate issues are expected to be more deeply integrated into public investment management practices following support from IMF TA on Climate Public Investment Management Assessment (C-PIMA). ### Climate finance - On Climate finance, Rwanda continues to work to incorporate mitigation and adaptation criteria in project appraisal and selection processes. - The Rwanda Green Fund has funded 44 projects. ### Pandemic scars, social policy, and financial inclusion - Reforms will be crucial to mitigate long-term individual earnings losses and reduce damages to aggregate productivity. - Authorities will continue to emphasize promoting gender equity. - Priority measures include: - deepening financial markets; - sustaining the expansion of digital payments; - increasing financial inclusion to help mobilize domestic savings. - The authorities will continue to monitor social programs and sustain human capital investments to limit scarring and foster inclusive and resilient growth. ### Private sector development and public investment - Comprehensive policies are expected to contribute to boosting private investment and supporting private sector development. - Central policy directions: - improvements in the selection and prioritization of public investments to achieve greater value-for-money; - leveraging private sector involvement; - targeting private investments and improving private sector while encouraging business competition with support of development partners. ### Transparency, procurement, and audit oversight - Authorities remain determined to promote transparent use of public resources. - Increasing transparency of procurement practices remains critical. - The Office of the Auditor General has audited all government expenditures and procurement tenders, including those related to the pandemic, and will address the publication of beneficial ownership. ### Conclusion and request - The Rwandan authorities remain committed to the program supported by the PCI and will pursue implementation of policies and reforms to preserve macroeconomic and external stability, safeguard financial stability and achieve robust and inclusive growth. - Considering this agenda, the authorities request Executive Directors’ support for the completion of the Sixth Review under the PCI and Monetary Policy Consultation Clause. *Source: IMF country chapter text provided.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rwaea2022002.pdf_