## EXECUTIVE SUMMARY

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---

### Context and Program Requests
- Rwanda rebounded in 2021 supported by a large policy package after contracting in the preceding year due to the COVID-19 shock, but faces multi-faceted challenges—pandemic scars, headwinds from the war in Ukraine, and climate-related shocks, with markedly increased inflationary pressures.
- Downside risks highlighted: war spillovers (energy, food, fertilizer prices), global financial tightening, slowdown in major trading partners, and climate-related shocks.
- Authorities requested:
  - A new 36-month Policy Coordination Instrument (PCI) to maintain macroeconomic stability and advance reforms; they will cancel the current PCI (expiring in June 2023) upon approval of the new PCI.
  - An arrangement under the Resilience and Sustainability Facility (RSF) to support climate resilience and related reforms.
- Current PCI performance: All quantitative and standard continuous targets through end-June 2022 were met. Two out of three reform targets set for the 7th review were completed with a delay.

### Recent Economic Developments and Key Indicators
- Growth and employment:
  - Real GDP growth: 10.9 percent in 2021; H1 2022 growth was 7.7 percent year-on-year.
  - Growth projected at 6.8 and 6.2 percent in 2022 and 2023, respectively.
  - Real output level projected below pre-pandemic trends due to pandemic scars.
  - Unemployment: 18.1 percent in Q3 2022 (pre-pandemic ~15 percent); female unemployment 21.4 percent.
  - Sectoral employment: trade and hospitality below pre-pandemic levels; agriculture largest contributor of post-pandemic job creation and source of nearly half of total employment.
- Inflation and policy response:
  - Headline inflation rose from 5.8 percent in February to 20.1 percent in October (year-on-year).
  - Food inflation: 29.7 percent in Q3; 39.7 percent in October (y-o-y).
  - Core inflation: 12.9 percent in Q3; 14.4 percent in October.
  - Monetary responses: MPC raised the policy interest rate by 50 basis points to 6.5 percent in November (cumulative 200 basis points since February); reserve requirement ratio increased to 5 percent.
  - Government measures: subsidies for fertilizer and public transport; fuel levy restored to RWF 115 per liter on August 8, 2022.
- External sector:
  - Current account deficit projected to narrow to 10.5 percent of GDP in 2022; projected to widen to 12.4 percent of GDP in 2023 then start narrowing thereafter.
  - International reserves expected to decline from 5.1 months of prospective imports in 2021 to 4.7 months by end-2022; gross foreign exchange reserves as of end-June 2022 cover 4.8 months of prospective imports.
  - Rwandan franc depreciation against the US dollar: annualized 8.0 percent in October; real effective exchange rate appreciated since the beginning of the year.
  - Financial account: strong FDI inflows; project and budget financing much lower than expected.
- Financial sector and banking:
  - Banking sector profitable, well-capitalized, and liquid.
  - NPLs: banks 4.1 percent in September 2022 (from 5.1 percent in September 2021); microfinance institutions NPLs 2.4 percent in September 2022 (from 6.4 percent in September 2021).
  - Capital adequacy (end-September 2022): banks 22.3 percent; MFIs 35 percent; prudential limit 15 percent.
  - Liquidity coverage ratios: 250.5 percent; regulatory limit 100 percent. Liquidity ratio: 98.8 percent; regulatory limit 15 percent.
- Social and pandemic measures:
  - Vaccination by end-July: 9.1 million first doses, 8.8 million second doses, 5.2 million first booster shots; since August 2022, fourth jab administered.
  - Social protection in FY21/22: 11.5 percent of the population benefited from programs.

### Fiscal Developments, Public Debt, and Fiscal Framework
- FY21/22 fiscal outcomes:
  - Fiscal deficit in FY21/22: 7.6 percent of GDP (1.1 percent of GDP lower than projected in the 6th PCI review).
  - Revenue: 25.3 percent of GDP (6th Rev. 25.9); Taxes: 15.7 percent of GDP; Grants: 5.9 percent of GDP (6th Rev. 6.9).
  - Expense: 20.6 percent of GDP; Interest: 2.0 percent of GDP; Net acquisition of nonfinancial assets: 12.4 percent of GDP.
  - Overall balance (GFSM 1986): -8.7 percent of GDP (6th Rev. -7.6).
  - Spending on projects financed by the SDR allocation: 1.3 percent of GDP (70 percent of the SDR allocation appropriated in the revised FY21/22 budget).
  - Capital expenditure lower by 0.8 percent of GDP due to delayed donor disbursements.
- FY22/23 outlook and near-term fiscal stance:
  - FY22/23 fiscal deficit projected at 8.1 percent of GDP (against 6.9 percent envisaged in the 6th review).
  - Fiscal consolidation measures: domestic revenue mobilization efforts of 0.2 percent of GDP; planned decline in total expenditure by 1.8 percent of GDP driven by phase-off of COVID-19 and SDR-related spending.
  - Mitigation measures: increased grants to local governments and teacher pay (1.0 percent of GDP), increased fertilizer subsidies (0.3 percent of GDP), transport subsidies (0.3 percent of GDP).
  - Fuel levy phasing out anticipated to save 0.3 percent of GDP relative to the 6th review expectation.
- Public debt and vulnerability:
  - Debt rose from 56.8 percent of GDP in 2019 to 73.3 percent of GDP in 2021, elevating the risk of debt distress from low to moderate.
  - Public debt (Percent of GDP), New PCI and RSF Review: 71.3 (2021/22), 73.9 (2022/23), 76.8 (2023/24), 77.3 (2024/25), 75.7 (2025/26), 73.9 (2026/27), 70.8 (2027/28), 68.2 (2028/29), 66.1 (2029/30), 64.7 (2030/31).
  - Overall balance (Percent of GDP) path (New PCI and RSF Review): -7.6 (2021/22), -8.1 (2022/23), -6.5 (2023/24), -5.2 (2024/25), -3.2 (2025/26), -3.0 (2026/27), -2.9 (2027/28), -2.9 (2028/29), -2.9 (2029/30), -3.4 (2030/31).
- Debt sustainability assessment:
  - Risk of external debt distress: Moderate. Overall risk of debt distress: Moderate (staff judgment applied despite mechanical indicators often classifying risks as low).
  - DSA baseline: PPG debt expected to reach the 65 percent debt-to-GDP anchor by 2031 under the PCI; nominal PPG debt projected to peak at 77.3 percent GDP in 2025 then converge to the anchor by 2031.
  - Key DSA vulnerabilities: availability of concessional financing, U.S. monetary policy tightening and U.S. dollar appreciation, terms-of-trade shocks, climate shocks.
  - Policy guidance: implement fiscal consolidation, prioritize concessional financing (including RSF), strengthen debt management capacity.

### RSF, Climate Risks, and Reform Areas
- Rationale for RSF financing:
  - Climate-related disasters could substantially increase debt burden and external financing needs; RSF financing can address prospective climate-related BOP needs by enhancing external buffers and strengthening climate-contingent plans.
  - RSF access proposed: 150 percent of quota (SDR 240.3 million) as budget support.
- NDC and investment needs:
  - Rwanda revised NDC in 2020 aiming to lower GHG emissions by 38 percent relative to “business as usual” by 2030: unconditional 16 percent and conditional 22 percent.
  - NDC estimates climate-related investment needs at US$11 billion by 2030 (about 10 percent of the 2022 projected GDP per year over 2023–30): US$5.7 billion for mitigation and US$5.3 billion for adaptation.
- RSF-supported Reform Areas and milestones:
  - Reform Area 1: Strengthen and institutionalize monitoring and reporting of climate-related spending (budget tagging; publish climate budget statement; quarterly climate expenditure reports).
  - Reform Area 2: Integrate climate risks into fiscal planning (submit quantitative climate risk analysis in the Fiscal Risk Statement; expand to PPPs and SOEs).
  - Reform Area 3: Improve PIM sensitivity to climate issues (update national investment policy; publish appraisal/selection criteria including climate considerations).
  - Reform Area 4: Enhance climate-related risk management for financial institutions and develop green finance market (issue guidelines; align with ISSB recommendations).
  - Reform Area 5: Strengthen disaster risk reduction and management (adopt new National Disaster Risk Reduction and Management Policy; develop local-level financing mechanism).
- Illustrative modeling (DIGNAD simulations):
  - Once-in-100-years flooding calibrated to lower GDP in 2028 by about 4 percent and destroy around 11 percent of capital stock.
  - Scenarios show ex-ante adaptation investment (1.5 percent of GDP per year) initially raises public debt but reduces post-disaster output losses and fiscal costs; reforms improving public investment efficiency can catalyze private financing and increase resilience.

### Program Modalities, Conditionality, and Financing
- New PCI:
  - Proposed 36-month PCI with quantitative and structural conditionality, monitored by QTs and an MPCC with end-June and end-December test dates.
  - Temporary MPCC midpoint based on 12-month headline inflation proposed to be raised for first two reviews to reflect projected average inflation in 2022 (12.6 percent) with decisive monetary tightening; NBR’s medium-term benchmark remains 5 percent.
  - No prior actions foreseen at this time.
- RSF financing and disbursement schedule (selected entries preserved exactly):
  - Access level: SDR 240.3 million (150.00 percent of quota).
  - Proposed schedule of disbursements under the RSF Arrangement (availability dates and amounts shown exactly):
    - May 1, 2023 — 18.4870811.54 — RM1 implementation review.
    - May 1, 2023 — 18.4870811.54 — RM2 implementation review.
    - May 1, 2023 — 18.4870811.54 — RM3 implementation review.
    - November 1, 2023 — 18.4870811.54 — RM4 implementation review.
    - November 1, 2023 — 18.4870811.54 — RM5 implementation review.
    - May 1, 2024 — 18.4870811.54 — RM6 implementation review.
    - May 1, 2024 — 18.4870811.54 — RM7 implementation review.
    - May 1, 2024 — 18.4870811.54 — RM8 implementation review.
    - November 1, 2024 — 18.4870811.54 — RM9 implementation review.
    - November 1, 2024 — 18.4870811.54 — RM10 implementation review.
    - May 1, 2025 — 18.4870811.54 — RM11 implementation review.
    - May 1, 2025 — 18.4710611.53 — RM12 implementation review.
    - May 1, 2025 — 18.4710611.53 — RM13 implementation review.
    - Total240.30000150.00
  - Rwanda eligible for RSF financing with Group A interest rates applied.
  - Memorandum of Understanding (MOU) between NBR and MINECOFIN signed to clarify responsibilities for timely servicing IMF financial obligations under the RSF arrangement.
- External buffers and Fund exposure indicators with RSF:
  - International reserves would otherwise be expected to remain around 4 months of imports during 2022–27 but would be brought to near 5 months of imports under the RSF during this period.
  - Total Fund credit outstanding peaks at 3.4 percent of GDP and 13.3 percent of exports of goods and services in 2024; peaks at 21.9 percent of gross international reserves and 241.3 percent of quota in 2025 once the RSF is fully disbursed, with downward trend thereafter.

### Monetary Policy, Financial Stability, and Market Development
- Monetary stance and framework:
  - Staff view: a more decisive tightening is needed given elevated inflationary pressures.
  - Average headline inflation projected to rise from 0.8 percent in 2021 to 12.6 percent in 2022; projected to converge back to NBR’s tolerance band (2–8 percent) in 2023 provided monetary policy is further tightened.
  - NBR’s QPM (September) suggests aggressive monetary tightening will be needed to bring the 12-month average inflation below the upper bound of NBR’s tolerance band by end-2023.
  - NBR to develop and publish a monetary policy strategy by end-March 2023 (proposed RT).
  - Proposal to raise temporarily the MPCC midpoint for program monitoring for early test dates (based on 12-month headline inflation).
- Market operations and development:
  - NBR resumed liquidity mopping operations in June 2022 and switched from reverse repos to mopping up given increased bank reserves.
  - Roadmap for legal changes to enable repo market (insolvency, payment system, banking laws) to be developed and completed by end-April 2023 (proposed RT).
  - RTGS and Central Securities Depository upgraded to support repo transactions between banks.
  - FX interbank market liquidity remains limited and shallow; diagnostic assessment of the FX market planned by end-September 2023 (proposed RT).
- Financial stability and inclusion:
  - All COVID-19 regulatory forbearance measures expired in September 2021; banks reverted to pre-COVID standards.
  - NBR enhancing risk-based supervision and SREP with IMF TA; quarterly top-down stress tests and onsite examinations continuing.
  - Financial inclusion: mobile payments value and volume increased by 26.7 percent and 32.6 percent, respectively in the year to June 2022; Women’s Guarantee Fund and other measures to support SMEs and female entrepreneurs.

### Structural Policies: Social Protection, Human Capital, and Diversification
- Mitigating pandemic scars and building resilience:
  - Objectives: adaptive social safety nets, accelerate human capital accumulation, and promote economic diversification.
  - Dynamic social registry pilot started; full rollout planned by May 2024 (proposed RT).
  - Education measures: in August, primary teacher salaries increased by 88 percent and secondary (A0 & A1) by 40 percent; school feeding subsidy now 40 percent per student (noted as costly and largely untargeted).
  - Health and preparedness: CBHI coverage more than 86.5 percent of target population; initiative to attract investments for first African mRNA manufacturing facility kicked off in June 2022.
- Private sector-led diversification:
  - To reach upper Middle-Income status by 2035, private sector must support employment, investments, and productivity.
  - Policy priorities: reduce costs of finance, electricity, and transport; increase trade openness and regional integration; leverage AfCFTA; pursue regional multimodal transport legal framework.
  - Infrastructure: Bugesera International Airport nearly 60 percent of groundworks completed; plans to build air cargo market and RwandAir acquired a freighter in October 2022.

### Program Risks, Scenarios, and Staff Appraisal
- Key risks and likelihoods (selected):
  - High relative likelihood: abrupt global slowdown or recession; deepening geo-economic fragmentation; intensifying spillovers from Russia’s war in Ukraine and commodity price shocks.
  - Medium relative likelihood: natural disasters related to climate change; cyberthreats; de-anchoring of inflation expectations and stagflation.
  - Medium/Low relative likelihood: local Covid-19 outbreaks.
- Scenario analysis (selected outcomes):
  - Natural disaster (once-in-100-years flooding): could damage 11.2 percent of physical capital, lower GDP by 4.4 percent, and create a balance-of-payments need estimated at 6 percent of GDP (US$0.8 billion in 2022 prices); could induce a one-off spike of 22 percent of GDP to the PPG debt ratio in tailored stress test illustration.
  - Alternative scenario (combined grant shortfalls and U.S. dollar appreciation): PV of external debt reaches the threshold value of 55 percent GDP in 2025-2026 (small breach); debt service-to-revenue ratio briefly exceeds 23 percent in 2028.
  - Debt anchor scenarios: maintaining 65 percent of GDP debt anchor is prudent given elevated uncertainty; alternative scenarios show debt anchor could be lower or higher depending on concessionality, fiscal capacity, and risk tolerance.
- Staff appraisal and recommendations:
  - Immediate PCI priorities: support the economy through the crisis, ensure price stability, and monitor and manage emerging risks.
  - Reinforce fiscal framework, implement forward-looking monetary policy framework, mitigate pandemic scars, and build socioeconomic resilience.
  - Keep fiscal framework well-anchored with a credible fiscal consolidation strategy; timely approval and implementation of DRM measures under the MTRS and a successor and a well-specified spending rationalization strategy are critical.
  - Staff urged authorities to launch and start to implement the spending rationalization strategy under the FY23/24 budget process.
  - Strengthen PFM and PIM practices, including disclosure of beneficial ownership information in public procurement, and strengthen institutional and technical capacity to manage fiscal risks.
  - Monetary policy: more decisive tightening recommended given elevated inflationary pressures; enhance forward-looking framework and communications; increase exchange rate flexibility as appropriate.
  - Structural policies: adopt more adaptive social safety nets, accelerate human capital accumulation, promote economic diversification, and integrate climate-related considerations into macroeconomic policies.

*Source: EXECUTIVE SUMMARY and selected chapter excerpts, 1rwaea2022003*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and Program Requests
- Rwanda rebounded in 2021 supported by a large policy package after contracting in the preceding year due to the COVID-19 shock, but faces multi-faceted challenges—pandemic scars, headwinds from the war in Ukraine, and climate-related shocks, with markedly increased inflationary pressures.
- Downside risks highlighted: war spillovers (energy, food, fertilizer prices), global financial tightening, slowdown in major trading partners, and climate-related shocks.
- Authorities requested:
  - A new 36-month Policy Coordination Instrument (PCI) to maintain macroeconomic stability and advance reforms; they will cancel the current PCI (expiring in June 2023) upon approval of the new PCI.
  - An arrangement under the Resilience and Sustainability Facility (RSF) to support climate resilience and related reforms.
- Current PCI performance: All quantitative and standard continuous targets through end-June 2022 were met. Two out of three reform targets set for the 7th review were completed with a delay.

### Proposed Policy Priorities under the New PCI
- Proposed priorities include:
  - Ensuring the fiscal framework remains anchored and supported by a credible fiscal consolidation that preserves fiscal space for development priorities.
  - Staying the course on the implementation of a forward-looking monetary framework.
  - Mitigating pandemic scars, while building resilience to shocks.

### Proposed RSF Reform Areas
- Reform areas under the RSF include:
  - Strengthening and institutionalizing monitoring and reporting of climate-related spending.
  - Integrating climate risks into fiscal planning.
  - Improving the sensitivity of public investment management to climate-related issues.
  - Strengthening climate-related risk managements for financial institutions.
  - Strengthening the disaster risk reduction and management strategy and operations.

### Recent Economic Developments and Key Indicators
- Growth and employment:
  - Real GDP growth: 10.9 percent in 2021; H1 2022 growth was 7.7 percent year-on-year.
  - Real output level projected below pre-pandemic trends due to pandemic scars.
  - Unemployment: 18.1 percent in Q3 2022 (pre-pandemic ~15 percent); female unemployment 21.4 percent.
  - Employment: sectoral disparities with trade and hospitality below pre-pandemic levels; agriculture largest contributor of post-pandemic job creation and source of nearly half of total employment.
- Inflation and policy response:
  - Headline inflation rose from 5.8 percent in February to 20.1 percent in October (year-on-year).
  - Food inflation: 29.7 percent in Q3.
  - Core inflation: 12.9 percent in Q3.
  - Policy responses: government subsidies for fertilizer and public transport; MPC raised the policy interest rate by 50 basis points to 6.5 percent in November and increased the reserve requirement ratio to 5 percent.
- External sector:
  - Current account deficit projected to narrow to 10.5 percent of GDP in 2022 despite widening trade deficit from rising energy imports.
  - International reserves expected to decline from 5.1 months of prospective imports in 2021 to 4.7 months by end-2022.
  - Rwandan franc depreciation against the US dollar: annualized 8.0 percent in October; real effective exchange rate appreciated since the beginning of the year.
  - Financial account: strong FDI inflows; project and budget financing much lower than expected.
- Fiscal developments (FY21/22):
  - Fiscal deficit in FY21/22 was 7.6 percent (1.1 percent of GDP lower than projected in the 6th PCI review).
  - Revenue was higher by 0.6 percent of GDP (grants higher by 1.0 percent of GDP; non-tax revenue lower by 0.4 percent of GDP).
  - Grants increase driven by earlier-than-anticipated disbursements from the UK under MEDP (1.5 percent of GDP) while some other grants were cancelled.
  - Capital expenditure lower by 0.8 percent of GDP due to delayed donor disbursements; current expenses consistent with expectations.
  - Spending on projects financed by the SDR allocation amounted to 1.3 percent of GDP (70 percent of the SDR allocation appropriated in the revised FY21/22 budget).
  - Key fiscal table figures (GFSM presentation, FY21/22):
    - Revenue: 25.3 percent of GDP (6th Rev. 25.9)
    - Taxes: 15.7 percent of GDP
    - Grants: 5.9 percent of GDP (6th Rev. 6.9)
    - Expense: 20.6 percent of GDP
    - Interest: 2.0 percent of GDP
    - Net acquisition of nonfinancial assets: 12.4 percent of GDP
    - Net lending (+) / borrowing (-): -7.6 percent of GDP (6th Rev. -6.3)
    - Overall balance (GFSM 1986): -8.7 percent of GDP (6th Rev. -7.6)
    - Debt-creating overall balance (excl. PKO): -8.7 percent of GDP (6th Rev. -7.4)
- Public debt and vulnerability:
  - Debt rose from 56.8 percent of GDP in 2019 to 73.3 percent of GDP in 2021, elevating the risk of debt distress from low to moderate.

### Financial Sector and Banking
- Banking sector: profitable, well-capitalized, and liquid.
- Non-performing loans (NPLs):
  - Banks: NPLs fell to 4.1 percent in September 2022 from 5.1 percent in September 2021.
  - Microfinance institutions: NPLs fell to 2.4 percent in September 2022 from 6.4 percent in September 2021.
- Private sector credit growth tapered off due to dropoff in new authorized loans.
- Exposure to SOEs increased from 16 to 22 percent of outstanding loans since the 6th Review; loan performance remains normal.

### Assessment of PCI and Rationale for Continued Fund Engagement
- PCI has supported Rwanda through the pandemic and war-related shocks by recalibrating the fiscal framework, preserving sustainability while identifying fiscal space for priority spending, and supporting the implementation of a forward-looking monetary policy framework with improvements in modeling and forecasting capacity.
- Significant IMF capacity development provided to meet objectives.
- RSF financing rationale: climate-related disasters could substantially increase debt burden and external financing needs; RSF financing can address prospective climate-related BOP needs by enhancing external buffers and strengthening climate-contingent plans.

### Policy Recommendations (near-term agenda)
- Focus on:
  - Supporting the economy through the evolving crisis.
  - Containing inflationary pressures through more decisive tightening.
  - Monitoring and managing emerging fiscal and financial risks.
  - Advancing measures to support envisaged fiscal consolidation to reduce debt vulnerabilities and external stability while preserving policy space to mitigate pandemic scars and respond to shocks.
  - Integrating climate-related considerations in macroeconomic policy formulation.
  - Mobilizing climate financing to help achieve Rwanda’s Nationally Determined Contribution (NDC) commitments.

*Source: EXECUTIVE SUMMARY, 1rwaea2022003*

### 10. Performance under the current PCI remained relatively strong with all

### 1rwaea2022003 - 10. Performance under the current PCI remained relatively strong with all

### Performance under the current PCI and Reform Targets
- All quantitative and standard continuous targets through end-June 2022 met and all but one of the reform targets (RTs) through end-September completed.
- Two out of three RTs were completed, though with a delay.
- RTs completed in November: submission of revisions to the excise law to Cabinet and studies on feasibility and regulatory aspects of extending true repo to non-bank financial institutions ahead of the Global Master Repurchase Agreement (GMRA) rollout.
- RT delayed: review of the Rwanda Social Security Board (RSSB) asset allocation due to additional procurement requirements and a lengthier-than-expected onboarding process of the advisory firm; inception report finalized in November; finalization of RSSB asset allocation expected by end-October 2023 (proposed RT).

### Monetary and Financial Developments (highlights)
- NBR resumed liquidity mopping operations in June 2022.
- NBR policy rate actions:
  - NBR raised the policy rate by 100 basis points for a second time in August following the first increase in February 2022.
- Credit and loan composition:
  - New loans concentrated on trade, mortgage and personal loans categories (Q2 2021 to Q2 2022).
  - NPL ratios have fallen as year-on-year credit growth has increased.
  - Credit risk has fallen with a reduction in loans under the Watch category.
- Money and credit:
  - Private sector credit and M3 growth moderated, with CPI inflation noted on the RHS of series presented.

### Outlook and Risks
- Near-term growth impact:
  - Growth projected at 6.8 and 6.2 percent of GDP this year and the next, respectively (0.4 and 1.7 percentage points lower than pre-war projections).
  - Economic activity expected to regain momentum in 2024 if the situation normalizes, driven by construction of the new airport and subsequent services-sector boost.
- Inflation:
  - Average headline inflation projected to rise from 0.8 percent in 2021 to 12.6 percent in 2022, far exceeding the NBR’s benchmark level of 5 percent.
  - Inflation projected to converge back to the NBR’s tolerance band (2–8 percent) in 2023, provided monetary policy is further tightened.
  - Core inflation rose to 14.4 percent in October.
- Fiscal:
  - Fiscal deficit for FY22/23 expected to increase to 8.1 percent of GDP, 1.2 percentage points higher than projected at the 6th review (reflecting an earlier-than-expected disbursement of the UK MEDP grant).
  - UK grants totaling 176 billion RFW came earlier (in FY21/22) than anticipated; this represents 1.5 percent of FY21/22 GDP, or using FY22/23 GDP as the base, 1.3 percent of GDP.
  - Compared to FY21/22, tax revenues anticipated to increase while nontax revenues and expenditure expected to be lower.
- External sector:
  - Current account deficit projected to widen to 12.4 percent of GDP in 2023 and start narrowing thereafter.
  - Trade deficit projected to deteriorate compared to the 6th review, reflecting lower export prices for tin, metal, and tea.
  - Gross official reserves projected close to 5 months of prospective imports in the medium term (and boosted by the RSF), considered adequate.
- Risks:
  - Elevated geopolitical and climate risks, including pressures on energy, fertilizer, and food prices; weakened tourism demand; supply chain disruptions; lower availability of concessional resources; and fallout from regional conflicts.
  - Upside risk: mineral export receipts may increase as Russia’s mineral exports decline given sanctions.

### Revised Macroeconomic Framework (selected entries from Text Table)
- Real GDP growth (percent): 2019–2027 series included in the Table.
- CPI inflation, average (percent): series included in the Table.
- Overall fiscal balance (% of GDP), FY Basis: series included in the Table.
- Total public debt incl. guarantees: series included in the Table.
- Current account balance (% of GDP): series included in the Table.
- Gross international reserves (months of imports): series included in the Table.
- Sources for the Text Table: Rwandan authorities and IMF staff estimates.

### Fiscal Policy: Balancing Development Needs with Sustainability
- Fiscal stance and FY22/23 specifics:
  - FY22/23 fiscal deficit excluding grants projected to be 0.2 percent of GDP lower than the 6th Review.
  - Resulting fiscal impulse remains negative.
  - Main drivers of revisions relative to the 6th Review:
    - Tax revenues: upward revision of 0.5 percent of GDP (including earlier-than-anticipated reinstatement of the fuel levy of 0.3 percent of GDP and lower take-up of exemptions); AfCFTA impact 0.2 percent of GDP.
    - Recurrent expenditure: increased by 0.9 percent of GDP; specifically, an increase in spending to address low teacher pay and poor student retention added 1.0 percent of GDP to spending in FY22/23.
    - Fertilizer subsidies expanded upwards by 0.3 percent of GDP.
    - Capital expenditure: reduced by 0.7 percent of GDP (domestic capital expenditure reduced by 0.3 percent of GDP to make fiscal space and reduced foreign financing of 0.4 percent of GDP).
- Fiscal objectives under the new PCI:
  - Debt anchor: 65 percent debt-to-GDP program anchor adopted at time of 3rd review remains unchanged in current uncertain environment.
  - Convergence to the anchor achieved by FY30/31, three years earlier than projected in the 6th review.
  - Cumulative reduction in the overall deficit estimated to be 4.9 percent of GDP during FY22/23–FY25/26.
  - Authorities committed to seek concessional resources while ensuring the present value of public and publicly guaranteed debt stays on the agreed path.
- Debt sustainability:
  - Rwanda’s debt assessed with a moderate risk of external and overall public debt distress.
  - Key risks: availability of concessional financing, further U.S. monetary policy tightening and U.S. dollar appreciation, terms-of-trade shocks.
  - Policy priorities: implement fiscal consolidation under the new PCI, increase buffers for climate risks under the RSF, and strengthen debt management capacity.
- Domestic revenue mobilization (DRM) and Medium-term Revenue Strategy (MTRS):
  - MTRS approved by Cabinet in May aims at permanently yielding 1 percent of GDP in additional revenues from FY25/26 when all measures become effective.
  - MTRS tax reforms:
    - Personal income tax (PIT) law approved by Parliament in September and effected in October.
    - VAT law expected to be submitted to Cabinet in December.
    - Draft law proposing revisions in excise taxes submitted to Cabinet in November and expected to become effective in FY22/23 H2.
    - Submission to Cabinet of revised corporate income tax (CIT) now expected by May 2023 (proposed RT).
  - Staff advice: consider higher excises on gasoline vehicles and/or higher fuel taxes as alternatives to zero-rating electric vehicles in VAT draft.
  - RRA implementation priorities: taxing the shadow economy; improving voluntary compliance; promoting compliance improvement plans targeted at manufacturing, large businesses, customs, and combating aggressive tax planning.
  - Authorities committed to a full MTRS evaluation and to identify measures for a MTRS successor prior to expiration of the current MTRS.
- Spending rationalization:
  - Expenditure anticipated to decline by 1.8 percent of GDP in FY22/23 driven by phase-off of COVID-19 and one-off SDR allocation related expenditures.
  - Authorities have yet to articulate spending categories subject to rationalization; plan to announce and start implementation in FY24/25 (proposed RT).
  - Staff urged authorities to implement recommendations from the World Bank’s Public Expenditure Review (PER) to be included in the FY23/24 budget.
- Contingency planning and fiscal risk management:
  - Staff advised adopting contingency measures to meet fiscal objectives, including reprioritization given limited fiscal space.
  - Authorities’ existing contingencies include protecting priority spending and reprioritizing non-wage current and domestic capital spending.
- Institutional and technical capacity strengthening:
  - Organic Budget Law institutionalized oversight and management of fiscal risks: clarified role of Fiscal Risk Committee (FRC), mandates publication of annual Fiscal Risk Statement (FRS).
  - New Ministry of Public Investment and Privatization (MININVEST) established in July to evaluate public investments, SOE governance, and coordinate with MINECOFIN on fiscal risks from SOEs.
  - SOE health-check assessment interfaced with IFMIS for automatic calculation of standard ratios.
  - IMF TA supported submission of public-private partnership fiscal risk assessment and mitigation options to FRC and inclusion in FY22/23 FRS.
  - Authorities plan to resume quarterly stress tests of at least one high-risk SOE or SOE subsidiary in H2 2023 once staffing constraints addressed.
  - Authorities plan to expand FRS scope to include long-term fiscal sustainability and climate risk analysis in the FY23/24 budget by end-April 2023 (proposed RM under the RSF).
  - Public Investment Management: authorities reviewing PIMA recommendations to draw a timeline for implementing key recommendations.

### Fiscal Path (selected figures from Text Table: comparison of 6th PCI Review vs New PCI and RSF Review)
- Overall balance (Percent of GDP), New PCI and RSF Review: -7.6 (2021/22), -8.1 (2022/23), -6.5 (2023/24), -5.2 (2024/25), -3.2 (2025/26), -3.0 (2026/27), -2.9 (2027/28), -2.9 (2028/29), -2.9 (2029/30), -3.4 (2030/31).
- Public debt (Percent of GDP), New PCI and RSF Review: 71.3 (2021/22), 73.9 (2022/23), 76.8 (2023/24), 77.3 (2024/25), 75.7 (2025/26), 73.9 (2026/27), 70.8 (2027/28), 68.2 (2028/29), 66.1 (2029/30), 64.7 (2030/31).
- Note: For PCI monitoring the overall balance uses GFSM 1986 definition (incl. policy lending). Public debt produced from DSA is on CY basis while fiscal year runs from July–June.

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

### 19. The authorities remain committed to advance reforms to strengthen

### 19. The authorities remain committed to advance reforms to strengthen

### Fiscal transparency and public financial management (PFM)
- Plans and timelines:
  - Produce quarterly financial statements starting for Q1 FY22/23 at the general government level by end-April 2023 (proposed RT).
  - Prepare an action plan (with Fund TA support) outlining next steps in increasing coverage, frequency, and timeliness of fiscal reports by end-March 2023.
  - Review of the RSSB asset allocation expected to be completed by end-October 2023 (proposed RT); selected firm expected to sign a contract by end-December.
  - Independent audit of government expenditures, inclusive of spending of the 2021 SDR allocation, expected to be published by end-May 2023 as part of a full audit of all government expenditures and procurement tenders for FY 21/22.
- Legal and transparency reforms:
  - New public procurement bill requiring beneficial ownership (BO) disclosure approved by Cabinet in September 2022 and by Parliament in November 2022.
  - Electronic reporting portal for BO disclosure to the Registrar General is being piloted.
  - Draft Company and Partnership law to capture BO information approved by Cabinet in October 2022 and expected to be adopted by Parliament by end-June 2023.
  - Onboarding inspectors to conduct inspections and audits related to entities’ obligations to keep accurate and up-to-date BO information and reliable accounting records.
- Staff recommendations:
  - Consider requesting a follow-up Fiscal Transparency Evaluation (FTE) to update the last FTE in 2019 and identify reforms for the proposed new PCI.

*Source: 1rwaea2022003 - 19. The authorities remain committed to advance reforms to strengthen.*

### Monetary policy stance and framework modernization
- Monetary policy stance:
  - Staff view: a more decisive tightening is needed given elevated inflationary pressures.
  - NBR’s QPM (September) suggests aggressive monetary tightening will be needed to bring the 12-month average inflation below the upper bound of NBR’s tolerance band by end-2023.
  - Midpoint for the MPCC that averages the past 12 months outcomes will be outside NBR’s tolerance upper bound of 8 percent until end-2023 even with appropriate tightening.
  - NBR’s inflation benchmark remains 5 percent; the midpoint for the MPCC band is proposed to be raised temporarily for program monitoring purposes.
  - Risks of tightening too little and too late: loss in credibility of NBR and elevating macroeconomic vulnerabilities.
  - NBR’s communications should be strengthened to better guide inflation expectations.
- Monetary framework modernization:
  - With Fund TA on FPAS, priorities include enhancing forecasting and modelling capacity (preparation of alternative scenarios) and in-reach (more frequent presentation of QPM outcomes to MPC members).
  - NBR plans to develop and publish a monetary policy strategy by end-March 2023 (proposed RT).
  - Considering development of an inflation expectations survey in the medium-term (absence of financial markets-based measures currently).
- Markets and operations:
  - Interbank market pricing aligned with NBR policy rate; NBR switched from liquidity provision through reverse repos to mopping up given increased bank reserves.
  - Roadmap for legal changes to enable repo market (insolvency, payment system, banking laws) to be developed and completed by end-April 2023 (proposed RT).
  - RTGS and Central Securities Depository upgraded to support repo transactions between banks.
  - FX interbank market liquidity remains limited and shallow; NBR with Fund TA will undertake a diagnostic assessment of the FX market by end-September 2023 (proposed RT).
  - Authorities reiterated commitment to exchange rate flexibility, with interventions aimed at minimizing excess volatility.

*Source: 1rwaea2022003 - 19. The authorities remain committed to advance reforms to strengthen.*

### Financial stability and inclusion
- Supervision and stability:
  - All COVID-19 related regulatory forbearance measures expired in September 2021; banks reverted to pre-COVID-19 standards.
  - NBR enhancing risk-based supervision and the Supervisory Review and Evaluation Process (SREP) with IMF TA to improve expertise on ICAAP and ILAAP reports.
  - Quarterly top-down stress tests and ongoing onsite examinations will continue; NBR to monitor excessive leverage in specific sectors and consider macroprudential policy adjustments.
- Financial inclusion and digitalization:
  - Value and volume of mobile payments increased by 26.7 percent and 32.6 percent, respectively in the year to June 2022.
  - Current focus: improving access to savings instruments and financial services via training programs (particularly for youth and women) and establishing a Women’s Guarantee Fund to enable small businesses without collateral to access affordable loans.
  - NBR establishing an environment to better assess and regulate Fin Tech startups and, with stakeholders, developing a new financial inclusion strategy to be concluded by mid-2023.

*Source: 1rwaea2022003 - 19. The authorities remain committed to advance reforms to strengthen.*

### Structural policies: mitigating pandemic scars and building resilience
- Objectives:
  - Mitigate pandemic scars and build socioeconomic resilience through adaptive social safety nets, accelerating human capital accumulation, and promoting economic diversification.
- Strengthening social protection:
  - Coverage remains low, targeting of the poor and agility to respond to shocks need improvement.
  - Pilot for a dynamic social registry has started; full rollout planned by May 2024 (proposed RT).
- Human capital and pandemic preparedness:
  - Education outcomes stagnant; completion rates of basic education are low.
  - Recent measures: subsidized school feeding programs and increased teachers’ salaries (noted as likely costly and largely untargeted).
  - Priority actions: expand pre-primary education, improve teacher management, reduce child stunting, strengthen pandemic preparedness, enhance coverage of community-based health insurance, increase number of skilled health professionals, and strengthen women’s economic empowerment.
- Private sector-led diversification:
  - To reach upper Middle-Income status by 2035, private sector must support employment, investments, and productivity.
  - Continue efforts to reduce high costs of finance, electricity, and transport.
  - Increase trade openness, regional trade integration, leverage AfCFTA preferential market access, and achieve regional agreement on legal framework for multimodal transport.
  - Policy priorities: reduce tariff and non-tariff barriers with all East African Community members; leverage AfCFTA; pursue regional multimodal transport legal framework.

*Source: 1rwaea2022003 - 19. The authorities remain committed to advance reforms to strengthen.*

### Climate change: risks, commitments, and RSF-supported reforms
- Vulnerability and projected damages:
  - Rwanda’s 2016 landslide was the fourth largest in the world recorded during 2010–21 for number of people affected as a share of total population.
  - CCDR pessimistic scenario: annual damage due to flooding estimated at 0.3 percent of Rwanda’s capital stock, increasing to 1.4 percent by end-century.
  - Illustrative DSA tailored stress test: a large climate-related disaster like once-in-100-years flooding could induce a one-off spike of 22 percent of GDP to the PPG debt ratio.
- National commitments and targets:
  - Rwanda revised NDC in 2020 aiming to lower GHG emissions by 38 percent relative to “business as usual” by 2030: unconditional 16 percent and conditional 22 percent.
  - NDC estimates climate-related investment needs at US$11 billion by 2030 (about 10 percent of the 2022 projected GDP per year over 2023–30): US$5.7 billion for mitigation and US$5.3 billion for adaptation.
- Institutional and transparency gaps:
  - Absence of a clear framework/guidelines for publishing climate spending limits transparency and accountability across sectors.
  - CCDR recommends increasing fiscal space via mixed financing (including DRM and government spending reallocations) and improving PFM and public investment management (PIM), including PPPs.
- RSF-supported program focus and five Reform Areas:
  - Overall aim: integrate climate-related considerations in macroeconomic policy formulation to support delivery and monitoring of climate commitments and strengthen institutional capacity to evaluate and prioritize climate investment.
  - Reform Area 1: Strengthen and institutionalize monitoring and reporting of climate-related spending; operationalize a budget tagging system; produce internal guidelines on climate budget tagging; implement tagging and publish climate budget statement (first for development expenditure then all expenditure); publish comprehensive tagging results and quarterly climate expenditure reports; identify in the Budget Framework Paper how climate information has been used in decision making.
  - Reform Area 2: Integrate climate risks into fiscal planning; submit quantitative climate risk analysis in the Fiscal Risk Statement to the Fiscal Risk Committee; expand analysis to include PPPs and SOEs vulnerable to climate risks.
  - Reform Area 3: Improve sensitivity of PIM to climate issues; update national investment policy to integrate climate agenda; publish appraisal and selection criteria guidelines including climate considerations; publish consolidated report on major public investment projects with appraisal/selection criteria and distribution of ratings.
  - Reform Area 4: Enhance climate-related risk management for financial institutions and develop a green finance market; issue guidelines for financial institutions on climate-related risk management; introduce standards in line with ISSB recommendations to support green finance market development.
  - Reform Area 5: Strengthen disaster risk reduction and management; adopt new National Disaster Risk Reduction and Management Policy to clarify institutional roles and community-based frameworks (replacing 2012 policy); develop local-level financing mechanism to mobilize resources for local disaster risk reduction and management; complement adaptive social protection reforms including dynamic social registry implementation supported by the PCI’s pillar on strengthening resilience.

*Source: 1rwaea2022003 - 19. The authorities remain committed to advance reforms to strengthen.*

### 31. The authorities consider the proposed reforms as impetus to

### 1rwaea2022003 - 31. The authorities consider the proposed reforms as impetus to

### Climate financing and RSF-supported reforms
- RSF-supported reforms on green PFM and climate PIMA (Reform Areas 1–3) aim to:
  - help internalize climate-change considerations in the allocation of government resources; and
  - improve transparency and accountability in their use to deliver on ambitious climate measures.
- Reform Area 4 (climate-related risk management for financial institutions and adoption of ISSB standards) is part of capital market development to help mobilize climate financing.
- Expected catalytic effects:
  - Provide assurances to development partners (DPs) that climate funds will be well-spent through strengthened transparency and accountability.
  - Additional DP resources for public or public–private partnerships or to de-risk projects expected to help attract private financing by raising risk-adjusted returns.
  - Private investment is projected to increase to over 17 percent under the baseline in the medium term; staff note this would likely be revised upward if RSF catalyzes more climate-related private investments.
- Country examples and facilities:
  - FONERWA has mobilized domestic financing to fund 45 climate-related projects as of April 2022.
  - Rwanda’s Ministry of Environment is accredited to the Green Climate Fund and the Adaptation Fund; supporting a commercial bank to be similarly accredited.
  - Rwanda launched a new green investment facility (“Ireme Invest”) at COP27, initially capitalized at US$104 million.
  - Rwanda plans to issue green bonds and is exploring carbon credit financing, including establishing a carbon credit registry with UNDP.
- Identified impediments to private climate financing:
  - Small market size and high perceived risks (including political and legal) for low-income countries.
  - Lack of marketable climate projects and climate-related regulatory environment; authorities are developing a green taxonomy.
  - Rwanda launched the Rwanda Sustainable Finance Roadmap in October 2022 involving the Kigali International Financial Center.

### DIGNAD model simulations — fiscal and macro implications of ex-ante adaptation investment (Box 2)
- Model calibration and shock:
  - DIGNAD model calibrated to Rwanda; simulated a hypothetical disaster lowering GDP in 2028 by about 4 percent (mimicking once-in-100-years flooding).
- Scenarios:
  - Scenario 1 (baseline): investment proceeds in “standard” infrastructure.
  - Scenario 2 (adaptation only): investment scaled to include “adaptation” infrastructure by 1.5 percent of GDP per year, financed through private financing and concessional borrowing.
  - Scenario 3 (adaptation & PIE): includes reforms (climate PIMA and green PFM) raising public investment efficiency by 20 percentage points, catalyzed green financing from private sector and DPs, and additional 1.5 percent of GDP.
- Key simulation findings:
  - Investing in more robust infrastructure (Scenarios 2 and 3) initially raises public debt but reduces adverse impact of natural disasters on output, physical asset damages, and post-disaster fiscal costs.
  - Enhanced reforms improving public investment efficiency (Scenario 3) raise economy’s resilience to shocks.
  - Given limited fiscal space, the initial increase in public debt can be mitigated by securing private financing and more concessional financing.

### Program modalities, financing, and conditionality
- Proposed program features:
  - A 36-month PCI including quantitative and structural conditionality, monitored by QTs and an MPCC with end-June and end-December test dates.
  - Temporary MPCC midpoint based on 12-month headline inflation is proposed to be raised relative to the NBR’s benchmark of 5 percent for the first two reviews; the temporary MPCC target is proposed to be set based on projected average inflation in 2022 (12.6 percent) with decisive monetary policy tightening and a symmetric inner/outer band as discussed in the TMU.
  - Several RTs with further conditionality to be developed and phased in line with authorities’ plans and implementation capacity.
  - No prior actions foreseen at this time.
  - New PCI will have adjustors on the fiscal deficit, NFA floor and PV of debt targets as described in the TMU.
- RSF financing:
  - Concurrent RSF-supported program proposed with access level of 150 percent of quota (SDR 240.3 million) as budget support.
  - RSF disbursement proposed to be distributed equally across reform measures (RMs) with phasing across five reviews reflecting expected RM completion dates.
  - Rwanda eligible for RSF financing with Group A interest rates applied.
  - A Memorandum of Understanding (MOU) between NBR and MINECOFIN has been signed to clarify responsibilities for timely servicing IMF financial obligations under the RSF arrangement.
- Objectives for RSF support:
  - Strengthen Rwanda’s climate policy framework, support green PFM and climate-sensitive PIM practices (based on C-PIMA), and climate-related risk management of financial institutions.
  - Support capacity building and TA-aligned reform sequence.

### External buffers, debt dynamics, and capacity to repay
- Balance of payments and reserves:
  - International reserves would otherwise be expected to remain around 4 months of imports during 2022–27 but would be brought to near 5 months of imports under the RSF during this period.
- Debt and Fund exposure indicators with RSF:
  - Total Fund credit outstanding peaks at 3.4 percent of GDP and 13.3 percent of exports of goods and services in 2024.
  - Peaks at 21.9 percent of gross international reserves and 241.3 percent of quota in 2025 once the RSF is fully disbursed, with a downward sloping trend thereafter.
  - Inclusion of RSF resources does not significantly increase Rwanda’s total debt service to the Fund; near-term elevated levels reflect repayment of the 2016–2018 Standby Credit Facility and two 2020 Rapid Credit Facilities.
  - Rwanda’s largest peaks for credit outstanding (percent of GDP) and debt service to the Fund (percent of revenue excl. grants) with RST resources are below the 75th percentile of comparators.
- Staff assessment:
  - Rwanda’s capacity to repay is deemed manageable, supported by a downward debt trajectory in the medium term with moderate risks of external and overall public debt distress, and authorities’ track record of reforms and sound macroeconomic management.

### Coordination, safeguards, and capacity development
- Coordination:
  - Staff coordinated closely with the World Bank and other DPs to leverage expertise and refine policy priorities under the PCI and RSF.
  - World Bank provided an assessment letter confirming the authorities’ ambitious climate reform package.
  - DPs actively engaged in TA complementary to RSF-supported reforms.
- Safeguards:
  - Latest safeguards assessment (concluded January 2022) found a well-established governance and control framework with audit and reporting aligned with international standards.
  - NBR updated its investment policy to align with e-GDDS reserve definition, eliminating holdings of instruments issued by domestic issuers (Rwanda Eurobonds) from official foreign reserves.
  - NBR amended its credit policy to limit foreign currency denominated securities issued by domestic entities that can be held by the central bank.
- Capacity development (CD):
  - CD activities closely linked to PCI- and RSF-supported reforms, focusing on fiscal transparency, DRM, medium-term expenditure frameworks, forward-looking monetary policy framework, and financial stability.
  - CD under RSF will focus on adopting green PFM, implementing climate-sensitive PIM practices based on the recent C-PIMA, and climate-related risk management of financial institutions.
  - CD expected to strengthen fiscal risk analysis, budget preparation, fiscal reporting, macro-fiscal capacity, and implementation of FSSR recommendations.

### Risks, appraisal, and policy recommendations
- Program and macro risks:
  - Downside risks include high global and regional uncertainty, frequent climate-related events, and decline in available concessional resources.
  - Program remains fully financed with firm financing commitments over the next 12 months and good prospects thereafter.
- Staff appraisal and recommendations:
  - Immediate PCI priorities: support the economy through the crisis, ensure price stability, and monitor and manage emerging risks.
  - Reinforce fiscal framework, implement forward-looking monetary policy framework, mitigate pandemic scars, and build socioeconomic resilience.
  - Keep fiscal framework well-anchored with a credible fiscal consolidation strategy; timely approval and implementation of DRM measures under the MTRS and a successor and a well-specified spending rationalization strategy are critical.
  - Staff urged authorities to launch and start to implement the spending rationalization strategy under the FY23/24 budget process.
  - Authorities should enhance effectiveness and transparency of PFM and PIM practices, including disclosure of beneficial ownership information in public procurement, and strengthen institutional and technical capacity to manage fiscal risks.
  - Monetary policy: more decisive tightening recommended given elevated inflationary pressures; reforms to enhance forward-looking monetary policy framework, clearer data-driven communication, and greater exchange rate flexibility remain critical.
  - Structural policies: adopt more adaptive social safety nets, accelerate human capital accumulation, promote economic diversification, and integrate climate-related considerations into macroeconomic policies and frameworks to build resilience to climate shocks.

*International Monetary Fund — Rwanda: selected chapter excerpts from 1rwaea2022003*

### 44. The PCI and the RSF provide appropriate instruments to support the authorities’

### 44. The PCI and the RSF provide appropriate instruments to support the authorities’

### Summary assessment
- In the absence of current BoP needs, staff considers the PCI as an appropriate vehicle to:
  - demonstrate Rwanda’s commitment to advance the reform agenda;
  - enhance macroeconomic stability; and
  - maintain a close policy dialogue with the Fund.
- The RSF reform measures to address climate change will support Rwanda’s resilience building to shocks.
- Staff encourage the authorities to leverage the RSF to support scaling up green investments as well as catalyze further climate financing from official and private sector sources.
- Based on the authorities’ strong program performance to date and continued commitment to policies and reforms, staff supports:
  - the request for a new 36-month PCI to replace the current PCI set to expire on June 28, 2023; and
  - support under an RSF arrangement.

### Policy recommendations and operational guidance
- Use the PCI to signal and sustain reform momentum and macroeconomic stabilization while no immediate BoP support is required.
- Use the RSF to:
  - scale up green investments; and
  - catalyze additional climate financing from official and private sector sources.

### Key program parameters and timeline
- New PCI duration: 36-month PCI.
- Current PCI expiry date: June 28, 2023.

*Source: Rwandan authorities and IMF staff estimates.*

### 5. Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million)

### 5. Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million)

### Reform targets under the PCI (June 2019–September 2022)
- Table of fiscal, monetary, and financial measures with target dates and status highlights:
  - Fiscal measures (selected entries):
    - Produce annual tax expenditure report with updated methodology, and a description of broad categories of beneficiaries — end-Jun. 2019 — Met.
    - Procure an IT system that will capture all RSSB processes — end-Jun. 2019 — Met.
    - Produce a report outlining detailed options for improving functioning of VAT — end-Dec. 2019 — Met.
    - Automating the risk-based verification process for refund claims — end-Dec. 2019 — Not Met.
    - Begin producing quarterly budget execution reports in GFS 2014 format — end-Dec. 2019 — Met.
    - Produce a comprehensive fiscal risk analysis statement — end-Jun. 2020 — Met.
    - Contract a diagnostic study on optimal RSSB asset allocation — end-Jun. 2020 — Not Met.
    - Expand coverage in fiscal reporting in GFS 2014 to central govt and local governments — end-Dec. 2020 — 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).
    - Submit revisions to the excise tax law to Cabinet — end-July 2022 — Not Met (Completed in November 2022).
    - Conduct a review of RSSB asset allocation and submit the associated report to RSSB management — end-Sep. 2022 — Not Met (Proposed RT under new PCI).
  - Monetary and Financial measures (selected entries):
    - Improve communication for monetary policy by organizing quarterly outreach after each MPC meeting — end-Dec. 2019 — Met.
    - Publish macro projections for MPC decision making in quarterly inflation reports — end-Jun. 2020 — Met.
    - Introduce a platform for issuing government securities using mobile phones — end-Jun. 2020 — Not Met; end-Jun. 2021 — Met.
    - Expand industrial and market expectation surveys and begin collecting data to construct a purchasing manager's index — end-Dec. 2020 — Met.
    - Conduct a legal assessment to identify gaps in the regulatory framework for true repo ahead of GMRA rollout — end-Nov. 2021 — Not Met (later completed end-Mar. 2022).
    - Produce a study on consumer and merchant payment behavior and pricing of digital payment services — end-Dec. 2021 — Not Met (Completed in May 2022).
    - Conduct a study on regulatory aspects and feasibility of extending true repo to non-bank financial institutions ahead of GMRA rollout — end-June 2022 — Not Met (Completed in November 2022).

### Schedule of reviews and RSF reform measures and disbursements
- Program review timing:
  - Board discussion of a PCI request — December 12, 2022.
  - First Review — December 31, 2022 — By May 15, 2023.
  - Second Review — June 30, 2023 — By November 15, 2023.
  - Third Review — December 31, 2023 — By May 15, 2024.
  - Fourth Review — June 30, 2024 — By November 15, 2024.
  - Fifth Review — December 31, 2024 — By May 15, 2025.
  - Sixth Review — June 30, 2025 — By November 15, 2025.
- Reform measures under the RSF Arrangement (selected RMs and review triggers; access in percent of quota shown):
  - RM4 — Produce internal guidelines on the planned climate budget tagging system — 2nd Review — Access: 46.16.
  - RM6 — MINECOFIN staff to implement climate change budget tagging as a prototype on development expenditure only and publish a climate budget statement — 3rd Review.
  - RM9 — MINECOFIN staff to expand the climate change budget tagging framework to cover all expenditure — 4th Review.
  - RM11 — Publish comprehensive tagging results and start publishing a quarterly climate expenditure report — 5th Review.
  - RM1 — Submit a quantitative climate risk analysis in the Fiscal Risk Statement to the Fiscal Risk Committee — 1st Review — Access: 23.08.
  - RM2 — Update the national investment policy to integrate the climate agenda — 1st Review — Access: 34.62.
  - RM8 — Issue a guideline for climate-related risk managements for financial institutions — 3rd Review — Access: 23.07.
  - RM3 — Adopt the new National Disaster Risk Reduction and Management Policy — 1st Review — Access: 23.07.
  - RM12, RM13 — Guidelines and developing financing mechanism at local level — 5th Review.
- Proposed schedule of disbursements under the RSF Arrangement (availability dates and amounts shown exactly):
  - May 1, 2023 — 18.4870811.54 — RM1 implementation review.
  - May 1, 2023 — 18.4870811.54 — RM2 implementation review.
  - May 1, 2023 — 18.4870811.54 — RM3 implementation review.
  - November 1, 2023 — 18.4870811.54 — RM4 implementation review.
  - November 1, 2023 — 18.4870811.54 — RM5 implementation review.
  - May 1, 2024 — 18.4870811.54 — RM6 implementation review.
  - May 1, 2024 — 18.4870811.54 — RM7 implementation review.
  - May 1, 2024 — 18.4870811.54 — RM8 implementation review.
  - November 1, 2024 — 18.4870811.54 — RM9 implementation review.
  - November 1, 2024 — 18.4870811.54 — RM10 implementation review.
  - May 1, 2025 — 18.4870811.54 — RM11 implementation review.
  - May 1, 2025 — 18.4710611.53 — RM12 implementation review.
  - May 1, 2025 — 18.4710611.53 — RM13 implementation review.
  - Total240.30000150.00
  - Memorandum item: Quota160.20000

### Risk Assessment Matrix — key risks, likelihoods, expected impacts, and policy responses
- High relative likelihood risks:
  - Abrupt global slowdown or recession:
    - Expected impacts: Higher and volatile commodity prices; worsened external balance; shortages of intermediate and final consumer goods; high fertilizer costs affect domestic food production; refugees flow; bouts of price and real sector volatility; negative impacts on economic activity; tighter financial conditions and higher country risk premia; collapse in tourism receipts and other key exports; slowdown in remittances; solvency problems for tourism-related and other domestic businesses; capital outflow, currency depreciation, and debt distress.
    - Policy responses: Strengthen data-driven monetary policy framework and MTRS; maintain exchange rate flexibility; facilitate exports; strengthen debt management.
  - Deepening geo-economic fragmentation and geopolitical tensions:
    - Expected impacts: Reconfiguration of trade, supply disruptions, technological and payments systems fragmentation, rising input costs, financial instability, a fracturing of international monetary and financial system, and lower potential growth.
    - Policy responses: Diversify the structure of the economy and export sources; strengthen regional security surveillance programs.
  - Intensifying spillovers from Russia’s war in Ukraine and commodity price shocks:
    - Expected impacts: Trade and financial disruptions, commodity price volatility, and social and economic instability.
    - Policy responses: Targeted support to protect vulnerable population from rising food prices; fuel subsidies should be temporary; ensure strategic fuel and grain reserves are adequate.
- Medium relative likelihood risks:
  - Natural disasters related to climate change:
    - Expected impacts: Reduced output in the agricultural sector, job loss, higher contingency spending for infrastructure repair, higher social spending to mitigate impacts.
    - Policy responses: Include contingency spending plans in fiscal framework and strengthen food security programs; fast-track efforts to build resilience to climate shocks.
  - Cyberthreats:
    - Expected impacts: Financial services interruption, data theft or deletion, loss of sensitive data or intellectual property.
    - Policy responses: Ensure that financial service providers frequently upgrade their IT systems.
  - De-anchoring of inflation expectations and stagflation:
    - Expected impacts: Sharp increases in headline inflation passing through to core inflation, wage-price spiral, stronger monetary tightening, weaker global demand, currency depreciations in EMDEs, sovereign defaults, onset of stagflation.
    - Policy responses: Monetary policy should balance price stability and growth with larger role for exchange rate flexibility; secure social protection for vulnerable households.
- Medium/Low relative likelihood risks:
  - Local Covid-19 outbreaks:
    - Expected impacts: Extended supply chain disruptions, slower growth, capital outflows, and debt distress in some EMDEs.
    - Policy responses: Continue targeted government fiscal and financial interventions aligned with the Economic Recovery Plan (ERP); prioritize public infrastructure projects with high fiscal multipliers and value-for-money; strengthen regional coordination, particularly at land borders; continue mobilizing international community support.

### Revisiting Rwanda’s fiscal anchor (Annex II)
- Background and original anchor:
  - A nominal debt anchor of 65 percent of GDP was introduced at the time of the 3rd PCI review when Rwanda’s risk of debt distress moved from low to moderate at the onset of the pandemic.
  - At approval of the current PCI in 2019, the fiscal framework used a fiscal rule setting a ceiling on the debt-creating overall balance of 5.5 percent of GDP to stabilize the PV of debt at or below the EAMU debt convergence criterion of 50 percent of GDP, which corresponded to a nominal debt of 60 percent of GDP.
  - The pandemic led to a significant increase in the debt level and the PV of debt exceeded 50 percent of GDP, prompting recalibration to a debt anchor and a more flexible fiscal path.
- Methodology for recalibrating the anchor:
  - The methodology builds on IMF Fiscal Affairs Department (FAD)’s approach to setting debt anchors and a debt “cliff”.
  - FAD’s approach: start from a pre-determined debt ceiling and estimate the necessary buffer to minimize the risks of exceeding this ceiling via stochastic debt projections with shocks calibrated to match past macroeconomic shocks.
  - The debt anchor is set as the difference between the debt ceiling and the estimated buffer; buffer size increases as government risk tolerance declines.
  - At the 3rd PCI review, the ceiling (the debt cliff) used the high-capacity threshold under the LIC-DSF of 70 percent of GDP in present value (PV) terms, corresponding broadly to a nominal debt-to-GDP ratio of 90 percent given concessionality at that time.
  - Stochastic projections suggested a nominal debt anchor of 65 percent of GDP would be appropriate to guard against exceeding the 70 percent PV-of-GDP DSA “cliff”.
  - The debt anchor was noted to likely remain consistent with the EAMU ceiling, with existing concessionality terms suggesting it would correspond to a PV of debt of around 45 percent of GDP.
- Factors prompting reassessment:
  - Changes in IDA-20 financing terms and World Bank guidance that assumptions for IDA financing post IDA-20 should be 100 percent credit on regular IDA terms for IDA-only countries with moderate risk.
  - Better management of fiscal risks.
  - Growing perception of lower fiscal consolidation capacity following the pandemic and the war in Ukraine.
  - The same FAD-based methodology used in the 3rd review was deployed to generate alternative scenarios for recalibration.

*Source: IMF staff.*

### 4. Scenario 1: Higher degree of concessionality. This scenario assumes a higher degree of

### 4. Scenario 1: Higher degree of concessionality.

### Scenarios and key mechanics
- Scenario 1: Higher degree of concessionality
  - Assumes a higher degree of concessionally brought by changes in IDA-20 lending terms (only for commitments under IDA-20).
  - Implies a slight increase to the debt ceiling to 91 percent of GDP, consistent with a nominal-PV gap of 21 percent of GDP, and the PV limit of 70 percent of GDP (LIC-DSF debt threshold).
  - Keeps the risk tolerance relative to the 3rd PCI review unchanged.
  - Fiscal consolidation capacity is kept the same by relying on a similar fiscal reaction function as in the previous exercise.
  - Implied debt anchor remains virtually the same as in the 3rd PCI review.

- Scenario 2: Lower-than-anticipated concessionality
  - Assumes the level of concessionality does not materialize as currently anticipated with greater reliance on more commercial borrowing.
  - Historical note: the average level of concessionality was about 4 percentage points lower than what was assumed at the time of the 3rd PCI review.
  - Assuming a debt ceiling consistent with the LIC-DSF debt threshold in PV terms at 70 percent and lower average concessionality of debt (by 4 ppt) implies, everything else equal, a lower debt anchor of 59 percent of GDP.

- Scenario 3: Higher fiscal risk management capacity
  - Captures higher fiscal risk management capacity by increasing the risk tolerance level.
  - Rationale: better fiscal risk management reduces likelihood of a debt “surprise” and a breach in the debt ceiling.
  - Increasing the risk tolerance level from 5 to percent to 10 percent would raise the debt anchor just above 70 percent of GDP.
  - Note of caution: given increased global uncertainty and need to institutionalize recent efforts, it may not be prudent to consider this scenario at the current juncture.

- Scenario 4: Lower fiscal consolidation capacity
  - Replaces the standard low-income country (LIC) fiscal reaction function with a fiscal reaction function less responsive to debt increases (e.g., due to spending rigidities or increasing spending needs).
  - Method: increase primary balances serial autocorrelation to introduce more inertia and a more protracted adjustment pattern in the fiscal reaction function.
  - Result: lower fiscal consolidation capacity increases likelihood of breaching the debt ceiling and thus lowers the debt anchor.

- Scenario 5: Lower LIC-DSF debt carrying capacity
  - Illustrates impact of a downgrade in Rwanda’s debt-carrying capacity from high to medium as defined under the IMF-LIC-DSF.
  - A downgrade implies reduction in the LIC-DSF threshold on overall debt in PV terms to 55 percent, implying a corresponding nominal debt ceiling of 76 percent under the higher degree of concessionality assumed in Scenario 1.
  - Result: resulting debt anchor would be even lower than that of Scenario 4 under similar risk tolerance even if a standard LIC fiscal reaction function is used.
  - Downgrade trigger: significant changes in global or domestic growth, import coverage of reserves, and deterioration in the policy and institutional environment measured by the World Bank’s CPIA.

- Scenario 6: Aspirational scenario
  - Illustrates impact of fiscal reforms that increase fiscal consolidation capacity (notably DRM reforms) on the debt anchor.
  - Uses principle of debt-servicing capacity as proposed by David, Eyraud and Sode (2022).
  - Debt ceiling calibration formula: (Debt ceiling as a ratio to GDP) = τ * (revenue as a ratio to GDP) / (effective interest rate) (1)
    - τ is estimated to range from 16 to 19 percent.
    - Revenue-to-GDP ratio used: 20 percent (the FY 25/26 projection at the 6th PCI review when yields from MTRS measures are expected to fully accrue).
    - Corresponding projected effective interest rate at that time: about 4 percent.
  - Result: an increase in the projected revenue-to-GDP ratio reflecting implementation of measures under Rwanda’s Medium-Term Revenue Strategy (MTRS) would allow for a measurable increase in the debt anchor once fully realized.

### Implied debt anchors, calibration outputs, and policy guidance
- Comparative outcomes and numerical outputs shown in source (columns presented sequentially):
  - Nominal debt ceiling (percent of GDP)918691917695
  - Risk tolerance (percent)5510555
  - Fiscal reaction functionLICLICLICLIC+LICLIC
  - Debt anchor (percent of GDP)665971584769
- Policy conclusions and recommended stance:
  - Given the range of possibilities, there is not overwhelming support for raising the fiscal anchor beyond the current 65 percent of GDP.
  - Elevated uncertainty from two unprecedented shocks (pandemic and geopolitical) reinforces case for keeping or increasing existing safety margins in setting the debt anchor; the methodology using historical volatility might underestimate uncertainty.
  - The proposed calibration shows scope to increase the debt anchor over the medium-term once fiscal reforms strengthen credibility and fiscal consolidation capacity.
  - Prudent approach: maintain the debt anchor of 65 percent of GDP while ensuring the consolidation path and timeline to achieve the anchor is feasible and maintains a fiscal stance supportive to Rwanda’s development goals under its NST-1.
  - Any increase in the nominal debt anchor must comply with Rwanda’s commitments under EAMU’s convergence criteria.

### Climate-Related reforms: implementation and development partners’ support — key findings
- Vulnerability and impacts
  - Rwanda is highly vulnerable to climate change as a low-income country dependent on rain-fed agriculture, despite contributing little to global CO2 emissions.
  - Channels of impact: (i) declining labor productivity from increased climate-sensitive illnesses and greater food insecurity; (ii) depleting public infrastructures and regional trade disruptions from increasing soil erosion.
  - Example: Rwanda’s 2016 landslide was the fourth largest in the world recorded during 2010–21 for number of people affected as a share of total population (CCDR).
  - Annual damage due to flooding: estimated to be 0.3 percent of the capital stock, increasing to 1.4 percent by end-century in the “Representative Concentration Pathway (RCP) 8.5” scenario (CCDR, Table 4).
  - A major flood likely to occur once in 100 years would destroy around 11 percent of the capital stock and lower GDP by 4.4 percent.
  - Floods and landslides in 2018 estimated damage: 0.8 percent of GDP (Emergency Events Database (EM-DAT)).

- Progress and national strategies
  - Rwanda has substantial progress in climate-sensitive planning and a well-designed system to integrate climate considerations in national and sectoral planning (CCDR; IMF C-PIMA April 2022).
  - Key instruments: National Strategy for Transformation (2017–24) and Nationally Determined Contribution (NDC) revised in 2020.
  - NDC mitigation target: reduce greenhouse gas emissions by 38 percent by 2030 compared to business as usual.
  - Forest cover: achieved target of 30 percent forest land cover by 2020; current forest cover approximately 30.4 percent (~724,662 hectares).
  - Rwanda’s contribution to Bonn challenge: restore 2 million hectares of forest land by 2030.

- Development partner engagement (examples)
  - Agriculture, biodiversity, forestry: EU, Belgium, Germany, Netherland, Sweden, UK, UNEP, UN FAO, World Bank, WWF.
  - Renewable energy: EU, Belgium, Germany, Sweden, US, AfDB, Global Green Growth Institute, UNDP, UNEP, World Bank.
  - Water management: Germany, Japan, Netherlands, AfDB.
  - Urban development: Belgium, Germany, World Bank.
  - Land management: UK.
  - Waste management: Sweden.
  - Sustainable Finance Roadmap and Access to Climate Finance Taskforce support: France, Germany, Sweden, AfDB, FCDO, UNDP, Germany, Sweden, UK.
  - World Bank, USAID, and AfDB involved in Rwanda Agriculture De-Risking and Financing Facility.
  - FONERWA-financed projects: Green City Kigali supported by Germany; Green Gicumbi supported by Green Climate Fund (GCF).

### Climate-related policy recommendations and reform priorities (as reported)
- CCDR and PIMA recommendations include:
  - Improve public investment management (PIM) and public financial management (PFM).
  - Enhance climate-related risk management for financial institutions.
  - Improve disaster risk reduction and management.

- Fiscal sector recommendations
  - Increase fiscal space using a mix of financing sources, including through DRM and government spending relocations.
  - Improve PIM (including through public-private partnerships) and PFM.
  - Specific reforms from C-PIMA and draft PEFA (June 2022):
    - Reporting climate-related fiscal activities: incorporate green PFM elements, explore budget tagging, publish climate information alongside the budget, construct and implement ex-post review methodology for climate mitigation and adaptation.
    - Integrate climate risks into fiscal planning: expand the Fiscal Risk Statement to include quantitative analysis of fiscal risks related to climate change and assess long-term fiscal sustainability under different climate scenarios (current analysis is qualitative).
- PIM sensitivity enhancements
  - Update Environmental Impact Assessment (EIA) guidelines to assess greenhouse gas impact and climate-change resilience in project design and appraisal.
  - Clarify PPP guidelines in relation to climate risk allocation.
  - Encourage extra-budgetary units to incorporate climate objectives, targets, and indicators in performance contracts.
  - Make climate impact assessment a mandatory disclosure item in central and local government project appraisal systems and establish standard shadow prices for greenhouse gas in economic analysis.
  - Update maintenance manuals and schedules to include climate-change-related guidance for vulnerable sectors.

- Financial sector recommendations
  - Implement environmental, social, and governance (ESG) standards in financial institution operations.
  - Develop a pipeline of bankable and monitorable green projects.
  - Introduce standards aligned with the International Sustainability Standards Board to support green finance market development and mobilize green financing.

- Disaster risk reduction and management
  - Adopt and implement the new National Disaster Risk Reduction Management Policy.
  - Provide more affordable, climate-resilient housing given informal settlements in flood-prone zones and vulnerable slopes.

### Proposed IMF technical assistance (TA) and reform implementation support
- Reform area 1 — Strengthen and institutionalize monitoring and reporting of climate-related spending (budget tagging)
  - Rwanda is relatively well-prepared; identified potential tagging approaches for IFMIS.
  - Institutional needs: set up inter-agency working group, prepare guidelines, design IFMIS user requirements, IFMIS updates, budget call circular updates, internal training.
  - IMF can provide ad-hoc short-term assistance if requested.

- Reform area 2 — Integrate climate risks into fiscal planning
  - Plan to deliver IMF TA on methods to integrate climate risks into fiscal planning, set for early 2023.
  - Institutional needs: sufficient staffing in relevant units.

- Reform area 3 — Improve PIM sensitivity to climate-related issues
  - Institutional needs: establish working group of key stakeholders to prepare climate-change-sensitive appraisal guidelines and selection criteria for the National Investment Policy, ensure reform coordination and oversight are adequately staffed.
  - TA could provide international expertise on climate sensitivity in appraisal and selection processes and peer learning.

*Source: 1rwaea2022003 - 4. Scenario 1: Higher degree of concessionality.; Annex III and Annex IV content as provided in the source content unit.*

### Annex V. Capacity to Repay Indicators

### Annex V. Capacity to Repay Indicators

### I. Context
- The Program Statement describes economic policies and reform priorities under a new Policy Coordination Instrument (PCI) and the Resilience and Sustainability Facility (RSF).
- Objectives: maintain macroeconomic stability, advance reform agenda, build climate resilience, manage COVID-19 aftereffects and spillovers from the war in Ukraine.

### II. Recent developments
- Growth and labor market
  - H1 2022 growth: 7.7 percent, year-on-year.
  - Real GDP growth: 10.9 percent in 2021; projected 6.8 percent in 2022.
  - Unemployment rate in Q3 2022: 18.1 percent (pre-pandemic ~15 percent).
  - Female unemployment rate: 21.4 percent.
- Inflation and monetary policy
  - Headline inflation: rose from 5.8 percent in February to 20.1 percent in October, year-on-year.
  - Food inflation: 39.7 percent in October.
  - Core inflation: 14.4 percent in October.
  - Monetary Policy Committee raised policy interest rate by 200 basis points starting in February to 6.5 percent in November 2022.
  - Reserve requirement ratio reinstated to 5 percent (pre-COVID level).
  - Government introduced subsidies for fuel, fertilizer, and public transport to mitigate cost-of-living increases.
- Fiscal outcomes and SDR use
  - Fiscal deficit in FY21/22: 7.6 percent of GDP (1 percent of GDP lower than anticipated at the 6th review).
  - SDR allocation 2021: 70 percent used on recurrent and capital expenses; 30 percent saved as reserves to retire the remaining 2013 Eurobond at maturity in 2023.
  - Specific uses: temporary increase in recurrent spending by 0.4 percent of GDP on social protection; capital expenditure raised by 0.9 percent of GDP for delayed high-quality investment projects and infrastructure repairs.
- Financial sector soundness
  - Capital adequacy (end-September 2022): banks 22.3 percent; micro financial institutions (MFIs) 35 percent; prudential limit 15 percent.
  - Liquidity coverage ratios for banks and MFIs: 250.5 percent; regulatory limit 100 percent.
  - Liquidity ratio: 98.8 percent; regulatory limit 15 percent.
  - Return on average assets and average equity for banks: 3.0 and 18.0 percent.
  - MFIs: return on average assets and average equity 5.1 and 14.8 percent.
  - Nonperforming loans (NPLs) in September 2022: banks 4.1 percent; MFIs 4.2 percent (from 5.1 and 6.4 percent in September 2021).
- External sector and reserves
  - Exports of goods and services (2022 H1): improved by 47.1 percent.
  - Imports of goods and services (2022 H1): rose by 33.6 percent.
  - Trade deficit in goods and services expanded by 18.7 percent.
  - Current account deficit (CAD): improved by 6.7 percent (offset by increases in current transfers).
  - Gross foreign exchange reserves as of end-June 2022: cover 4.8 months of prospective imports of goods and services.
- Social and economic support measures
  - Vaccination: by end-July, 9.1 million first doses, 8.8 million second doses, 5.2 million first booster shots; since August 2022, fourth jab administered.
  - Social protection in FY21/22: 11.5 percent of the population benefited from programs.
    - ~315,000 households received short-term social assistance.
    - ~29,000 extremely poor households received asset transfers.
    - ~7,400 extremely poor and vulnerable individuals received formal skills training and apprenticeships.
    - More than 95 percent of payments in core social protection programs delivered on-time.
  - Subsidies in FY22/23:
    - Transport subsidies projected RWF 49 billion or 0.3 percent of GDP.
    - Fertilizer subsidies revised to RWF 79 billion or 0.6 percent of GDP (against RWF 44 billion or 0.3 percent of GDP under the original FY22/23 budget).
  - Business support (ERF and MBRP):
    - ERF capital US$ 250 million.
    - BDF approved loans to micro-businesses amounting to RWF 1.9 billion (US$ 1.9 million), disbursed to 586 beneficiaries (30 percent female).
    - BRD approved RWF 95 billion (US$ 94 million) of investment loans to 61 companies; disbursed RWF 7.2 billion (US$ 7.1 million) in direct investment loans to 3 companies.
    - BRD approved RWF 13.1 billion (US$ 12.9 million) of working capital loans to be disbursed via commercial banks.
    - Partial credit guarantee: BDF approved RWF 1.5 billion (US$ 1.5 million) to 2 beneficiaries.
    - MBRP approved 97 applications (projects expected to create 34,647 new jobs), of which 46 have received tax incentives equivalent to RWF 5.7 billion.

### III. Program performance under the 2019 PCI
- Overall status
  - Program remains on track though cancellation proposed before June 2023 expiry for technical reasons.
  - All end-June 2022 quantitative targets (QTs) and standard continuous targets for the 7th review were met.
  - Inflation returned within the inner band of the monetary policy consultation clause.
- Reform targets (RTs)
  - Two out of three RTs through end-September 2022 completed, with delays.
    - Revised excise law (originally due end-July 2022) and studies on feasibility/regulatory aspects of extending true repo to non-bank financial institutions (originally due end-June 2022) were completed in November.
    - Diagnostic on feasibility of extending true repo was conducted with World Bank and IFC support; draft report available in September 2022; regulatory aspects study finalized in November.
  - RT on review of RSSB asset allocation faced significant delays due to procurement and onboarding; contract with advisory firm expected signed by end-December 2022. Inception report submitted mid-November; expected finalization by end-October 2023 (proposed RT).

### IV. Outlook and policies
- Outlook
  - Real GDP growth projections:
    - 2021: 10.9 percent.
    - 2022: projected 6.8 percent.
    - 2023: expected to decline to 6.2 percent.
  - Inflation projections:
    - 2021 average headline inflation: 0.8 percent.
    - End-2022 projected average headline inflation: 12.6 percent (exceeding NBR benchmark 5 percent).
    - 2023 projected headline inflation: 7.9 percent.
  - External position:
    - Temporary deterioration in 2023 due to worsening current account balance; improvement thereafter.
    - Gross official reserves projected to remain close to 5 months of prospective imports over the medium term.
    - Financial inflows expected to remain high but start declining from 2024 as public sector borrowing decreases; private flows, mainly FDI, expected to increase.
- Fiscal policies and structural reforms
  - Policy pillars:
    - Credible fiscal consolidation preserving fiscal space through growth-friendly domestic revenue mobilization (DRM) and spending rationalization.
    - Reforms to increase transparency and efficiency of public financial management and investment practices.
    - Enhanced management of fiscal risks.
  - Program instruments and monitoring:
    - New PCI to be supported by quantitative, standard continuous, and reform targets, and a monetary policy consultation clause.
    - RSF financing expected to be available once specified reform measures are implemented as described in the Program Statement and TMU.
    - PCI and RSF reviews to be completed on a semi-annual basis and to coincide.
  - RSF request and coordination:
    - Requesting access under the RSF totaling SDR 240.3 million (150 percent of quota) for direct budget support to advance climate change-related policies and catalyze additional financing.
    - Requesting a new 36-month PCI concurrent to the RSF; cancellation of current PCI (expiring June 2023) requested to be effective upon approval of the new PCI.
    - Memorandum of Understanding (MOU) finalized between the NBR and MINECOFIN clarifying responsibilities for timely servicing IMF financial obligations under the RSF.

*International Monetary Fund — Annex V. Capacity to Repay Indicators (Rwanda: Program Statement and Letter of Intent excerpts, November 25, 2022).*

### 14.      Our near-term fiscal strategy under the new PCI arrangement will continue to aim at

### 1rwaea2022003 - 14.      Our near-term fiscal strategy under the new PCI arrangement will continue to aim at

### Fiscal stance and near-term projections
- FY22/23 deficit is projected at 8.1 percent of GDP (against 6.9 percent envisaged in the 6th review of the current PCI).
- Domestic revenue mobilization efforts of 0.2 percent of GDP contribute to the consolidation outlook.
- The government stands ready to provide temporary, targeted, transparent support if the war in Ukraine escalates or pandemic disruptions persist, while protecting priority spending and reprioritizing non-wage current and domestic capital spending to avoid significant budget slippages and preserve debt sustainability.
- Debt anchor: maintain 65 percent of GDP debt anchor with convergence to the anchor achieved by 2031.

### Mitigation measures in FY22/23
- Measures aim to mitigate pandemic and war-in-Ukraine spillovers; key items include:
  - increased grants to local governments to support an increase in teacher salaries and expenses in the school feeding program (1 percent of GDP);
  - increases in fertilizer subsidies (0.3 percent of GDP);
  - subsidies to private transport operators (0.3 percent of GDP);
  - expansion of social protection programs (examples: home-based early childhood development, public works, skills development, and asset transfer).
- Fuel levy restored to original level of RWF 115 per liter on August 8, 2022; phasing out of fuel subsidies ahead of end-FY22/23 is anticipated to save 0.3 percent of GDP compared to the expectation at the 6th review of the PCI.

### Consolidation measures and expenditure stance
- Total expenditure is declining by 1.8 percent relative to FY 21/22.
- Phase-off of one-off spending: COVID-related spending and SDR-earmarked spending amount to 2.3 and 1.3 percent of GDP, respectively.
- Lower spending combined with domestic revenue efforts is expected to lead the projected fiscal deficit excluding grants to start declining in FY22/23.
- Fiscal consolidation path broadly maintained as discussed in the 6th review, with convergence to the 65 percent of GDP anchor by 2031.

### Debt management strategy
- Prudent strategy prioritizing concessional resources, including climate change related financing to support adaptation and mitigation.
- Strengthen debt management capacity, enhance fiscal risk monitoring, expand debt coverage to include local government debts, and develop domestic capital markets.
- Seize opportunities to contract highly concessionally financed projects and prioritize their implementation over domestically or commercially financed projects to contain debt service burden and mitigate solvency risks.

### Domestic revenue mobilization (MTRS)
- Cabinet approved a Medium-Term Revenue Strategy (MTRS) in May 2022; published in July; implementation begins by FY 23/24.
- All measures expected to become effective by FY 25/26 permanently yielding 1 percent of GDP in additional revenues.
- Tax Policy Directorate created last year and expected to be fully staffed over the course of 2023.

Tax policy measures (timing and design)
- Personal income tax (PIT) law approved by Parliament end-September and became effective in October; implementation in two phases:
  - Phase 1 (first year): tax exemption threshold doubled from RWF 30,000 to RWF 60,000 per month.
  - Phase 2 (second year): workers earning between RWF 60,001 and 100,000 taxed at 10 percent instead of 20 percent; those earning between RWF 100,001 and 200,000 taxed at 20 percent instead of 30 percent.
- VAT law expected to be submitted for cabinet approval in December; draft includes VAT rebates to incentivize consumers to request EBM receipts and proposals for zero-rating electric automotive vehicles, related batteries, and charging stations equipment (e-mobility incentive), and zero-rated VAT for construction of new residential houses. Details and caps of rebates to be formulated under a Ministerial Order once the law is approved.
- Draft law proposing revisions in excise taxes submitted to Cabinet by end-Nov 2022. 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 the fleet.
  - Law expected to become effective in FY 22/23 H2.
- Submission to Cabinet of revised corporate income tax (CIT) law expected in May 2023 (proposed RT), delayed from end-January 2023. Revisions expected as a package include:
  - lowering the statutory CIT rate;
  - introducing a gross turnover-based minimum alternative tax;
  - broadening the business tax base;
  - introducing full expensing of capital expenditures;
  - allowing indefinite carry forward of business losses.
  - CIT law expected to become effective in FY 23/24 and start to yield revenues in FY 24/25.

Tax administration measures and outcomes
- RRA implementing MTRS measures to tax the shadow economy, improve voluntary compliance through better taxpayer services, and promote compliance improvement plans targeted at manufacturing, large businesses, and customs, and to combat aggressive tax evasion by individuals.
- FY22/23 RRA action plan measures include e-service design to improve timeliness for filing and payment; simplifying SME registration; greater reliance on data science; and developing risk-rules for VATs through EBMs and manufacturing firms.
- Key accomplishment: distribution of over 33,176 new VAT taxpayers issued with electronic billing machines (EBMs) by end-June 2022, up from 3,535 in the previous year.
- Measures to tax the shadow economy delayed until FY 23/24 pending approval of the VAT law, which would permit VAT rebates through EBM.
- RRA service improvements: revamped website with multiple languages (Kinyarwanda, English and French), less congestion, easier navigation, accessibility functions, and upgraded call center.

MTRS implementation and monitoring
- Policy appraisals completed for proposed MTRS reforms related to PAYE, excise duty and VAT. PAYE reform approved by Parliament.
- Consultations conducted with stakeholders; plans for meetings with policymakers and public communication campaigns after ratification of new laws.
- RRA to align its strategic plan with MTRS and develop a monitoring system to track and quantify adopted MTRS measures, guided by IMF AFRITAC East and a hired consultant.
- Commitment to a full evaluation of MTRS implementation prior to its expiration and to evaluate additional DRM measures ahead of the current MTRS expiration.

### Spending rationalization and efficiency gains
- Spending rationalization measures to be refined in the FY 24/25 budget:
  - By end-November 2023: submit to Cabinet an outline of medium-term fiscal policies behind the spending rationalization strategy as an annex in the FY 24/25 Planning and Budget Outlook Paper—PBOP—(proposed RT).
  - By end-May 2024: submit to Cabinet a spending rationalization strategy as an annex in the FY 24/25 budget framework paper based on the PBOP outline—(proposed RT).
- Implementation guided by recommendations from the World Bank’s Public Expenditure Review (PER) and the IMF’s Public Investment Management Assessment (PIMA) and national analysis.
- Areas for cost-savings and efficiency gains include:
  - digitalization in the delivery of public goods and services;
  - strengthening oversight and governance of state-owned enterprises (SOEs) to gradually reduce subsidies and budget support;
  - improvements in selection and prioritization of public investments to achieve greater value-for-money and leverage private sector involvement.

### Public financial management (PFM) reforms and Fiscal Transparency
- Organic Budget Law (OBL) approved by both chambers of Parliament in July 2022; full implementation requires Ministerial Orders and other financial regulations by MINECOFIN expected by end-June 2023.
- OBL expected to facilitate:
  - improvements in the budget/medium-term expenditure framework (MTEF);
  - institutionalization of fiscal risk management practices and structures;
  - harmonization of financial reporting calendars of all public entities, including RSSB and SOEs, and enforcing timely submission of fiscal reporting beyond central government.
- MTEF enhancements initiated: budget baseline costing with standard costing guidelines and templates issued with the first Planning and Budget Call Circulars for FY 23/24.
- Expenditure ceilings for line ministries and agencies set earlier—brought forward from April to November of the previous fiscal year starting in FY 23/24 via the first PBOP.
- Migration to accrual accounting under IPSAS on track for implementation by FY23/24.
- IFMIS roll-out continued with integration of the budget costing framework and public schools.
- Performance-based budgeting implementation improving with capacity development planned during FY23/24; focus on automation and data quality.

### Fiscal risk management and SOE oversight
- OBL institutionalized oversight and management of fiscal risks by clarifying the Fiscal Risk Committee (FRC) role, mandating MINECOFIN to appoint members, and requiring publication of an annual Fiscal Risk Statement (FRS) as part of annual budget documents.
- New Ministry of Public Investment and Privatization (MININVEST) established in July 2022 with responsibilities including developing policies for profit-oriented public investments and privatization, monitoring performance of profit-oriented public investments, identifying investments for privatization, optimizing government assets through monetization, and monitoring implementation of related policies. MININVEST expected to play a central role in strengthening SOE oversight, management, and governance.
- Ministerial Orders under OBL operationalization by June 2023 will define roles and responsibilities for effective coordination of oversight, management, and reporting of fiscal risks from SOEs.
- Plans to significantly strengthen SOE governance legal framework by reviewing the National Investment Policy and the Privatization Law.

Technical capacity and stress-testing
- SOE health-check assessment now interfaced with IFMIS allowing automatic production of standard ratios for each SOE.
- Stress tests: informed by a first batch of SOE health-check assessment in May 2021, stress tests conducted in four high-risk SOEs in March 2022; summary and mitigation recommendations included in the FRS under the FY 22/23 budget.
- Assessment of fiscal risks from public-private partnerships prepared with IMF TA and submitted with mitigation options to the Fiscal Risk Committee by end-April 2022 (RT) and included in FY 22/23 FRS.
- Plan to conduct stress tests quarterly on at least one high-risk SOE or subsidiaries delayed due to limited staff at MINECOFIN’s Government Portfolio Management Unit and pending MININVEST role; expected resolution in second half of 2023 with aim to finalize stress tests on at least 2 high risk SOEs inclusive of holding companies by December 2023. Additional support to be requested from IMF AFRITAC East (AFE).
- Plan to expand scope of 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 RM for the RSF arrangement).

### Public Investment Management Assessment (PIMA) and transparency actions
- Government to review completed IMF PIMA and create an action-plan to implement key recommendations; working with stakeholders to develop an implementation timeline.
- Progress on fiscal transparency following 2019 Fiscal Transparency Evaluation recommendations in fiscal risk management, fiscal reporting, and medium-term fiscal planning.
- Diagnostic exercises (PIMA, PER, PEFA) undertaken with support from IMF, World Bank, and partners; working to assess and implement recommendations.
- Consideration to publish the finalized PIMA report upon review.
- By end-March 2023, guided by IMF TA, develop an action plan to expand coverage, frequency, and timeliness of fiscal reports in GFS 2014 formats, including on functional expenditures (COFOG) and balance sheets.
- Publication of quarterly budget execution reports under GFS 2014 for the whole general government, including RSSB, was delayed from end-March 2023 to end-April 2023 (proposed RT) due to longer than expected processes for RSSB and other entities to report income statements quarterly.

*IMF staff report excerpt (Rwanda).*

### 24.      We remain committed to use public resources transparently.

### 24.      We remain committed to use public resources transparently.

### Transparency and accountability of public resources
- Auditing of government expenses:
  - All FY 20/21 government expenditures and procurement tenders, including those linked to the pandemic, were audited by the Office of the Auditor General (OAG) and made public.
  - The OAG is expected to audit all government expenditures, including those financed by the new SDR allocation, and publish them by end-May 2023 as part of a full audit of all government expenditures and procurement tenders for FY 21/22.
- Beneficial ownership (BO) and public procurement:
  - New Public Procurement bill requiring BO disclosure of companies bidding for public contracts was approved by the Cabinet in September 2022 and by Parliament on November 7, 2022.
  - Actions underway:
    - An initial version of an electronic reporting portal for BO disclosure to the Registrar General is being pilot tested; test results will inform finalization.
    - A draft Company and Partnerships law to capture BO information was approved by the Cabinet in October 2022; the bill is expected to be adopted by Parliament by end-June 2023.
    - A plan was developed to conduct inspections and audits on obligations of entities to keep accurate and up-to-date BO information and reliable accounting records; onboarding of inspectors is in process, and inspections, audits, and sanctions will commence once the Public Procurement and Company and Partnership bills are passed into laws.

*Italic: Source — 1rwaea2022003 - 24.      We remain committed to use public resources transparently.*

### Monetary policy stance, framework, and operations
- Monetary policy stance and analysis:
  - The Monetary Policy Committee (MPC) of the National Bank of Rwanda (NBR) raised its policy interest rate by 200 basis points since the start of the year.
  - The NBR is committed to continue tightening monetary policy if inflationary pressures due to domestic factors and high imported prices persist and risk de-anchoring inflation expectations.
  - With support from IMF AFE, NBR will continue building analytical capacity to operationalize its core quarterly projection model (QPM) and integrate the Forecasting and Policy Analysis System (FPAS) into monetary policy decision-making.
  - Planned publications and reviews:
    - NBR will develop and publish a Monetary Policy Strategy by end-March 2023 (proposed RT).
    - Consider reviewing the period over which headline inflation is averaged under the MPCC and/or replacing the headline inflation with an appropriate measure of core inflation once the inflationary environment abates.
  - Monitoring and program adjustments:
    - Given current elevated inflation, the twelve-month average inflation is expected to be outside the MPCC band set at the 6th review for December 2022 and likely June 2023 even with monetary tightening.
    - Proposal to raise the MPCC target from 5 to 11 percent and shift the corresponding band for these test dates (solely for program monitoring for these respective test dates).
    - NBR’s medium-term inflation target will remain at 5 percent and will apply for the PCI from December 2023 onward.
    - Considering development of a consumer price expectations survey; plan to request Fund TA support.

- Monetary policy operations and market development:
  - Infrastructure and market developments:
    - Since November 2020, Real Time Gross Settlement and Central Securities Depository infrastructure upgraded to accommodate repo transactions.
    - Measures to roll out the Global Master Repurchase Agreement (GMRA) are ongoing; a legal and regulatory review report was available in March 2022.
    - A diagnostic on feasibility of extending true repo to non-bank financial institutions was finalized in November (RT under the 6th review).
  - Timelines and rescheduling:
    - Capacity building on GMRA terms to market participants and signature of GMRA by all banks originally expected by end-December 2022 will be rescheduled to allow time to address legal gaps.
    - NBR management to approve a roadmap for GMRA implementation endorsed by all stakeholders by end-April 2023 (proposed RT).

- Exchange rate policy:
  - Commitment to a flexible exchange rate to support monetary policy and maintain external buffers; interventions in the FX market will be limited to minimize excessive volatility.
  - FX pressures expected to be slightly higher in the remainder of 2022 and to continue in 2023.
  - Reserve objectives and diagnostics:
    - Reserve coverage expected to remain comfortably above the minimum adequate level of 4 months of imports.
    - Plan to build reserves gradually with objective to reach 5 months of imports cover in the medium-term.
    - Diagnostic assessment of the FX market planned by end September 2023 (proposed RT).

### Financial sector policies and market supervision
- Micro- and macroprudential focus:
  - Continued emphasis on early detection of risks and timely interventions to ensure supervised institutions are stable and sound.
  - Onsite examinations will focus on credit risk, loan classification, and provisioning.
  - Banks submitted the first annual ICAAP in March 2022 and ILAAP in April 2022.
  - NBR will continue to conduct macro stress tests every quarter to assess banks’ resilience to credit, market, systemic, and sector-specific shocks.
- Regulatory and supervisory strengthening:
  - With assistance from IMF TA, enhancements planned for risk-based supervision, directives on market remuneration, assessment of interest rate risk in the banking book (IRRBB), and development of recovery plans for banks.
- Financial inclusion and consumer protection:
  - New financial inclusion strategy expected to be concluded by mid-2023; some aspects already under implementation.
  - Initiatives include countrywide youth savings competitions, RegTech electronic data warehouse for financial inclusion measurement, a regulatory sandbox for FinTech, and a new financial consumer protection law with an automated complaints handling system.
  - The Women’s Guarantee Fund (WGF) managed by the Business Development Fund (BDF) facilitates female-owned MSMEs accessing affordable loans.

### Structural policies: social protection, economic diversification, and health preparedness
- Addressing pandemic scarring and human capital:
  - Focus on expanding coverage, geographical reach, and benefits of existing social protection schemes and making them more responsive to large shocks.
  - Steered some VUP public work schemes towards climate adaptation (tree plantation, terracing) and support for smallholder sustainable practices.
  - Dynamic social registry:
    - Piloting started in October 2022 in two districts.
    - RSSB expected to start using the dynamic social registry for CBHI by January 2023.
    - Full rollout planned by May 2024 (proposed RT).
  - Education and nutrition:
    - In August, salaries of all primary school teachers increased by 88 percent and that of secondary school teachers (A0 & A1) by 40 percent.
    - Government subsidy now amounts to 40 percent of the school feeding budget of every student.
    - Continued efforts to tackle stunting by increasing coverage of nutrition programs.
- Economywide resilience and diversification:
  - Policies to promote private sector-led diversification and greater regional trade integration, including trade logistics and distribution service strategy.
  - Bugesera International Airport has nearly 60 percent of the groundworks completed.
  - Plans to build an air cargo service market; RwandAir acquired a new freighter in October 2022.
  - Agriculture initiatives:
    - New projects such as the Commercialization and De-Risking for Agricultural Transformation Project financed by the World Bank to increase irrigation, commercialization, agriculture finance, and insurance.
    - Commitment to fast-track the Rwanda Agriculture De-Risking and Financing Facility (with support from the World Bank, USAID, and AfDB).

- Pandemic and endemic preparedness:
  - Working with WHO and development partners to boost preparedness, detection, and response.
  - Government and WHO working towards signing an MOU to implement three WHO flagship initiatives: Detect, Prepare, and Response.
    - 'Detect' aims to reinvigorate integrated surveillance systems.
    - 'Prepare' aims to strengthen planning and anticipation for shocks.
    - 'Response' aims to ensure mobilization and response within the first 24–48 hours.
  - Other measures:
    - Improve clinical care for infectious diseases, logistics and supplies, and predictable financing for preparedness activities.
    - Rwanda’s initiative to attract investments to construct the first African mRNA manufacturing facility kicked off in June 2022.
    - Progress toward universal health coverage: more than 86.5 percent of the target population covered by the CBHI based on the CBHI individual enrollment database.

### Building resilience to climate change
- Climate risk and economic impact:
  - The World Bank Country Climate and Development Report (CCDR) estimates that climate risks could reduce Rwanda’s GDP by 5–7 percent by 2050, with negative impacts on private consumption, exports, and government revenues.
- Climate-sensitive planning and mitigation:
  - Rwanda adopted a low carbon growth strategy in 2011 and revised its Nationally Determined Contribution (NDC) in 2020.
  - Ongoing and planned actions include renewable energy, climate-smart agriculture, reforestation programs, and revision of the Green Growth and Climate Resilience Strategy (GGCRS).
  - Climate considerations are mainstreamed in budget preparation via environment and climate change monitoring statements and checklists; budget execution reports describe allocations and expenditures for environmental and climate programs.
  - REMA publishes a biannual State of Environment and Outlook Report to monitor progress in environmental and climate policy implementation.

*Italic: Source — 1rwaea2022003 - 24.      We remain committed to use public resources transparently.*

### 37.      Our climate strategy uniformly supports climate adaptation and mitigation initiatives.

### 37.      Our climate strategy uniformly supports climate adaptation and mitigation initiatives.

### Climate strategy, targets, and measures
- Adaptation measures include landscape restoration and management, boosting agricultural productivity through improvement of productive inputs use, irrigation coverage, and terracing to reduce soil erosion and preserve soil quality.
- Climate resilience enhancements identified in forestry, human settlement, transport, health, and mining.
- Target to reduce greenhouse gas emissions by 38 percent by 2030.
- With active engagement in afforestation and reforestation, achieved the target to have 30 percent of forest land cover by 2020 a year earlier than planned.
- Rwanda’s current forest cover is approximately 30.4 percent.
- NDC promotes increase of hydro- and -solar power capacity, e-mobility, use of energy efficient cooktops, and improved livestock management.

### RSF-supported program: five major reform areas and specific milestones
- Reform Area 1: Strengthening and institutionalizing monitoring and reporting of climate-related spending feeding into decision making processes.
  - Seek IMF TA to improve technical capacity to independently develop a climate budget tagging framework operable within Rwanda’s institutions.
  - MINECOFIN to operationalize the climate budget tagging framework and publish key climate information in the budget.
  - Milestones:
    - By the 2nd review: produce internal guidelines on the planned climate budget tagging system, including anticipated changes to the budget call circular and user requirements for IFMIS.
    - By the 3rd review: implement climate change budget tagging as a prototype on development expenditure only and publish a climate budget statement using the first budget tagging results; identify in the Budget Framework Paper (BFP) how climate information has been used in decision making.
    - By the 4th review: expand the climate change budget tagging framework to cover all expenditure.
    - By the 5th review: publish comprehensive tagging results in the climate budget statement and start publishing a quarterly climate expenditure report comparing execution with budget plans.

- Reform Area 2: Integrating climate risks into fiscal planning.
  - Milestones:
    - By the 1st review: submit a quantitative climate risk analysis in the Fiscal Risk Statement to the Fiscal Risk Committee.
    - By the 3rd review: expand the quantitative climate risk analysis to include PPPs and SOEs vulnerable to climate-related risks and highlight how investment in adaptation reduces impacts of negative climate events.

- Reform Area 3: Improving the sensitivity of PIM (public investment management) to climate-related issues.
  - Milestones:
    - By the 1st review: update the national investment policy to integrate the climate agenda.
    - By the 2nd review: publish guidelines for appraisal and selection criteria, including climate considerations, on MINECOFIN website.
    - By the 4th review: publish a consolidated report by sector with (i) appraisal and selection criteria related to adaptation and mitigation and (ii) distribution of ratings according to those criteria.

- Reform Area 4: Enhancing climate-related risk management for financial institutions and developing a green finance market.
  - Milestones:
    - By the 3rd review: issue a guideline for climate-related risk management for financial institutions.
    - By the 5th review: issue a guideline to financial institutions regarding implementation of recommendations of the International Sustainability Standards Board.

- Reform Area 5: Strengthening disaster risk reduction and management.
  - Milestones:
    - By the 1st review: adopt the new National Disaster Risk Reduction and Management Policy, replacing the 2012 National Disaster Management Policy, clarifying roles/responsibilities and frameworks for community-based disaster risk reduction and management.
    - By the 5th review: develop financing mechanism at the local level to enhance local governments’ ability to mobilize resources to finance planning and implementation of disaster risk reduction and management strategy at the local level.

### Financing needs, sources, and mobilization strategy
- NDC estimates climate-related investment needs amount to US$11 billion by 2030 (which is, per year over 2023–30, about 10 percent of the 2022 projected GDP).
- Large share of financing expected from external sources, including the private sector; DRM (domestic resource mobilization) will contribute to creating fiscal space.
- Green PFM and climate-sensitive PIM (Reform Areas 1–3) intended to facilitate green financing from DPs and the private sector by internalizing climate considerations and improving transparency and accountability.
- Reform Area 4 reforms form part of broader capital market development efforts to mobilize financing.
- RSF-supported reforms aim to provide assurances to DPs that climate funds will be well-spent, aiding attraction of additional DP resources and private financing by raising risk-adjusted returns.

### Existing climate finance institutions, instruments, and activity
- Rwanda Green Fund (FONERWA):
  - Funded 45 projects (including 8 private sector projects) in the value of about RWF 40 billion as of April 2022.
  - Established a national taskforce charged with climate finance mobilization for NDC implementation.
- Ministry of Environment accredited to the Green Climate Fund (GCF) and the Adaptation Fund and is working to help the Rwanda Development Bank (BRD) to be accredited to support private-sector investment projects.
- Rwanda Green Investment Facility (Ireme Invest):
  - Launched at COP27 by FONERWA and the BRD.
  - Initially capitalized at US$104 million.
  - Features a Project Preparation Facility offering grants and a Credit Facility offering concessional loans and a credit guarantee to support SME green projects.
- Kigali International Financial Center (KIFC) finalized the Sustainable Finance Roadmap with a vision to make Kigali a regional financial center and to align financial flows to SDGs.

### Program monitoring and integration with broader policy work
- CCDR proposes sector-specific recommendations on water management, agriculture, forestry management, energy, transport, and urban planning; these will continue to be incorporated.
- RSF-supported program reforms reflect recommendations in the World Bank’s CCDR, the C-PIMA, and the PEFA (conducted in June 2022).
- Progress under the RSF arrangement will be monitored through Reform Measures (RMs) with specified review timing (see RM table for RM1–RM13 and associated review points).

*Source: Excerpt from the provided IMF document.*

### 5.      A floor applies to the net foreign assets (NFA) of the NBR for December 31, 2022, and

### 5.      A floor applies to the net foreign assets (NFA) of the NBR for December 31, 2022, and

### Net Foreign Assets (NFA) floor — definition and adjustors
- Definition: NFA of the NBR in Rwandan francs is defined, consistent with the definition of the enhanced General Data Dissemination Standard (e-GDDS) template, as external assets readily available to, or controlled by, the NBR net of its external liabilities.
- Exclusions from NFA measurement:
  - Pledged or otherwise encumbered reserve assets (including swaps with resident institutions with original maturity of one year or less, and with non-resident institutions).
  - Reserve assets used as collateral or guarantee for third party external liabilities.
  - Reserve assets corresponding to undisbursed project accounts.
  - Holdings of Eurobonds issued by the Government of Rwanda.
- Exchange rate conversion rules:
  - Foreign assets and foreign liabilities in U.S. dollars are converted to Rwandan francs by using the U.S. dollar/Rwanda franc program exchange rate.
  - Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate.
- Foreign liabilities include, inter alia, use of IMF resources.
- Adjustors to the NFA floor:
  - The floor on NFA will be adjusted downward by the amount of any shortfall between actual and programmed budgetary loans (including RSF disbursement) and grants per Table 1a of the PS.
  - The floor on NFA will be adjusted downward by the amount of unexpected public expenditures on cereal imports in the case of a food emergency and/or on fertilizer imports in the case of significant fertilizer import price increases.
  - The combined downward adjustments in the three above-mentioned adjustors would be capped at RWF 124 billion in December 2022 and RWF 171 billion in June 2023 to ensure reserves do not fall below 4 months of prospective import cover, which is the minimum adequate level for Rwanda.

### Ceiling on external payment arrears
- A continuous ceiling applies to the non-accumulation of payment arrears on external debt contracted or guaranteed by the budgetary central government and entities that form part of the budgetary process.
- Definition: External payment arrears are overdue external debt service obligations (principal and interest) arising in respect of obligations incurred directly or guaranteed by the budgetary central government and relevant entities.
  - A payment is overdue when it has not been paid in accordance with the contractual date (considering any contractual grace periods).
  - Arrears subject to an agreed clearance framework or where a rescheduling agreement is sought are excluded.

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

### Ceiling on the present value (PV) of new external debt contracted or guaranteed by the Government
- Definition of debt: As per paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), adopted December 5, 2014). Debt includes:
  - Loans (advances of money; deposits, bonds, debentures, commercial loans, buyers’ credits; repurchase agreements; official swap arrangements).
  - Suppliers’ credits (deferred payments for goods or services).
  - Leases (debt equals the present value at inception of lease payments expected during the agreement, excluding operation/repair/maintenance payments).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- External debt defined as debt contracted or serviced in a currency other than the Rwandan Franc.
- Continuous ceiling applies to the PV of all new external debt (concessional or non-concessional) contracted or guaranteed by the central government, including commitments contracted or guaranteed for which no value has been received.
  - The ceiling for December 31, 2022, is cumulative from January 1, 2022.
  - The ceiling for June 30, 2023, is cumulative from January 1, 2023.
- Exemptions (this quantitative target does not apply to):
  - Normal import-related commercial debts having a maturity of less than one year.
  - Rescheduling agreements.
  - External borrowing solely to refinance existing public-sector external debt that helps improve the repayment profile.
  - IMF disbursements.
- Contracting date: A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda.
- Valuation and PV calculation:
  - Value in U.S. dollars of new external debt is calculated using the program exchange rates.
  - PV calculated by discounting all future debt service payments (principal and interest) based on a program discount rate of 5 percent and accounting for maturity, grace period, payment schedule, front-end fees and management fees.
  - PV calculation uses the IMF model for this type of calculation.
  - A debt is concessional if on the contracting date the ratio of its PV to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent).
  - For loans with zero or negative grant element, PV is set equal to face value.
- Variable-rate debt PV calculation:
  - Program reference rate for the six-month USD LIBOR is 3.34 percent and will remain fixed for the duration of the program.
  - Spreads relative to six-month USD LIBOR:
    - Six-month Euro LIBOR over six-month USD LIBOR: -150 basis points.
    - Six-month JPY LIBOR over six-month USD LIBOR: -350 basis points.
    - Six-month GBP LIBOR over six-month USD LIBOR: -250 basis points.
    - For currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -150 basis points.
  - If variable rate is linked to a benchmark other than six-month USD LIBOR, a spread reflecting the difference between that benchmark and six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
  - The program reference rate and spreads will remain fixed and will not be revised until every Fall edition of the World Economic Outlook (WEO).
  - TMU may be updated to reflect benchmark replacements (U.S. Secured Overnight Financing Rate (SOFR); U.K. Sterling Overnight Index Average (SONIA); EURIBOR; and Tokyo Overnight Average Rate (TONAR)) prior to complete LIBOR phase-out, once operationally feasible.
- Adjustor:
  - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies in case deviations from the quantitative target on the PV of new external debt are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees).
  - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed.
- Reporting requirement:
  - 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.

### Monetary Policy Consultation Clause (MPCC)
- Definition: MPCC headline inflation = year-on-year rate of change in the monthly Consumer Price Index (CPI), averaged for the past 12-months, as measured by National Institute of Statistics of Rwanda (NISR).
- Consultation triggers:
  - If observed headline inflation falls outside the ±3 percentage point range around the mid-point of the target band value for end-December 2022 and end-June 2023 as specified in Table 1a in the PS, the authorities will conduct discussions with the Fund staff.
  - If observed headline inflation falls outside the ±4 percentage point range around mid-point of the target band value for end-December 2022, and end-June 2023 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 data reporting requirements
- Reporting timeliness:
  - 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:
  - Transmitted quarterly.
  - Defined as the sum of recurrent expenditures, domestically financed capital expenditures, and policy lending identified as priority under Rwanda’s National Strategy for Transformation (NST-1).
  - Monitored through the Integrated Financial Management System (IFMS) at the program level at the end of each quarter.
- Domestic revenue:
  - Detailed data transmitted monthly.
  - Defined according to GFSM 2014 taxes and other revenues per the budgetary central government statement of operations table, but including local government taxes (business licenses, property tax, rental income tax) and local government fees; excluding receipts from Peace Keeping Operations.
- External borrowing reporting:
  - Data on contracting and guaranteeing new non-concessional external borrowing with non-residents transmitted on test dates.
  - Excludes external borrowing by Bank of Kigali and Rwanda Development Bank (RDB), assumed not to seek or be granted a government guarantee.
  - Includes private debt for which official guarantees have been extended (contingent liabilities), and future swaps involving foreign currency loans guaranteed by the public sector.
  - Excludes external borrowing solely for refinancing existing public-sector debt that improves public sector debt profile.
  - Excludes on-lending agreements between Government of Rwanda and public-sector enterprises.
- Policy-change notification:
  - Authorities will inform IMF staff in writing prior to making any changes in economic and financial policies that could affect program outcomes (e.g., customs and tax laws, wage policy, financial support to public and private enterprises).
  - Authorities will inform IMF staff of changes affecting continuous QTs and furnish a description of program performance for QTs and reform targets within 8 weeks of a test date.
  - Information to be submitted electronically to the Fund (email to the Resident Representative and the Mission Chief).

### Reporting table highlights (frequency codes)
- Frequency codes: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I).
- Examples of reporting frequencies:
  - Exchange Rates: D W D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: W W M
  - Reserve/Base Money: W W M
  - Broad Money: M M M
  - Central Bank Balance Sheet: W W M
  - Consolidated Balance Sheet of the Banking System: M M M
  - Interest Rates: M M M
  - Revenue, Expenditure, Balance and Composition of Financing — Budgetary Central Government: Q Q Q
  - Comprehensive list of domestic arrears of the government: SA SA SA
  - Planned external borrowing and the conditions: SA SA SA
  - Stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and NBR: SA SA SA

### Debt Sustainability Analysis (DSA) — summary findings and policy implications
- Risk ratings:
  - Risk of external debt distress: Moderate
  - Overall risk of debt distress: Moderate
  - Granularity in the risk rating: Sustainable
  - Application of judgment: Yes
- Key baseline and assumptions:
  - Baseline scenario based on macroeconomic projections in the accompanying Staff Report for a new PCI and RSF request, reflecting negative impact of spillovers from the war in Ukraine.
  - Rwanda’s financing strategy assumes continued support from bilateral and multilateral development partners over the medium term, with highly concessional loans for new external borrowing under IDA 20 and an increasing share of domestic financing in the long term.
  - DSA incorporates a 36-month Resilience and Sustainability Facility (RSF)-supported program with proposed access level of 150 percent of quota ( SDR 240.3 million).
- Judgment and vulnerabilities:
  - While debt indicators and standard stress tests mechanically classify debt sustainability risks as low, staff judgement maintains a moderate risk of debt distress due to:
    - Highly uncertain external environment (declining concessional financing risk, U.S. monetary policy tightening and U.S. dollar appreciation, terms-of-trade shocks).
    - Susceptibility to adverse market conditions and climate shocks.
- Policy recommendations:
  - Implement the ambitious fiscal consolidation strategy envisaged under the new PCI.
  - Use concessional external financing (including the RSF) in place of more expensive domestic financing to increase international reserve buffers.
  - Further strengthen debt management capacity to mitigate heightened uncertainty and risks, including climate-related risks.
- Additional DSA details:
  - The DSA was conducted using the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF) approved in 2017.
  - Fiscal year in Rwanda is July–June; this DSA is prepared on a calendar year basis.
  - Rwanda’s debt carrying capacity indicator score is 3.16 based on the October 2022 WEO and the World Bank’s 2021 CPIA data, implying a classification of strong debt carrying capacity (same as previous DSA).

*Source: 1rwaea2022003 - 5.      A floor applies to the net foreign assets (NFA) of the NBR for December 31, 2022, and*

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

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

### Debt levels and composition (2014–2021; end-2021 stocks)
- External PPG debt rose from 23.2 percent of GDP in 2014 to 54.5 percent in 2021.
- Increase in external PPG debt over last 7 years: 31.3 percentage points.
- PV of external PPG debt-to-GDP ratio at end-2021: 34.9 percent.
- Total PPG debt at end-2021: 73.3 percent of GDP.
- 2021 DSA projection for total PPG debt: 74.6 percent of GDP (actual slightly lower due to higher-than-expected GDP growth and lower fiscal deficit).
- External PPG debt composition dominated by multilateral lending on concessional terms.
- August 2021 Eurobond issuance: US$620 million at 5.5 percent yield, partly to buyback 85 percent of the 2013 Eurobonds maturing in 2023.
- Domestic interest rate range cited: 5.7 percent (28 days) to 12.9 percent (20 years).

### Main drivers of recent debt changes (decomposition and timing)
- Development borrowing to meet National Strategy for Transformation (NST) needs and long-planned public investment strategy, including three large PPP-related projects (Kigali Convention Center completed in 2016; expansion of RwandAir; construction of Bugesera airport), contributed to:
  - Increase in PPG external debt by 21.1 percentage points in the five years preceding the COVID-19 shock.
- COVID-19 related fiscal deterioration:
  - Fiscal deficit increase and crisis spending led to debt increase by an additional 12.1 percentage points in 2020.
  - Debt declined by 1.9 percentage points in 2021.
- Contingent liabilities shock included in tailored stress test: 6.1 percent of GDP (accounts for fiscal risks associated with PPPs and possible financial crisis incidence).

### Coverage of public debt in the DSA and data notes
- DSA coverage: central government, guarantees, and state-owned enterprises (SOEs).
- No debt from extra budgetary funds, long-term central bank financing of the government, nor state-owned social security fund.
- Local government debt not covered but existing stock is marginal (local government debt stood at RWF 3.9bn or 0.04 percent GDP at end-2021).
- External debt defined on a currency basis.
- Authorities report debt data in national currency; dollar-based calculations deviate due to end-of-period vs period-average exchange rate application.
- Nominal GDP (US$ million) entries in table: 10,944; 12,679; 14,709 (reported).

### Key creditor breakdown (end-2021 snapshot from Text Table 1)
- Total debt (end-2021): 7,944.8 (US$ mn) — 100.0 percent total debt.
- External debt (end-2021): 5,910.0 (US$ mn) — 74.4 percent of total.
- Multilateral creditors (end-2021): 4,331.6 (US$ mn) — 54.5 percent of total.
  - IMF: 364.3 (US$ mn) — 4.6 percent of total.
  - World Bank: 2,583.1 (US$ mn) — 32.5 percent of total.
  - ADB/AfDB/IADB: 1,045.0 (US$ mn) — 13.2 percent of total.
- Bilateral creditors (end-2021): 813.4 (US$ mn) — 10.2 percent of total.
  - Paris Club: 328.9 (US$ mn) — 4.1 percent of total.
  - Non-Paris Club (including EXIM-CHINA): 484.5 (US$ mn) — 6.1 percent of total.
- Bonds (end-2021): 680.6 (US$ mn) — 8.6 percent of total.
- Domestic debt (end-2021): 2,034.8 (US$ mn) — 25.6 percent of total.
  - T-Bills (end-2021): 420.7 (US$ mn).
  - Bonds (end-2021): 935.3 (US$ mn).
  - Loans (end-2021): 678.8 (US$ mn).

### Macroeconomic assumptions and projections underlying the baseline
- Growth projections revised vs previous DSA:
  - 2022 growth downgraded by 0.4 percentage points to 6.8 percent.
  - 2023 growth downgraded by 1.7 percentage points to 6.2 percent.
- Medium-term growth: expected to regain momentum in 2024 (construction of the new airport) and converge to 6.5 percent over the long term.
- Current account balance projection: current account deficit reaching 7.7 percent of GDP by 2027.
- Projections assume strong fiscal policy consolidation to accelerate debt convergence to anchor, with some relaxation afterwards.
- IDA20 financing terms: shift from 50-50 grant-loan (IDA19) to 100 percent loans (IDA20); IDA20 loans are more concessional and may marginally affect PV of external debt.
  - Note: 50-year loans under IDA20 have grant element of about 74 percent; 50-50 grant-loan under IDA19 had grant element of about 77 percent. A 3 percentage point difference example: if cumulative disbursements under IDA20 reach 3.2 percent GDP, the effect on PV of external debt would be increase by about 0.1 percent GDP.
- RSF (Resilience and Sustainability Facility) proposal: 36-month program with access level of 150 percent of quota (SDR240.3 million).
  - RSF loan maturity: 20-year maturity with 10 ½ year grace period; interest rate with modest margin over three-month SDR rate.

### Financing strategy and role of concessional financing
- Continued support from bilateral and multilateral development partners assumed over medium term (World Bank, IMF, African Development Bank, other multilateral and bilateral partners).
- Share of domestic financing projected to remain low until 2030 and pick up thereafter.
- Share of market-based external financing projected to increase starting 2030, slowly.
- Under IDA20, volume of loans projected to increase (shift to 100 percent loans), increasing fiscal deficit and nominal debt but with marginal impact on PV of debt due to higher concessionality.
- RSF support expected to:
  - Provide more concessional external financing in place of more expensive domestic financing.
  - Help catalyze concessional financing from other sources, improving public debt dynamics and international reserve buffers.
  - Reduce adverse impact of natural disasters and post-disaster fiscal costs, improving resilience to climate shocks.

### Fiscal consolidation realism, risks, and stress test outcomes
- Planned fiscal adjustment: 3-year fiscal consolidation in the primary balance expected to peak at 3.8 percentage points of GDP from 2024 to 2027.
  - This adjustment lies in the top quartile of past LIC adjustments, i.e., ambitious.
- Realism tools indicate the planned fiscal adjustment is ambitious given LIC historical experience.
- Past PPG debt dynamics affected strongly by materialized fiscal risks:
  - Higher-than-anticipated primary deficits due to pandemic response and unanticipated debt outside central government led to higher-than-expected debt accumulation of about 25 percentage points of GDP (well in excess of the 75 percent quartile of other LICs).
- DSA stress test results:
  - External debt solvency indicators (PV of external debt-to-GDP and external debt-to-export ratios) remain below indicative thresholds under the baseline and most extreme shocks (combined and export shocks).
  - Liquidity indicators show liquidity risks are remote under baseline and standard stress tests, aided by authorities’ debt management strategy to smooth debt servicing profile.
  - Debt service-to-exports and debt service-to-revenue ratios remain below thresholds until 2031 under baseline and all applied stress tests.
  - Noted risk: need for prudent debt management to mitigate repayment risks associated with the existing Eurobond in 2031.
- Debt-carrying capacity assessment:
  - Composite index (CI) for Rwanda: 3.16 (cut-off for strong capacity countries: 3.05) → assessed as “strong”.
  - CI score driven by high CPIA score and adequate reserve coverage.

### Policy implications and recommendations (as reflected in the DSA text)
- Strengthen management of fiscal risks, particularly to mitigate unanticipated fiscal developments outside the central government (key pillar of issued and proposed PCIs).
- Maintain prudent debt management strategy to smooth debt servicing profile and mitigate liquidity risks (notably to address the Eurobond repayment profile).
- Pursue domestic revenue mobilization and spending rationalization (spending prioritization and efficiency gains) alongside phased fiscal consolidation.
- Leverage concessional external financing (including RSF support) to reduce reliance on more expensive domestic financing and to catalyze additional concessional resources.
- Enhance climate-sensitive policies and integrated government strategy to reduce macroeconomic consequences of climate shocks and potential fiscal costs from natural disasters.

*International Monetary Fund — Rwanda: Debt Sustainability Analysis (selected excerpts)*

### 11. A customized alternative scenario illustrates risks to external debt sustainability stemming

### 11. A customized alternative scenario illustrates risks to external debt sustainability stemming

### Alternative scenario: combined external grant shortfalls and U.S. dollar appreciation
- Purpose: illustrate risks not fully captured in standard stress tests given current uncertain external environment for Rwanda.
- Key assumed shocks:
  - Only clearly identified grants from international organizations are assumed to materialize in 2023−26; grants from foreign governments and other grants are excluded.
  - The resulting gap is covered with external commercial borrowing, which assumes further increases in interest rate following the U.S. monetary policy tightening.
  - Additional Rwanda franc depreciation against the U.S. dollar to reverse the recent rapid real effective exchange rate appreciation (21.4 percent in January-August 2022).
- Drivers of risk noted: decline in availability of concessional financing; U.S. monetary policy tightening and associated tightening of external commercial borrowing terms and U.S. dollar appreciation; domestic monetary policy tightening and increasing domestic borrowing costs; terms-of-trade shocks (e.g., oil price increase); decline in tourism amid continued war in Ukraine.
- Outcomes:
  - PV of external debt reaches the threshold value of 55 percent GDP in 2025-2026 (with a small breach), before gradually reducing to the baseline trajectory.
  - Debt service-to-revenue ratio briefly exceeds the 23 percent threshold in 2028.

### Historical scenario and baseline implications
- Historical scenario: PV of external debt-to-GDP ratio increases steadily because the scenario assumes large external shock and imbalance reflecting averages of several large shocks and imbalances observed in the past.
  - Primary drivers: large current account deficit and negative USD GDP deflator calibrated using historical averages (period includes several large shocks—commodity prices and drought—and large external imbalances corrected over 2015–17).
- Policy implication: policy adjustment to ensure a steady narrowing of the current account deficit from its elevated 2019–21 levels (as envisaged under the baseline scenario) is key to strengthening robustness of debt dynamics.

### Public PPG debt outlook (baseline and shocks)
- Baseline projections:
  - PPG debt expected to reach the program debt anchor of 65 percent of GDP under the PCI by 2031, supported by large, growth-friendly fiscal consolidation and a strong rebound in economic activity.
  - Nominal PPG debt is projected to peak at 77.3 percent GDP in 2025 then gradually converge to the debt anchor of 65 percent GDP by 2031.
  - PV of PPG debt is projected to decline and achieve the East African Community debt convergence criterion of 50 percent by 2028.
  - Required adjustment: cumulative reduction in the primary fiscal deficit by 4.4 percentage points of GDP between 2021 and 2027.
- Under growth shock scenarios:
  - PV of PPG debt stays well below the indicative benchmark of 70 percent of GDP but remains close to the threshold under the growth shock scenario.
  - In the baseline, PV of PPG debt reaches 56.1 percent in 2024 and declines to below 50 percent in 2028.
  - Liquidity risks: muted in the baseline due to a smooth debt service path achieved by the Eurobond issuance; debt service costs would remain elevated under the severe growth shock.

### Climate change and natural disaster risks to debt dynamics
- Channels of vulnerability (World Bank’s 2022 CCDR): increased variability of crop yields; reduced labor productivity; affected tourism through changing rainfall patterns, extreme heat, increased illnesses; more frequent and damaging extreme flooding events. These impacts could reduce long-term growth and increase fiscal costs for infrastructure repair.
- Natural disaster stress test (once-in-100-years flooding scenario from the CCDR):
  - Flooding assumed to damage 11.2 percent of the physical capital and require about 18 percent of GDP of investments to fully replace the damage.
  - Associated increase of imports creates a balance-of-payments need estimated at 6 percent GDP (US$0.8 billion in 2022 prices).
  - In the year of flooding, GDP is expected to decline by 4.4 percent.
  - Financing assumption: given limited domestic savings, investment needs assumed to be covered with external financing.
  - Result: projected debt dynamics for external and total PPG debt indicate existing policy buffers (including proposed RSF financing) might need to be fully utilized; deployment of international reserves in addition to incurrence of liabilities might be needed as PV of external PPG debt-to-GDP ratio and PV of total PPG debt-to-GDP ratio approach their indicative thresholds.
  - Note: the scenario is considered separately from other stress tests given the calibrated low probability of the event; however, increased frequency of smaller disasters could cumulatively create comparable balance-of-payments needs and debt risks.

### Climate policy, financing needs, and implications for debt sustainability
- Rwanda’s revised Nationally Determined Contribution (NDC):
  - Estimated cost of new investments is US$11.0 billion, of which US$6.9 billion is conditional on new financing.
  - Equivalent to spending an average of 8.8 percent of GDP each year through 2030—exceeding recorded and projected annual inflows of either ODA or FDI between 2015 and 2030 and representing a large share of domestic revenue collection or public investment spending during the same period.
  - CCDR caveat: this commitment likely overstates true additional expense since some NDC projects are already underway or would replace other development projects in the pipeline.
- Debt sustainability judgement:
  - Risks associated with NDC objectives are assumed contained because authorities’ actions are contingent on availability of grant resources and private financing.
  - It remains unclear how much climate-related spending is already being implemented and how much additional financing is required.
  - Authorities are not expected to take climate-related actions beyond what is already included in the baseline projections that would jeopardize PPG debt sustainability.
  - Financing mix needed: ODA, FDI, taxation, internal and external borrowing, and government spending reallocations.
  - RSF reforms aim to quantify fiscal climate measures and catalyze other financial sources through PFM reform.

### Assessment and policy monitoring
- Overall assessment: Rwanda’s debt is assessed to be sustainable with a moderate risk of external and overall public debt distress (with judgement applied to the mechanical risk ratings).
  - Mechanical external and overall ratings suggest low risk of debt distress since debt indicators remain below thresholds under baseline and extreme standard shock scenarios.
  - Because standard shocks do not fully capture current external risks, judgement was applied (as illustrated in the customized alternative scenario) to classify the risk of external and overall public debt distress as moderate.
- Implication for borrowing: given the moderate risk of debt distress assessment, the limit on the stock of new external PPG debt will continue to be monitored under the new PCI.
- Caveat: as external conditions evolve (war in Ukraine, commodity prices, foreign inflation and growth), the debt risk assessment might change. The baseline assumes Rwanda gradually reverts to its growth trend and concessional financing declines only gradually in the long term.

_Source: IMF staff analysis in the DSA chapter provided in the Rwanda country report._

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

### 1rwaea2022003 - 21. The authorities broadly agree with the results of the DSA and the overall assessment of a

### Authorities' assessment and debt-management strategy
- Authorities broadly agree with DSA results and the assessment of a moderate risk of external and overall debt distress.
- Debt management strategy:
  - Continue to maximize external concessional funding to avoid pressures on the debt repayment profile.
  - Implement prudent spending and revenue measures agreed under the PCI to bring the debt level to the anchor of 65 percent debt-to-GDP.
  - Build buffers to absorb shocks and reduce solvency risks.
  - Recognize potential fiscal risks stemming from PPAs and WPAs and strengthen capacity to manage such risks.
  - Current liability management strategy: convert short term external debt into long term domestic debt to shield the portfolio from refinancing risk stemming from external shocks.

### External Debt Sustainability — baseline indicators and projections (selected)
- External debt (nominal): 75.7 (2021); 72.5 (2022); 75.1 (2023); 79.0 (2024); 81.0 (2025); 80.4 (2026); 79.8 (2027); 84.7 (2032); 79.0 (2042).
- PPG external debt (of external debt): 54.5 (2021); 53.0 (2022); 55.9 (2023); 60.8 (2024); 63.1 (2025); 62.5 (2026); 62.1 (2027); 53.9 (2032); 48.3 (2042).
- Change in external debt: -2.1 (2021); -3.1 (2022); 2.6 (2023); 3.9 (2024); 2.0 (2025); -0.6 (2026); -0.5 (2027); 0.5 (2032); -1.8 (2042).
- Identified net debt-creating flows: 2.8 (2021); 3.1 (2022); 3.8 (2023); 2.4 (2024); 1.5 (2025); 0.6 (2026); 0.2 (2027); 1.0 (2032); -0.9 (2042).
- Non-interest current account deficit: 10.0 (2021); 9.5 (2022); 11.0 (2023); 9.7 (2024); 9.1 (2025); 6.6 (2026); 5.7 (2027); 7.9 (2032); 5.5 (2042).
- Exports: 19.1 (2021); 24.1 (2022); 25.0 (2023); 25.9 (2024); 26.6 (2025); 26.7 (2026); 27.0 (2027); 24.7 (2032); 26.0 (2042).
- Imports: 34.8 (2021); 40.0 (2022); 41.1 (2023); 41.4 (2024); 41.2 (2025); 38.5 (2026); 38.0 (2027); 35.3 (2032); 32.7 (2042).
- PV of PPG external debt-to-GDP ratio: 34.9 (2021); 33.6 (2022); 35.8 (2023); 38.9 (2024); 40.4 (2025); 39.9 (2026); 39.5 (2027); 35.2 (2032); 23.4 (2042).
- PV of PPG external debt-to-exports ratio: 183.3 (2021); 139.3 (2022); 143.1 (2023); 150.1 (2024); 152.1 (2025); 149.4 (2026); 146.3 (2027); 142.7 (2032); 89.7 (2042).
- PPG debt service-to-exports ratio: 34.2 (2021); 6.8 (2022); 8.6 (2023); 7.3 (2024); 8.6 (2025); 10.8 (2026); 11.1 (2027); 9.2 (2032); 8.4 (2042).
- Gross external financing need (Billion of U.S. dollars): 1.8 (2021); 1.3 (2022); 1.5 (2023); 1.5 (2024); 1.6 (2025); 1.5 (2026); 1.5 (2027); 3.1 (2032); 7.8 (2042).

### Key macroeconomic assumptions (external DSA)
- Real GDP growth (in percent): 10.9 (2021); 6.8 (2022); 6.2 (2023); 7.5 (2024); 7.5 (2025); 6.8 (2026); 6.2 (2027); 7.1 (2032); 6.5 (2042); 4.7 (2042 is listed as 7.0 elsewhere — preserve presented sequence: …8.6? Source lists: "6.5 4.7 7.0" — retain first sequence).
- GDP deflator in US dollar terms (change in percent): -2.0 (2021); 6.9 (2022); 1.3 (2023); -1.3 (2024); -0.9 (2025); 0.2 (2026); 1.0 (2027); 2.0 (2032); 2.0 (2042); -1.3 (later column); 1.5 (final column).
- Effective interest rate (percent): 1.3 (2021); 1.6 (2022); 2.0 (2023); 2.7 (2024); 2.6 (2025); 2.6 (2026); 2.6 (2027); 3.1 (2032); 4.2 (2042); 3.0; 2.6 (additional columns).
- Growth of exports of G&S (US$ terms, in percent): 9.4 (2021); 44.4 (2022); 11.6 (2023); 9.8 (2024); 9.2 (2025); 7.5 (2026); 8.5 (2027); 8.6 (2032); 10.1 (2042); 8.8; 11.6 (additional).
- Grant element of new public sector borrowing (in percent): 47.9 (2022); 30.6 (2023); 41.9 (2024); 41.7 (2025); 48.4 (2026); 41.8 (2027); 37.5 (2032); 32.8 (2032 columns); 39.4 (other).
- Government revenues (excluding grants, percent of GDP): 19.1 (2021); 18.8 (2022); 18.5 (2023); 18.8 (2024); 19.7 (2025); 20.1 (2026); 20.5 (2027); 22.0 (2032); 24.7 (2042); 13.8; 20.3 (additional cells).
- Aid flows (Billion of US$): 0.6 (2021); 1.3 (2022); 1.0 (2023); 1.3 (2024); 1.2 (2025); 1.3 (2026); 1.2 (2027); 1.2 (2032); 1.7 (2042).
- Grant-equivalent financing (percent of GDP): 9.1 (2022); 7.1 (2023); 8.8 (2024); 7.0 (2025); 6.8 (2026); 6.4 (2027); 3.7 (2032); 2.3 (2042); 6.1 (other).

### Public Sector Debt — baseline indicators and projections (selected)
- Public sector debt: 73.3 (2021); 71.3 (2022); 73.9 (2023); 76.8 (2024); 77.3 (2025); 75.7 (2026); 73.9 (2027); 64.1 (2032); 63.4 (2042); 46.1; 71.2 (additional).
- Change in public sector debt: 0.9 (2021); -2.0 (2022); 2.6 (2023); 2.9 (2024); 0.5 (2025); -1.6 (2026); -1.8 (2027); -0.6 (2032); 1.4 (2042).
- Identified debt-creating flows: 1.0 (2021); -1.7 (2022); 2.3 (2023); 2.4 (2024); 0.0 (2025); -2.0 (2026); -1.9 (2027); -0.6 (2032); 1.4 (2042); 1.5; -0.9 (additional).
- Primary deficit: 6.0 (2021); 5.9 (2022); 5.2 (2023); 5.4 (2024); 3.3 (2025); 1.8 (2026); 1.6 (2027); 3.4 (2032); 3.8 (2042); 2.6; 3.2 (additional).
- Revenue and grants: 24.6 (2021); 25.1 (2022); 23.3 (2023); 23.7 (2024); 23.7 (2025); 24.0 (2026); 24.4 (2027); 24.2 (2032); 26.0 (2042); 19.7; 24.0 (additional).
- PV of public debt-to-GDP ratio: 54.4 (2021); 52.7 (2022); 55.0 (2023); 56.1 (2024); 55.8 (2025); 53.9 (2026); 52.2 (2027); 46.1 (2032); 52.8 (2042).
- PV of public debt-to-revenue and grants ratio: 221.7 (2021); 209.6 (2022); 236.6 (2023); 236.6 (2024); 235.5 (2025); 224.3 (2026); 213.1 (2027); 190.6 (2032); 203.2 (2042).
- Gross financing need: 20.7 (2021); 14.3 (2022); 14.9 (2023); 15.6 (2024); 12.7 (2025); 11.4 (2026); 11.0 (2027); 10.5 (2032); 16.4 (2042).

### Stress tests, sensitivity analysis, and risks
- Stress tests presented include commodity price, natural disaster (once-in-100-years flooding), market financing, one-time nominal depreciation, and combinations.
- Natural disaster (flooding) scenario assumptions:
  - Flooding assumed to damage 11.2 percent of physical capital.
  - Would require 17.9 percent of GDP external financing to be replaced (with capital-to-GDP estimation at 1.6 based on the perpetual inventory method).
  - GDP expected to decline by 4.4 percent, with similar exports dynamics.
- Figure and table results highlight vulnerabilities under shocks:
  - Table 3 baseline PV of debt-to-GDP ratio: 33.6 (2022); 35.8 (2023); 38.9 (2024); 40.4 (2025); 39.9 (2026); 39.5 (2027); 39.2 (2028); 37.9 (2029); 37.0 (2030); 36.2 (2031); 35.2 (2032).
  - Bound tests and tailored tests show higher PV ratios and debt-service indicators under adverse scenarios (specific scenario values are reported in Table 3 and Table 4).
- Market-financing risk indicators:
  - Breach of benchmark: Yes.
  - GFN benchmark: 14; EMBI benchmark: 570.
  - Values: GFN/EMBI values listed as 16596 in figure notes (table context retained as presented).
  - Potential heightened liquidity needs: High.

### Creditor profile and public debt decomposition (selected)
- Total public debt (US$ mn): 7,945 (2021); 8,791 (2022); 9,710 (2023); projected path to 39,753 (2042).
- External debt (US$ mn): 5,910 (2021); 6,537 (2022); 7,340 (2023); projected 21,552 (2042).
- Multilateral creditors (US$ mn): 4,332 (2021); 4,913 (2022); 5,372 (2023); projected 15,837 (2042).
- IMF holdings (US$ mn): 356 (2021); 305 (2022); 387 (2023); 259 … 124 … 92 … 59 … (series provided in table).
- World Bank holdings (US$ mn): 2,583 (2021); 3,059 (2022); 3,249 (2023); projected 10,659 (2042).
- AfDB holdings (US$ mn): 1,045 (2021); 1,111 (2022); 1,204 (2023); projected 2,757 (2042).
- Bilateral creditors (US$ mn): 813 (2021); 878 (2022); 989 (2023); projected 2,777 (2042).
- Private creditors (US$ mn): 765 (2021); 747 (2022); 979 (2023); projected 2,937 (2042).
- Domestic debt (US$ mn): 2,035 (2021); 2,253 (2022); 2,370 (2023); projected 18,201 (2042).

### Key policy implications highlighted
- Continue prioritizing concessional external financing to preserve repayment profile and reduce refinancing pressures.
- Implement and sustain prudent spending and revenue measures under the PCI to reach 65 percent debt-to-GDP anchor and build buffers.
- Strengthen capacity to manage fiscal risks from PPAs and WPAs.
- Use liability management (convert short-term external to long-term domestic) to reduce exposure to external refinancing risk.
- Monitor stress-test outcomes, market-financing risks, and the composition of creditors to manage liquidity and solvency vulnerabilities.

*Sources: Country authorities; and staff estimates and projections. (Content drawn exclusively from the provided chapter/section.)*

### 1.      Rwanda is vulnerable to increasingly frequent climate-induced natural disasters

### 1.      Rwanda is vulnerable to increasingly frequent climate-induced natural disasters

### Climate vulnerability and impacts
- ND-GAIN Index ranks Rwanda as 124th out of an 182 countries with respect to vulnerability and readiness.
- Climate-sensitive sectors (nature-based tourism, rainfed agriculture, extractives, other weather-sensitive industries) in 2021 accounted for an estimated:
  - 65 percent of employment
  - 45 percent of GDP
  - 40 percent of exports
- Rwanda Country Climate and Development Report (CCDR, 2022) estimates:
  - Annual GDP during 2022–50 could be between 0.6 and 2.6 percent lower on average than in a baseline with no climate change, depending on the climate scenario.
  - Annual deviations could be 5.0–7.0 percent lower than the baseline in some years.
- Droughts historically affected as much as 12 percent of the population (1996 drought, EM-DAT).
- The 2018 floods caused damage to physical assets valued at Rwandan franc (RWF) 201 billion and economic losses of RWF 21 billion (2.4 percent and 0.3 percent of GDP, respectively).
- Nearly 52 percent of the Rwandan population lives below the international poverty line, limiting capacity to manage climate risks and health risks associated with climate change.

### Greenhouse gas emissions profile
- Rwanda contributed 0.003 percent to global greenhouse gas emissions and emitted 5.34 MtCO2e in 2015.
- Per capita emissions: about 0.5 tCO2e.
- Emissions intensity: around 0.6 tCO2e per 1000 2015 US$ GDP.
- Emissions by source:
  - Livestock, agriculture, and land use together account for 74 percent of total emissions.
  - Energy accounts for 18 percent.
  - Waste sector accounts for 8 percent.
  - Industrial processes and product use (IPPU) accounts for 1 percent.

### Government policies and adaptation priorities
- Rwanda integrates climate change efforts with development goals due to a growing rural population, high incidence of poverty, lack of universal access to basic services, and limited private sector engagement.
- Food security is below the average for low-income countries and is threatened by climate change.
- Vision 2050 and National Transformation Strategy 2017–24 mainstream sustainability and resilience into productive sectors and government planning.
- Rwanda’s 2020 updated NDC:
  - Presents interventions in detail including responsible government institutions, timeframes, and estimated costs.
  - Includes 24 priority adaptation interventions in water, agriculture, land and forestry, human settlements, health, transport, and mining.
  - Agriculture interventions include sustainable land-use management, climate-resilient crops, resilient livestock, and value addition facilities and technologies.
  - Other interventions target forest management, afforestation, reforestation, wetland restoration, water storage, increased efficiency of water use, and conservation practices.
- Ministry of Environment leads climate strategy and policy at central government level; local governments apply environmental laws and regulations.
- Rwanda’s National Fund for Environment (FONERWA) and the Development Bank of Rwanda mobilized funding, including the Rwanda Green Investment Facility which recently mobilized US$104 million to support private sector climate-friendly development.

### Mitigation commitments and priorities
- Rwanda’s 2020 NDC estimates total emissions reduction potential around 4.6 MtCO2e in 2030, or a 38 percent reduction against projected BAU emissions of 12.1 MtCO2e in 2030.
  - This includes an unconditional target of 1.9 MtCO2e plus an additional conditional reduction of 2.7 MtCO2e.
- Sectoral mitigation priorities:
  - Agriculture and land use: investments in soil conservation, composting, and animal husbandry estimated to provide almost half of the reduction (2.2 MtCO2e).
  - Energy: aim to achieve 1.5 MtCO2e reduction through increased hydropower, efficient cook stoves, motor vehicle standards, and solar power in irrigation and mini grids.
  - Protection of forests to remove and store carbon, offsetting Rwanda’s GHG emissions.

### Financing, public investment management, and green finance
- Estimated cost of NDC actions: approximately US$11.0 billion:
  - US$4.16 billion unconditional (52 percent for adaptation and 48 percent for mitigation)
  - US$6.89 billion conditional (47 percent for adaptation and the rest for mitigation)
- Challenges and approaches:
  - Need for additional fiscal space via increased spending efficiencies and spreading investments over a longer timeframe.
  - Need for greater private sector participation (e.g., public-private partnerships, joint management of protected areas).
  - Public investment management refinements recommended:
    - Systematically assess fiscal risks from climate change.
    - Mainstream appraisal of projects’ climate change and natural disaster vulnerabilities into public investment management.
    - Introduce climate change-related rules into public procurement regulations.
  - Develop a green finance market as part of capital market development:
    - Actions by financial regulators and supervisors to implement environmental, social, and governance standards.
    - Develop a pipeline of bankable and monitorable green projects.
    - Introduce new financial products and technical knowledge (e.g., crop and livestock insurance for smallholders).

### World Bank engagement
- Active operations contributing to climate resilience:
  - Second Rwanda Urban Development Project (P165017) includes flood management.
  - Energy Access and Quality Improvement Project (P172594).
  - Commercialization and De-Risking for Agricultural Transformation Project (P171462).
- Operations under preparation:
  - Rwanda Urban Mobility Project (P176885) to boost climate resilience in transport.
  - Volcanoes Community Resilience Project (P178161) to reduce flood risks and improve land management through protected area expansion and landscape management.
  - Planned Development Policy Financing series expected to support policy reforms boosting climate resilience and the low-carbon transition.
- Analysis and technical assistance:
  - CCDR provides policy- and investment-related recommendations.
  - World Bank supported establishment of the Rwanda Green Investment Facility and continues to support mobilization of climate and nature-based financing, with a focus on private sector financing.
  - Technical assistance on climate finance under the Green Growth and Climate Resilient Development Project (P169151).

### Macroeconomic context and near-term outlook (selected figures)
- Real GDP growth:
  - 10.9 percent in 2021.
  - Growth in the first half of 2022 estimated at 7.7 percent.
  - Projected at 6.8 percent in 2022 and should remain around this level over the medium term.
- Inflation:
  - Headline inflation rose from 5.8 percent in February to 20.1 percent in October (y-o-y) in 2022.
  - Food inflation reached 39.7 percent in October (y-o-y).
  - Core inflation was 14.4 percent in October (y-o-y).
  - Monetary Policy Committee raised policy interest rate by 200 basis points cumulatively starting in February 2022 to reach 6.5 percent in November and reinstated the reserve requirement ratio to 5 percent.
- External sector and reserves:
  - Goods and services export receipts increased by 47.1 percent in the first half of 2022.
  - Imports rose by 33.6 percent.
  - Current account deficit improved by 6.7 percent thanks to increased remittances and official transfers.
  - Gross international reserves covered 4.8 months of prospective imports as of end-June 2022.
- Fiscal:
  - Fiscal deficit in FY21/22 turned lower than anticipated due notably to lower externally funded capital expenditure induced by a drop in external financing.
  - Tax revenue performed as expected, aided by administrative measures (electronic billing machine enforcement, tax information number enforcement).
  - 70 percent of the 2021 SDR allocation was used in spending in priority areas.

*Source: 1rwaea2022003 - 1.      Rwanda is vulnerable to increasingly frequent climate-induced natural disasters (IMF PDF chapter).*

### 12.6 percent. The 12-month headline inflation average is expected to be above NBR’s

### 1rwaea2022003 - 12.6 percent. The 12-month headline inflation average is expected to be above NBR’s

### Outlook and risks
- 12.6 percent. The 12-month headline inflation average is expected to be above NBR’s tolerance benchmark band in 2023.
- The current account deficit will deteriorate in 2023 and improve thereafter mainly reflecting lower export commodity prices and savings from the planned fiscal consolidation and bold structural reforms.
- Key uncertainties and downside risks:
  - Pandemic scars.
  - Headwinds from the war in Ukraine with effects through fertilizers, food, and energy prices.
  - Tightening global financial conditions.
  - Climate-related shocks and their impact on the agriculture sector.

### Fiscal policy, reforms, and debt sustainability
- Authorities committed to fiscal consolidation while facing pressures for additional spending notably on subsidies.
- Expenditure strategy:
  - Phase-out COVID-19 and other spending.
  - Ensure that expenditure declines by 1.8 percent of GDP in FY22/23.
  - Rationalize expenditure by prioritizing social and investment spending.
- Revenue strategy:
  - Continue tax policy changes and administrative measures responsible for sustained revenue collections.
  - Continue the approved medium-term revenue strategy to underpin fiscal consolidation.
- Debt management and sustainability:
  - Boost debt management capacity by enhancing fiscal risk monitoring, strengthening debt reporting, developing domestic bond markets, and improving the quality of investment.
  - Rwanda’s debt remains sustainable, with a moderate risk of external and overall public debt distress.

### Monetary and financial sector policies
- Monetary policy objective: contain inflationary pressures and limit second-round effects.
- Recent policy actions:
  - Since the beginning of the year, the MPC raised its policy interest rate three times by a cumulative 200 basis points.
  - Decided to increase the reserve requirement ratio to the pre-Covid level of 5 percent to limit excess liquidity.
- Outlook:
  - The monetary policy tightening stance adopted this year, together with other Government measures, are expected to bring back inflation within the band by the end of 2023.
- Financial sector stance:
  - The financial sector remains stable and resilient though exposed to prolonged pandemic and geopolitical uncertainties.
  - Banking sector is well capitalized and liquidity buffers well above minimum regulatory requirements; profits have increased.
  - Authorities will continue strong supervision: monitor credit risks, pursue prudent loan classification and provisioning, exchange financial information in tax matters and AML/CFT, and improve compliance with FATF standards.

### Structural reforms and human capital
- Reform priorities:
  - Mitigate pandemic scars to reduce long-term individual earnings losses and aggregate productivity damage.
  - Promote gender equity and foster female labor force participation.
  - Deepen financial markets, sustain expansion of digital payments, and increase financial inclusion to mobilize resources from domestic savings.
  - Monitor and enhance social protection programs, including improved coverage of vulnerable populations in urban areas.
  - Sustain human capital investments by expanding access to education (starting with pre-primary education and quality education for women), strengthen health services and insurance, and increase training of health professionals.
- Private sector and investment climate:
  - Boost private investment and support private sector development to sustain productivity growth and quality employment.
  - Reduce costs of finance, energy, and transport.
  - Improve selection and prioritization of public investments to achieve greater value-for-money and leverage private sector involvement.
  - Leverage regional integration (East African Community (EAC) and African Continental Free Trade Area (AfCFTA)) to gain market access and expand growth sources.

### Building resilience to climate change and request for an RSF arrangement
- Climate vulnerability and rationale for RSF:
  - Rwanda is vulnerable to climate change though its economic activities have been less carbon-intensive than many other countries.
  - Example noted: the landslide experienced by Rwanda in 2016 was the fourth largest in the world recorded during 2010–21 as measured by the share of population affected.
  - Prospective climate-related balance-of-payment needs from multiplied and stronger natural disasters warrant RSF support to enhance external buffers and strengthen public debt dynamics.
  - RSF arrangement expected to catalyze more resources from development partners.
- Pillars of an RSF-supported climate agenda (five areas of reform):
  - (i) Strengthening and institutionalizing monitoring and reporting of climate-related spending.
  - (ii) Integrating climate risks into fiscal planning.
  - (iii) Improving the sensitivity of public investment management to climate-related issues.
  - (iv) Strengthening climate risk management for financial institutions.
  - (v) Strengthening the disaster risk reduction and management strategy and operations.
- Complementary support:
  - Fund’s capacity development (CD) assistance based on the recent Climate Public Investment Management Assessment (C-PIMA).
  - Climate-related investments in agriculture, energy, and infrastructure simulated in the World Bank’s Country Climate and Development Report (CCDR) to help accelerate structural transformation.

### Other climate financing initiatives
- Private sector and blended finance:
  - Authorities endeavor to ensure private sector access to green financing to complement public policies.
- Ireme Invest:
  - Launched at Cop27.
  - Initial capitalization of $104 million from the Rwanda Green Fund and Rwanda Development Bank (BRD) with support from several development partners, notably France, Sweden, United Kingdom, and European Investment Bank.
  - Will establish:
    - Project Preparation Facility as a provider of grants.
    - Credit Facility offering concessional loans and credit guarantees to help SMEs contribute to the transformative agenda through green projects.

### Conclusion and requests
- Authorities remain committed to preserving macroeconomic and external stability and achieving robust, green, and inclusive growth.
- They will pursue these objectives through implementation of a new program and request Fund assistance under the PCI.
- They also request Fund support for their ambitious and well-designed climate strategy and an RSF arrangement.
- Considering their solid track record of program implementation and the strength of their policy and reform agenda, the authorities seek Executive Directors’ support of their requests for a new PCI and an RSF arrangement.

*Source: 1rwaea2022003 - 12.6 percent. The 12-month headline inflation average is expected to be above NBR’s*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1rwaea2022003.pdf_