## 1rwaea2023001 - EXECUTIVE SUMMARY

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### Recent developments
- Growth and sectoral performance
  - Rwanda’s growth was 8.2 percent in 2022.
  - Strong output in manufacturing and services offset weaker agricultural production and a contraction in construction activity.
  - Unemployment increased to 24.3 percent in Q4 2022 from 18.1 percent in the previous quarter; female unemployment was 28.3 percent in Q4 2022.
- Inflation and monetary policy
  - Headline inflation stood at 19.3 percent in March, moderating from a peak of 21.7 percent in November 2022.
  - Food inflation has been over 40 percent since October 2022.
  - Core inflation was 12.2 percent in March.
  - The NBR Monetary Policy Committee raised the policy interest rate by 50 basis points to 7.0 percent in February 2023; cumulative tightening of 250 basis points since February 2022.
  - NBR increased the reserve requirement ratio by 100 basis points from 4.0 to 5.0 percent effective January 2023.
- External sector and reserves
  - Gross international reserves declined from 4.9 months of prospective imports in 2021 to 4.2 months at end-December 2022.
  - The trade deficit increased by US$332 million in 2022; relative to GDP the trade deficit remained stable at 15 percent due to nominal GDP growth.
  - The real effective exchange rate appreciated by 8.3 percent in 2022.
  - The Rwanda franc depreciated against the US$ by 6.1 percent in 2022.
  - Rapid tourism recovery improved the balance of services; FDI inflows increased while net inflow of other private investments dried up.
- Fiscal and financing developments
  - The fiscal deficit in H1 FY22/23 was lower than anticipated, driven by lower expenditures more than offsetting lower revenues.
  - Nominal tax revenues did not increase commensurately with higher nominal GDP due to exemptions and the taxable base excluding high-inflation agriculture and food products.
  - Grants were lower than expected due to disbursement delays; delays in external loan disbursements led to significantly higher domestic financing.
- Financial sector
  - Banking sector assets: grew to RWF 8,909 billion as at end-December 2022; banking sector share 67 percent of financial sector.
  - Capital adequacy: banks 21.7 percent; MFIs 34.5 percent (minimum regulatory requirement 15 percent).
  - Liquidity coverage: banks 215.9 percent (minimum prudential requirement 100 percent); MFIs liquidity ratio 90.9 percent (minimum prudential requirement 30 percent).
  - Nonperforming loans for banks fell from 4.6 percent at end-2021 to 3.1 percent at end-2022; microfinance institutions’ NPLs fell from 4.8 percent to 3.5 percent.
  - Credit to the private sector grew by 13.6 percent in 2022; exposure to mortgage and household lending accounted for 37 percent of new lending.

### Outlook and risks
- Growth and inflation projections
  - Growth projected to moderate to 6.2 percent in 2023 and improve to 6.7 percent in 2024.
  - Average headline inflation projected at 14.5 percent in 2023, exceeding the NBR’s benchmark level (5 percent).
  - Headline inflation projected to decline to 5 percent in 2024; alternative projection in Program Statement: decline to 7.8 percent by end-2023 and maintained within the NBR band in 2024 under a no-shock scenario.
- External and fiscal outlook
  - Current account deficit expected to widen to 11.3 percent of GDP in 2023; excluding Bugesera airport, CAD projected at 9.3 percent of GDP in 2023.
  - Gross official reserves projected to fall to just above adequate levels in 2023 and reach 5 months of imports over the medium term.
  - Fiscal deficit for FY22/23 expected at 7.3 percent of GDP (0.8 percentage points lower than at PCI approval); FY23/24 deficit expected to tighten to 6.5 percent of GDP.
  - Debt anchor of 65 percent of GDP expected to be reached in FY29/30.
- Key downside risks (selected)
  - Deepening geopolitical fragmentation and volatility in global energy and fertilizer prices.
  - Steeper-than-projected decline in trading partners’ growth.
  - Funding squeeze and declining concessional financing affecting disbursements.
  - Climate vulnerability owing to dominantly rain-fed agriculture and frequent climate-related shocks.
  - Regional conflict spillovers affecting trade and external demand.
- Disaster shock (May 2–3, 2023 floods)
  - Immediate human impacts: reported 130–131 deaths; 5,174–5,963 houses destroyed or damaged; 2,510 houses needing evacuation (selected counts reported across sections).
  - Authorities’ emergency response plan estimate: RFW 301 billion (1.8 percent of FY23/24 GDP).
  - Staff short-term fiscal cost estimate for FY22/23: RFW 30-75 billion (0.2-0.5 percent of GDP).
  - Additional import demand during reconstruction estimated at about USD 50 million.

### Policy recommendations and near-term priorities
- Macroeconomic stabilization and policy space
  - Reduce inflationary pressures through more decisive monetary tightening; staff urges stronger tightening relative to NBR’s May 10 decision to maintain policy rate at 7 percent.
  - Support monetary tightening with fiscal adjustment to reduce debt vulnerabilities and rebuild external buffers.
  - Allow greater exchange rate flexibility to act as shock absorber; plan diagnostic assessment of FX market by end-November 2023.
- Fiscal measures and public finance
  - Step up domestic revenue mobilization (MTRS) and limit further tax exemptions and leakages.
    - MTRS approved May 2022 expected to permanently yield 1 percent of GDP.
    - Staff assesses a 1.2 percent of GDP revenue gap over the medium term.
  - Implement spending rationalization measures focused on efficiency, PFM reforms, and prioritization of capital spending.
    - Expenditure anticipated to decline by 3.4 percent of GDP in FY22/23 and a further 1.8 percent of GDP in FY23/24.
  - Advance debt sustainability by reducing the debt-creating overall deficit and managing external debt risks; prioritize concessional financing.
- Climate, resilience, and RSF priorities
  - Integrate climate-related considerations into macroeconomic policy formulation and public investment management.
  - Mobilize climate financing to help achieve Rwanda’s NDC commitments and scale up facilities: Ireme Invest and INTEGO.
  - Implement green budgeting and climate budget tagging; guidelines to be prepared by end-2023.
- Institutional readiness and governance
  - Strengthen fiscal transparency, publish quarterly GFS 2014 reports for whole general government within 60 days of quarter end.
  - MININVEST to conduct SOE health checks and stress tests; proposed RT: at least two stress tests by end-November 2023.
  - Continue AML/CFT reforms and beneficial ownership reporting; electronic BO reporting portal launched March 2023.

### Program implementation and IMF engagement
- Program design and access
  - A 3-year Policy Coordination Instrument (PCI) and an arrangement under the Resilience and Sustainability Facility (RSF) with access of 150 percent of quota ($320 million) approved December 2022.
- Performance to 1st review
  - All end-December 2022 quantitative targets and standard continuous targets met.
  - All four PCI reform targets for the 1st review were met (though Cabinet-approved CIT did not include key elements and necessitated a new RT).
  - All three RSF reform measures for the first review were implemented on time; an additional RM on PIM was completed ahead of schedule.
  - Staff supports completion of the 1st reviews of the PCI and RSF and supports authorities’ requested modifications to some end-June 2023 QTs and MPCC averaging period.
- Conditionality and monitoring changes
  - MPCC midpoint for end-June remains 11.0 percent; end-December target set to 6.0 percent; averaging period for headline inflation reduced from 12- to 3-months for program monitoring.
  - QTs on net foreign assets redefined to explicitly exclude RSF disbursements.
  - Authorities proposed three new reform targets under the PCI (revenue package by end-September 2023; SOE stress tests by end-November 2023; GMRA rollout commitment by end-December 2024).
- Disbursement recommendation
  - Staff supports a disbursement totaling SDR 74mn (46.2 percent of quota) on account of meeting RSF reform measures RM1, RM2, RM3, and RM5.

### RSF-supported climate and green finance reforms (implementation highlights)
- RM1: Quantitative climate risk assessments incorporated into the Fiscal Risk Statement and submitted to the Fiscal Risk Committee in April 2023; quantitative findings indicate GDP could be up to 5 percent lower by 2100 with debt ratio rising to 104 percent under scenarios.
- RM2/RM5: National Investment Policy updated April 2023 to integrate climate agenda; guidelines for appraisal and selection criteria reflecting PIMA/C-PIMA published April 27, 2023.
- RM3: New National Disaster Risk Reduction and Management Policy adopted May 8, 2023; four pillars: risk knowledge, risk governance, community-based DRRM, and risk financing.
- RM4/RM6/RM9/RM11: Progress toward climate budget tagging system; MINECOFIN and Ministry of Environment preparing implementation guidelines by end-2023.
- RM8/RM12: NBR preparing diagnostic review for climate-related risk management for financial institutions, expected finalization by end-June 2023.
- Green finance instruments and facilities
  - Ireme Invest scaling up via blending non-concessional and concessional resources; terms to be finalized by mid-2023.
  - Launched Green Public Investment Facility “Intego” in February 2023.
  - KIFC Sustainable Finance Roadmap and activities to end-2025 to deepen markets for sustainable financial products.

### Fiscal consolidation strategy and DRM details
- MTRS and tax policy
  - MTRS approved May 2022 expected to yield 1 percent of GDP permanently.
  - Cabinet decisions reduced expected yields: excise law broadly revenue neutral; CIT draft submitted but Cabinet-approved version reduced anticipated revenue gains (0.1 percent of GDP loss as assessed by staff); VAT law approved with estimated losses of 0.1 percent of GDP relative to earlier expectations.
  - Revenue leakages from reduced diesel excises and extension of MBRP noted; authorities ended implicit fuel subsidy on April 5, 2023 and committed not to extend MBRP beyond end-December 2024.
  - RRA increased VAT withholding from 12 percent to 15 percent of gross collections.
- Quantified fiscal indicators (selected time-series excerpts)
  - Growth: 8.2 percent in 2022.
  - Unemployment: 24.3 percent in Q4 2022; previous quarter 18.1 percent.
  - Female unemployment: 28.3 percent in Q4 2022.
  - Headline inflation: 19.3 percent in March; peak 21.7 percent in November 2022.
  - Food inflation: over 40 percent since October 2022.
  - Core inflation: 12.2 percent in March.
  - Policy interest rate: 7.0 percent after a 50 basis point increase in February 2023.
  - External reserves and debt indicators: gross official reserves series and public debt series reported in detailed tables (selected observations include foreign assets of monetary authorities and gross official reserves in millions of US$).
  - Program approval and 1st review fiscal paths reported (overall balance and public debt percent of GDP across years as presented in program tables).

### Contingency and operational measures
- Contingent hold measures if DRM or spending measures are delayed: limits on new staff recruitments (with exceptions), further cuts on non-essential/non-efficient non-wage recurrent expenditure, discontinuation of underperforming domestic projects.
- Program reporting and data requirements: weekly, monthly, quarterly submission timetables specified; authorities to notify IMF prior to changes in policies affecting program outcomes.
- PV calculation methodology for new external debt specified: program discount rate 5 percent; concessionality threshold PV/face value less than 65 percent; program reference rate for six-month USD LIBOR 3.34 percent; spreads for Euro, JPY, GBP and others specified.

*Source: 1rwaea2023001 — International Monetary Fund (excerpts).*

### EXECUTIVE SUMMARY

### 1rwaea2023001 - EXECUTIVE SUMMARY

### Recent developments
- Growth and sectoral performance
  - Rwanda’s growth was 8.2 percent in 2022.
  - Strong output in manufacturing and services offset weaker agricultural production and a contraction in construction activity.
  - Unemployment increased to 24.3 percent in Q4 2022 from 18.1 percent in the previous quarter; female unemployment was 28.3 percent in Q4 2022.
- Inflation and monetary policy
  - Headline inflation stood at 19.3 percent in March, moderating from a peak of 21.7 percent in November 2022.
  - Food inflation has been over 40 percent since October 2022.
  - Core inflation was 12.2 percent in March.
  - The NBR Monetary Policy Committee raised the policy interest rate by 50 basis points to 7.0 percent in February 2023.
- External sector and reserves
  - Gross international reserves declined from 4.9 months of prospective imports in 2021 to 4.2 months at end-December 2022.
  - The trade deficit increased by US$332 million in 2022 as imports rose faster than exports; relative to GDP the trade deficit remained stable at 15 percent due to nominal GDP growth.
  - The real effective exchange rate appreciated by 8.3 percent in 2022.
  - The Rwanda franc depreciated against the US$ by 6.1 percent in 2022.
  - Rapid tourism recovery improved the balance of services; FDI inflows increased while net inflow of other private investments dried up.
- Fiscal and financing developments
  - The fiscal deficit in the first half of FY 22/23 was lower than anticipated, driven by lower expenditures more than offsetting lower revenues.
  - Nominal tax revenues did not increase commensurately with higher nominal GDP due to exemptions and the taxable base excluding high-inflation agriculture and food products.
  - Grants were lower than expected due to disbursement delays; delays in external loan disbursements led to significantly higher domestic financing.
- Financial sector
  - The banking sector remained profitable, well-capitalized, and liquid as of end-December 2022.
  - Nonperforming loans for banks fell from 4.6 percent at end-2021 to 3.1 percent at end-2022; microfinance institutions’ NPLs fell from 4.8 percent to 3.5 percent.
  - Credit to the private sector grew by 13.6 percent in 2022; exposure to mortgage and household lending accounted for 37 percent of new lending.

### Outlook and risks
- Key risks
  - High uncertainty stemming from deepening geopolitical fragmentation, volatility in global energy and fertilizer prices, a steeper-than-projected decline in trading partners’ growth, and a funding squeeze.
  - Erosion of external buffers and uncertainty about securing concessional financing heighten concerns for near-term external stability.
- Near-term external position
  - With external buffers eroding, limited room exists to absorb shocks and the reduced prospects for external concessional financing compound pandemic legacy challenges.

### Policy recommendations and priorities
- Macroeconomic stabilization and rebuilding policy space
  - Reduce inflationary pressures through more decisive monetary tightening.
  - Support monetary tightening with fiscal adjustment to reduce debt vulnerabilities.
  - Allow greater exchange rate flexibility to promote external stability.
- Fiscal measures and public finance
  - Step up domestic revenue mobilization.
  - Implement spending rationalization measures.
  - Advance debt sustainability by reducing the debt-creating overall deficit and managing external debt risks.
- Climate and resilience
  - Integrate climate-related considerations into macroeconomic policy formulation.
  - Mobilize climate financing to help achieve Rwanda’s Nationally Determined Contribution commitments.
- Institutional readiness
  - The National Bank of Rwanda stands ready to take further actions to anchor inflation expectations.
  - Authorities committed to frontloaded fiscal policy adjustment.

### Program implementation and IMF engagement
- Program structure and objectives
  - A 3-year Policy Coordination Instrument (PCI) and an arrangement under the Resilience and Sustainability Facility (RSF) with access of 150 percent of quota ($320 million) were approved in December 2022.
  - The PCI focuses on strengthening fiscal and monetary frameworks and building socioeconomic resilience.
  - The RSF-supported program focuses on integrating climate-related considerations into macroeconomic policy formulation and advancing reforms in green PFM, climate-resilient PIM, climate-related risk management for financial institutions, and disaster risk reduction and management.
- Performance and reviews
  - Performance under the PCI has been broadly strong with all quantitative targets (QTs) through end-December 2022 and standard continuous targets met.
  - All four reform targets set for the 1st PCI review were met, though some key elements of domestic revenue mobilization efforts were subsequently not approved by Cabinet.
  - RSF-supported climate policy agenda implemented all three reform measures for the first review on time; an additional reform measure related to climate-sensitive public investment management was implemented ahead of schedule.
  - The authorities requested modification under the PCI of end-June 2023 QTs on: the ceiling on the debt-creating overall deficit; the floor on the stock of net foreign assets (NFA); and the ceiling on the present value of new public and publicly guaranteed external debt.
  - The authorities requested to redefine NFA to exclude RSF disbursements and to modify the period over which headline inflation is averaged for the Monetary Policy Consultation Clause (MPCC) for end-June 2023.
  - Authorities proposed three new reform targets under the PCI.
  - Staff supports completion of the 1st reviews of the PCI and RSF and supports the authorities’ requested modifications and new RTs; staff also supports rephasing an RSF disbursement to the 1st RSF review that was completed ahead of schedule.
  - The authorities’ strong commitment to reforms—including high priority to implementing the climate agenda—warrants continued Fund support.

### Key statistics and figures (selected)
- Growth: 8.2 percent in 2022.
- Unemployment: 24.3 percent in Q4 2022; previous quarter 18.1 percent.
- Female unemployment: 28.3 percent in Q4 2022.
- Headline inflation: 19.3 percent in March; peak 21.7 percent in November 2022.
- Food inflation: over 40 percent since October 2022.
- Core inflation: 12.2 percent in March.
- Policy interest rate: 7.0 percent after a 50 basis point increase in February 2023.
- External reserves: 4.9 months of prospective imports in 2021 to 4.2 months at end-December 2022.
- Trade deficit change: increased by US$332 million in 2022; trade deficit remained 15 percent of GDP.
- Real effective exchange rate: appreciated by 8.3 percent in 2022.
- Rwanda franc depreciation: 6.1 percent against the US$ in 2022.
- Private sector credit growth: 13.6 percent in 2022.
- Banking sector NPLs: reduced from 4.6 percent (end-2021) to 3.1 percent (end-2022).
- Microfinance institutions NPLs: reduced from 4.8 percent to 3.5 percent.
- PCI and RSF access: RSF access 150 percent of quota ($320 million).

*May 15, 2023 — EXECUTIVE SUMMARY, 1rwaea2023001, International Monetary Fund*

### 9. Program performance under the PCI/RSF was broadly strong with all quantitative and

### 1rwaea2023001 - 9. Program performance under the PCI/RSF was broadly strong with all quantitative and

### Program performance under the PCI/RSF
- All end-December 2022 quantitative targets (QTs) and standard continuous targets envisaged for the completion of the 1st review of the PCI were met.
- 12-month average inflation stayed within the inner band of the monetary policy consultation clause despite acceleration in 2022 H2.
- PCI Reform Targets (RTs):
  - Revised CIT law (end-May 2023 RT) was submitted to Cabinet in April 2023 (the approved version by Cabinet did not include key elements of the reform, which necessitated a new RT).
  - Quarterly fiscal reporting in GFS 2014 format (end-April 2023 RT) was expanded to include all general government entities including RSSB and published in April 2023.
  - Monetary Policy Strategy (MPS)—end-March 2023 RT—was approved and published on the NBR’s website in February 2023.
  - NBR management approved a roadmap endorsed by all stakeholders for Global Master Repurchase Agreement implementation (end-April 2023 RT) in April 2023.
- RSF-supported reform measures (RMs) for the first review:
  - Quantitative climate risk assessments were incorporated into the fiscal risk statement and submitted to the Fiscal Risk Committee in April.
  - National investment policy updated in April 2023 to integrate the climate agenda based on PIMA/C-PIMA recommendations.
  - New National Disaster Risk Reduction and Management Policy adopted in May 2023.

### H1 FY22/23 fiscal and fiscal-operation indicators (GFSM 2014 basis)
- H1 RSF/PCI Approval vs H1 Actual (Percent of GDP):
  - Revenue: 10.7 vs 10.3
  - Taxes: 7.4 vs 7.2
  - Grants: 2.1 vs 1.8
  - Other Revenue: 1.2 vs 1.2
  - Expense: 9.7 vs 9.1
    - o/w Purchases of Goods and Services: 2.6 vs 2.6
    - o/w Interest: 1.1 vs 0.9
    - o/w Grants: 3.2 vs 2.8
  - Net Acquisition of Nonfin. Assets: 4.8 vs 4.4
  - Net Lending (+) / Borrowing (-): -3.9 vs -3.3
  - Net Acquisition of Financial Assets: -0.8 vs -0.2
  - Net Incurrence of Liabilities: 3.1 vs 3.3
    - Domestic: 0.3 vs 2.1
    - o/w Accounts Payable: -0.3 vs 0.8
    - Foreign: 2.8 vs 1.2
  - Overall balance (GFSM 1986): -4.5 vs -4.0
  - Debt-creating Overall Balance (excl. PKO, GFSM 1986): -4.5 vs -3.9
- Notes:
  - Accounts payable build-up partly from higher domestic debt issuances and a build-up of accounts payable; accounts payable are not classified as arrears as they are less than 90 days.
  - Authorities indicated some of these payments have been made, supported by the World Bank disbursement that materialized in Q3 of FY22/23.

### Recent economic and sectoral developments
- COVID-19: Pandemic continues to wane; Rwanda achieved its end-2022 vaccination target.
- Employment: Employment in trade and hospitality-related sectors still below pre-pandemic levels.
- Sovereign spreads: Grew for Rwanda after the war in Ukraine but remained below SSA levels.
- Interest burden: Interest payments as a share of revenue doubled in the last decade.
- Tourism: Annual total tourism revenues recovered strongly during 2022.
- Growth composition 2022:
  - Economic activities remained strong in 2022 with sharp pickup in the service sector more than offsetting weak agricultural production.
  - Leading indicators suggested continued strong economic activity into early 2023.
- Inflation: Headline inflation remained well above the NBR’s inflation target though declining in recent months.
- Fiscal H1 FY22/23:
  - Fiscal deficit in H1 FY22/23 was slightly lower than expected primarily due to lower recurrent expenditure.
  - Tax revenues were as expected; slightly lower grants were offset by non-tax revenue.
  - Delays in donor disbursements led to an increase in domestic financing.
  - Recurrent spending and policy lending were lower, partially offset by higher capital expenditure.

### Monetary and financial sector developments
- Liquidity management: Growing demand for reverse repos from the central bank.
- Policy rates: NBR started tightening in February 2022.
- Credit allocation: New loans concentrated on trade, mortgage and personal loans in 2022.
- Nonperforming loans: NPL ratios have fallen as year-on-year credit growth increased; credit risk has fallen with reduction in loans under Watch category.
- Money and credit: Real interest rates remain low, allowing for double-digits private sector credit growth.

### External sector and reserves
- International reserves declined through early 2023 (levels shown in charts).
- Nominal exchange rate: FX market pressures drove nominal exchange rate depreciation in the second half of 2022.
- Real effective exchange rate: Appreciated on the back of rising inflation.
- Trade: Trade deficit widened reflecting high oil prices and strong import demand; exports and imports volumes showed widening trade deficit.

### Program indicators and trajectories
- Figures show trajectories for Total Public Debt (Percent of GDP), Overall Fiscal Balance (Percent of GDP), Total Revenue and Grants (Percent of GDP), Total Expenditure (Percent of GDP), Current Account Balance (Percent of GDP), Gross International Reserves (Months of imports) across PCI/RSF Request and PCI-RSF 1st Review benchmarks.

### Outlook and risks
- Growth and inflation projections:
  - Growth projected to moderate to 6.2 percent in 2023 and improve to 6.7 percent in 2024.
  - Average headline inflation projected at 14.5 percent in 2023, exceeding the NBR’s benchmark level (5 percent).
  - Headline inflation projected to decline to 5 percent in 2024.
- Fiscal projections:
  - Fiscal deficit for FY22/23 expected to be 7.3 percent of GDP, 0.8 percentage points lower than envisaged at PCI approval.
  - Fiscal deficit for FY23/24 expected to tighten to 6.5 percent of GDP, consistent with the PCI program target.
- External sector:
  - Current account deficit expected to temporarily widen to 11.3 percent of GDP in 2023, with foreign reserves falling to just above adequate levels.
  - Excluding the Bugesera airport construction project, the CAD is projected at 9.3 percent of GDP and the trade deficit to shrink to 13.5 percent of GDP in 2023.
  - Over the medium term, trade balance and current account expected to improve; gross official reserves projected to reach 5 months of imports.
- Downside risks and vulnerabilities:
  - Significant uncertainty from geopolitical fragmentation, spikes in global energy and fertilizer prices, steeper decline in trading partners growth, or a funding squeeze.
  - Possible adverse effects from diversion of concessional resources to support Ukraine, affecting affordability of external financing and causing disbursement delays.
  - Climate vulnerability due to dominantly rain-fed agriculture and frequent climate-related shocks.
  - Regional fallout from conflict with the Democratic Republic of Congo affecting trade and external demand.
- Staff contingency views:
  - If downside risks materialize, mitigation may require fiscal and monetary policy tightening.
  - Fiscal savings could be achieved by rationalizing capital expenditure through efficiency gains identified in the World Bank PER and the IMF PIMA.
  - Current account adjustment could be met through continued depreciation of the nominal exchange rate and further monetary tightening.

### Policy discussions and priorities
- Near-term policy responses assessed for external shocks.
- Policy mix focus:
  - Rebuild buffers, rein in inflation, and allow the exchange rate to act as shock absorber.
  - Progress implementation of PCI and RSF-supported reforms.
- Importance of securing sufficient concessional external and fiscal financing to meet PCI objectives while pursuing structural reforms to build resilience, including to climate change.

### Fiscal policy: stance, anchor, and consolidation path
- FY22/23 fiscal position:
  - Expected to be 0.8 percent of GDP lower (i.e., better) than anticipated at PCI approval, driven by lower expenditures (1.6 percent of GDP) offsetting lower revenues (0.8 percent of GDP).
  - Revised budget in January 2023 largely the same as at program approval in nominal terms.
  - Tax revenues impacted by new tax exemptions, delays to the Medium-Term Revenue Strategy (MTRS), and a narrow tax base with several existing exemptions.
- FY23/24 outlook:
  - Fiscal deficit expected to decline to 6.5 percent of GDP.
  - Primary balance excluding grants is 1.2 percentage points lower than envisaged under the program, reflecting lower grants.
  - Adjustment is more weighted toward expenditure via expenditure rationalization.
  - Tax revenues are 0.6 percentage points lower compared to the PCI due to a lower starting base and increased exemptions.
- Debt anchor:
  - Debt anchor of 65 percent of GDP is expected to be reached in FY29/30, one year earlier than at program approval.
  - Drivers: lower initial (end-2022) debt stock (unexpected real exchange rate appreciation and higher-than-expected GDP growth) and lower primary deficits through FY 27/28 (constrained capital and recurrent expenditures).
  - DSA (Decemeber 2022) assessment remains applicable: debt is assessed to remain sustainable with moderate risk of external and overall public debt distress.
  - Potential risks to debt sustainability cited: declining concessional financing, U.S. monetary policy tightening, US$ appreciation, and terms-of-trade shocks.

*RWANDA — INTERNATIONAL MONETARY FUND (excerpt from 1rwaea2023001).*

### 15. The fiscal consolidation strategy remains predicated on a mix of DRM and spending

### 15. The fiscal consolidation strategy remains predicated on a mix of DRM and spending rationalization measures

### Medium-Term Revenue Strategy (MTRS) and Tax Policy DRM
- The MTRS, approved by cabinet in May 2022, is expected to permanently yield 1 percent of GDP.
- A more backloaded profile is assumed compared to the program approval as critical policy measures were not supported by Cabinet, and an increase in exemptions in FY22/23 have undermined yields.
- The approved draft excise law is expected to be revenue neutral; key revenue raising measures were not approved, reducing 0.15 percent of GDP over 2022/23 and 2023/24 from what was expected at program approval.
- The draft Corporate Income Tax law (expected to yield 0.8 percent of GDP at program approval) was submitted to Cabinet; only a marginal reduction in the CIT rate was approved, leading to 0.1 percent of GDP loss in revenues as assessed by staff.
- The VAT law (expected to bring losses of 0.1 percent of GDP) was also approved by Cabinet in April.
- Revenue leakages have increased, including through:
  - a reduction in diesel excises to stabilize international prices,
  - the extension of the manufacturing build to recovery program (MBRP) that exempts VAT and import duties for select projects.
- Actions taken by authorities:
  - Ended the implicit fuel subsidy (since April 5).
  - Committed to not extending the MBRP beyond the end-December 2024 application deadline.
- Staff assessment and policy response:
  - Staff assessed that a 1.2 percent of GDP revenue gap emerged over the medium term.
  - Authorities proposed a package of revenue generating and predominantly tax policy measures to be approved by Cabinet, in consultation with staff, for the completion of the second review (new end-September RT). Possible measures include increases to property tax, rationalization of exemptions, other tax base broadening measures, and credible new tax administration measures.
  - Staff urged authorities to build consensus on the originally envisaged CIT reform package and limit further exemptions and revenue leakages.
- Additional tax administration measures:
  - Rwanda Revenue Authority (RRA) increased the amount of VAT withheld to offset outstanding VAT refunds from 12 percent to 15 percent.
  - RRA anticipates improved administrative efficiency with the New Operating Model (NOM) from January 2023, derived from improved focus on digitalization and Compliance Improvement Plans for special sectors.
  - Improved Electronic Billing Machine (EBM) program expected to widen the tax base by including the informal sector.

### Quantified Fiscal and Revenue Indicators (as presented)
- PCI and RSF Program Approval — Overall balance:
  - 1 -7.6-8.1-6.5-5.2-3.2-3.0-2.9-2.9-2.9-3.4
- PCI and RSF Program Approval — Public debt:
  - 2 71.373.976.877.375.773.970.868.266.164.7
- 1st Review PCI and RSF — Overall balance:
  - -7.6-7.3-6.5-4.8-3.2-3.0-3.0-3.3-3.5-3.7
- 1st Review PCI and RSF — Public Debt:
  - 67.169.174.474.973.170.768.266.064.563.5
- Text Table 4. Rwanda: Domestic Revenue Mobilization (selected rows, Percentage points of GDP from the previous fiscal year):
  - Total tax revenue (+ = consolidation)-0.40.10.51.11.00.3
  - Medium-term revenue strategy0.20.00.40.90.80.1
  - Identified policy measures for MTRS-1-0.2-0.4-0.10.00.00.0
  - Unidentified MTRS-1 measures (predominately policy) - New RT0.00.30.50.40.00.0
  - Identified administration measures for MTRS-10.40.20.00.00.00.0
  - Unidentified policy measures for MTRS-2 0.00.00.00.50.80.1
  - Fuel levy and diesel excise impact-0.10.10.00.00.00.0
  - Manufacturing Build to Recover Exemptions-0.10.00.10.00.00.0
  - Increase in VAT retention for RRA1 -0.1-0.10.00.00.00.0
  - African Continental Free Trade Agreement0.0-0.1-0.10.0-0.10.0
  - Other (buoyancy2 impact and judgement)-0.40.10.10.20.20.2
  - Notes:
    - 1 The RRA increased the amount of VAT it withholds from the Treasury to meet refunds (from 12 to 15 percent of gross collections)
    - 2 Long-term bouyancies have averaged around 1.1

### Spending Rationalization and Public Financial Management (PFM) Reforms
- Spending rationalization focus:
  - Improved efficiency of government services.
  - Limits to subsidies.
  - More efficient capital expenditure.
  - General PFM reforms.
- Expenditure path:
  - Expenditure anticipated to decline by 3.4 percent of GDP in FY22/23 and a further 1.8 percent of GDP in FY23/24 as authorities limit growth in new spending despite high inflation.
- Efficiency and PIM reforms:
  - Digitalization in the delivery of some public goods and services expected to drive efficiency gains.
  - Based on the Fund’s PIMA, authorities have started public investment management reforms to promote greater value-for-money via selection, prioritization, and execution of public projects.
  - Authorities on track to submit a spending rationalization strategy as part of the FY24/25 budget framework paper (May 2024 RT) based on the medium-term fiscal policy outlined by the Planning and Budget Outlook Paper (November RT).

### Fiscal Risks, Transparency, and Institutional Reforms
- SOE fiscal risk management:
  - MININVEST created and staffed; has set up a team to conduct SOE health checks and health stress exercises.
  - MININVEST committed to conduct stress tests in at least two high-risk SOEs to be submitted to the Fiscal Risk Committee by end-November 2023 (proposed new RT).
  - Plan to continue in 2024 SOE health-checks for all SOEs and quarterly stress tests for at least two high-risk SOEs.
  - Authorities plan to develop mitigation measures to address vulnerabilities identified in stress tests by end-April 2024 to be published in the FY 24/25 fiscal risk statement.
  - MINECOFIN will issue Terms of Reference to determine roles and responsibilities of stakeholders, including MININVEST, by end-August 2023.
- Fiscal transparency and reporting:
  - Authorities plan a new Fiscal Transparency Evaluation (FTE) and to publish the subsequent report together with the original unpublished 2019 FTE report by the second half of 2024.
  - Coverage of GFS 2014 reporting expanded following publication of quarterly budget execution reports under GFS 2014 for the whole general government, including RSSB (1st review RT), with plans to continue publishing these 60 days after the end of each quarter.
  - RT on the RSSB asset allocation review due in October (2nd review RT) is on-track for October 2023; a consulting firm was hired in November 2022.
- Organic Budget Law (OBL) implementation and related reforms:
  - Issuance of Ministerial Orders and other financial regulations by MINECOFIN expected by end-June 2023 to support OBL implementation.
  - New baseline costing framework implemented to help spending ministries estimate costs of ongoing programs, calculate fiscal space for new programs, and prioritize core programs.
  - Continued migration to accrual accounting and rollout of the IFMIS to primary and secondary schools.
- Transparency and AML/CFT measures:
  - Launched electronic reporting portal for beneficial ownership (BO) disclosure to the Registrar General in March 2023.
  - Draft Company and Partnerships law capturing BO information approved by Parliament.
  - Inspections and audits of BO information and accounting records started; plan to apply sanctions for non-compliance.
  - Independent audit of all government expenditures and procurement tenders for FY 21/22 (including those financed by the new SDR allocation) on track to be published by end-May 2023.
  - Cabinet approved the AML/CFT strategy to address legal gaps in exchange of financial information in tax and AML/CFT matters.

*Source: 1rwaea2023001 - 15. The fiscal consolidation strategy remains predicated on a mix of DRM and spending*

### 25. The implementation of the RSF-supported program is off to a good start, including—

### 25. The implementation of the RSF-supported program is off to a good start, including—

### Implementation progress and integration of climate considerations
- Integrating climate-related considerations in macroeconomic policy formulation to support the delivery and monitoring of Rwanda’s climate commitments (Program Statement, Table 3).
- Supported by IMF technical assistance, climate risks have been included into the Fiscal Risk Statement, and a quantitative climate risk analysis has been provided to the Fiscal Risk Committee (1st review RM).
- The quantitative findings showed that GDP could be up to 5 percent lower by 2100 which could lead the debt to GDP ratio increasing to 104 percent.
- Next steps include strengthening the quantification of discrete risks from climate, including on the materialization of fiscal risks from SOEs, and PPPs.

### Public Investment Management (PIM) and investment policy
- An updated National Investment Policy that integrates the climate agenda was approved by Cabinet in April (1st review RM).
- With IMF support, the authorities published guidelines for the appraisal and selection criteria to reflect PIMA/C-PIMA recommendations, re-phasing this reform measure to the first review (initially 2nd review RM).
- Authorities are encouraged to:
  - Apply a project concept note (PCN) that explicitly references climate change objectives and climate risk screening for new investment project proposals.
  - Pilot the new prioritization and selection templates that weight climate considerations in final project selection.
- The new procedures will support the final RM in this reform area (RM10) envisaging publish a consolidated report on major investment projects which will identify the ratings according to the adaptation/mitigation appraisal and selection criteria.

### Disaster risk reduction and management
- A revised National Disaster Risk Reduction and Management Policy—adopted in May 2023 (1st review RM)—clarifies roles and responsibilities and provides frameworks for community-based disaster risk reduction and management (DRRM).
- The Policy is supported by four pillars:
  - (i) improve understanding of climate risks, their factors, and mitigation measures;
  - (ii) risk governance and decision-making;
  - (iii) community-based DRRM;
  - (iv) risk financing by different government levels.
- Implementation will be supported by enhanced capacity of the Ministry in charge of Emergency Management, where staff has tripled.
- Critical next step: develop a DRRM financing framework that ensures the availability of budget resources at the district level for emergency response and disaster risk reduction (RM 13).
- A diagnostic assessment of the DRM financing landscape is expected to be finalized by end-2023.

### Monitoring, reporting, and green budgeting
- The Ministry of Economy and Financial Planning and the Ministry of Environment are preparing guidelines for the implementation of the climate budget tagging system consistent with the Green Taxonomy by end-2023 (2nd review RM).
- Planned follow-up: gradual roll-out of the green budget tagging system.
- Once fully implemented, the budget tagging system should allow monitoring, preparation and execution of climate related activities and result in the publication of climate budget statement and quarterly climate expenditure reports, improving transparency.

### Financial sector risks and green finance market development
- As a first step towards issuing guidelines for financial institutions to better manage climate-related risks (3rd review RM), the NBR is preparing a diagnostic review to identify regulatory gaps of the existing frameworks; the report is currently under validation and expected to be finalized by June.
- The authorities launched green initiatives and are exploring additional climate financing options:
  - Scaling up Rwanda’s Green Private Investment Facility (“Ireme Invest”) by blending non-concessional and concessional resources; terms and conditions of the scaled-up facility are expected to be finalized by mid-2023, including pledges by international partners.
  - Launched a Green Public Investment Facility (“Intego”) in February 2023 to provide catalytic public sector investments.
  - Launched the Kigali International Financial Center (KIFC) initiative during COP27, with key strategic activities until end-2025 to enable the regulatory environment for banks’ climate risk management and deepen markets for sustainable financial products, including climate debt instruments and insurance.
- Fiscal risks from potential government equity contributions or guarantees to scaled-up facilities should be well-identified and transparently reported; accountability and governance frameworks should mitigate such risks.

### RSF disbursement, projects supported, and program modalities
- The RSF disbursement under the first review will create fiscal space to support climate adaptation and mitigation priorities.
- Climate-related investment projects included in the FY22/23 and FY23/24 budgets include:
  - building resilience to climate change hazards in the Volcano Region of Rwanda;
  - Green City Kigali Project;
  - Rwanda - Nyandungu Urban Wetland Eco-Tourism Park project;
  - reducing vulnerability to climate change through enhanced community-based biodiversity conservation in the Eastern Province of Rwanda;
  - restoration of Upper Nyabarongo Catchment in the Mbirurume Sub-catchment of Rwanda.
- These projects target low-carbon transport networks, low carbon and climate-resilient infrastructure, resilient urban landscapes, and sustainable agriculture, forestry, and conservation.
- Program conditionality under the PCI updated to reflect macroeconomic framework and authorities’ commitments; monitoring through QTs, RTs, standard continuous targets, and a Monetary Policy Consultation Clause (MPCC) with end-June and end-December test dates.
- Key conditionality and monitoring changes:
  - MPCC midpoint for end-June remains unchanged at 11.0 percent, end-December target set to 6.0 percent with unchanged symmetric inner/outer band as per the TMU.
  - The period over which headline inflation is averaged reduced from 12- to 3-months.
  - Return to the NBR’s benchmark rate of 5.0 percent will be considered during the program period.
  - QTs on net foreign assets for end-June 2023 and end-December 2023 redefined to explicitly exclude RSF disbursements.
  - Revised end-June and new end-December 2023 QTs and adjustors proposed in line with updated macro framework and new borrowing plans.
  - Three new RTs proposed:
    - Commitment by the new Ministry of Public Investment and Privatization to conduct at least two stress tests on SOEs identified as high-risk and submit results to the Fiscal Risk Committee by end-November 2023 (proposed 2nd PCI review RT).
    - Cabinet approval of a package of revenue generating and predominantly tax policy measures to achieve MTRS domestic revenue mobilization objectives by end-September 2023 (proposed 2nd PCI review RT).
    - Commitment by NBR and the Capital Market Association to enact the full GMRA rollout, including securing the signing of the GMRA by all banks, by end-December 2024 (proposed 4th PCI review RT).
- RSF-supported reforms are phased across five reviews, with one reform (RM5) brought forward to the first RSF review following publication of appraisal and selection guidelines on April 27 within the first PCI/RSF review window.

### Financing, capacity to repay, and risks
- Program financing over the next 12 months is fully financed with good prospects for the remainder of the program; financing assurances primarily from concessional grants (World Bank, UNICEF, Global Fund, bilateral development partners) and concessional loans (World Bank, AfDB, other multilateral and bilateral DPs).
- Capacity to repay:
  - Total Fund credit outstanding will peak at 3.6 percent of GDP and 241.3 percent of quota in 2025 once the RSF is fully disbursed, with a downward sloping trend thereafter.
  - Relative to gross reserves, it will increase to 23.1 percent in 2024 and reduce afterwards.
  - Debt service to the Fund will peak at 2.0–2.3 percent of revenues (excluding grants) during 2023-2027, reducing afterwards.
- Continued downside risks to the outlook, but mitigated by authorities’ strong ownership in implementing Fund-supported programs.

### Capacity development, safeguards, and monitoring
- Capacity development (CD) linked to PCI and RSF reforms:
  - PCI CD priorities: fiscal transparency and risk management, medium-term expenditure frameworks, DRM, implementation of forward-looking monetary policy framework, framework for foreign exchange interventions, and financial stability.
  - RSF CD priorities: adopting green PFM and climate-sensitive PIM practices.
  - Authorities committed to strengthening GFS reporting and SOE stress-testing; future CD to focus on performance budgeting, fiscal reporting, macro-fiscal capacity, and implementing FSSR recommendations.
- Safeguards Assessment:
  - 2022 safeguards assessment found a well-established governance and control framework.
  - NBR progress on safeguards recommendations includes amending its foreign reserves management policy and enhancing disclosures in the FY 2022 financial statements.
  - NBR’s internal audit department should conduct periodic reviews of program monetary data for consistency with the TMU definitions.

### Staff appraisal and policy recommendations
- Macroeconomic context:
  - Overlapping crises have eroded buffers and reduced room for maneuver; emerging imbalances exacerbated by external shocks and diminished access to concessional financing.
- Immediate policy priorities:
  - NBR should continue tightening monetary policy to bring inflation back to the target by 2024.
  - Continue forward-looking and data-dependent monetary policy, act decisively to contain second round inflationary pressures, and strengthen communication to anchor inflation expectations.
  - Continue strong implementation of the interest rate based monetary policy framework and reforms to deepen money and government securities markets.
  - Greater exchange rate flexibility remains key for external sustainability and an effective interest rate based monetary policy framework.
- Fiscal policy and structural reforms:
  - Anchor medium-term fiscal discipline through a credible fiscal consolidation plan; re-phase after delays to MTRS implementation.
  - Approve and implement reforms to broaden the tax base and phase-off tax exemptions and implement tax administration measures to enhance compliance to achieve a 1 percentage point increase in the tax revenue to GDP ratio.
  - Identify and cost medium-term spending rationalization measures, pursue cost-savings and efficiency gains through further digitalization and improved investment prioritization.
  - Accelerate PFM reforms to strengthen budget costing and prioritization.
- Containing fiscal and financial sector risks:
  - Increase transparency in fiscal reporting, RSSB finances, and beneficial ownership in public procurement.
  - Align AML/CFT legal framework with Financial Action Task Force (FATF) standards.
- Climate and green transition:
  - Sustain structural reforms to build resilience to climate shocks; continue transition to greener growth supported by cost-effective interventions to attract private and concessional donor financing.
  - Important near-term steps: strengthen monitoring and reporting of climate spending (green budget tagging), establish climate-sensitive public investment appraisal and selection criteria, develop regulatory guidelines for banks’ climate risk management practices, and develop financing mechanisms to support disaster risk management at the local level.
  - Carefully analyze fiscal risks associated with scaling up private and public investment facilities and develop and implement mechanisms to mitigate these risks.

*Source: IMF staff summary of Rwanda RSF-supported program implementation and related reforms.*

### 39. Staff supports the completion of the first reviews under the PCI/RSF based on the

### 39. Staff supports the completion of the first reviews under the PCI/RSF based on the authorities’ commitment to implement ambitious reform package supported by a credible fiscal consolidation to bring debt down and a decisive monetary action to curb inflationary pressures and rebuild external buffers.

### Staff recommendation and conditions
- Staff supports the completion of the first reviews under the PCI/RSF based on the authorities’ commitment to implement an ambitious reform package supported by:
  - a credible fiscal consolidation to bring debt down, and
  - a decisive monetary action to curb inflationary pressures and rebuild external buffers.
- Staff supports the modification of the end-June 2023 QTs on:
  - the ceiling on the debt-creating overall deficit,
  - the floor on the NFA stock, and
  - the ceiling on the PV of new public and publicly guaranteed external debt.
- Staff supports modifications from end-June 2023 on:
  - the NFA definition, and
  - the reduction in the period over which headline inflation is averaged for the MPCC.

### Disbursement
- Staff supports a disbursement totaling SDR 74mn (46.2 percent of quota) on the account of meeting RSF reform measures (RM1, RM2, RM3, and RM5).

### Selected fiscal and external indicators highlighted in the content
- Net lending (+) / borrowing (−) (excluding grants): -13.0 -13.2 -13.2 -12.1 -11.2 -10.0 -9.6 -9.2 -9.0 -7.4 -7.8 -6.7 -6.8 -6.5 (percent of GDP, FY series).
- Overall fiscal balance (incl. grants, policy lending): -8.6 -7.6 -7.6 -8.1 -7.3 -6.5 -6.5 -5.2 -4.8 -3.2 -3.2 -3.0 -3.0 -3.0 (percent of GDP).
- Total public debt incl. guarantees: 73.4 71.3 67.1 73.9 69.1 76.8 74.4 77.3 74.9 75.7 73.1 73.9 70.7 68.2 (percent of GDP).
- External public debt incl. guarantees: 54.6 53.0 48.7 55.9 54.1 60.8 60.9 63.1 64.8 62.5 64.2 62.1 61.9 58.8 (percent of GDP).
- Current account balance (percent of GDP): -11.2 -10.5 -9.8 -12.4 -11.3 -11.6 -10.5 -11.0 -10.1 -8.6 -9.5 -7.7 -9.0 -7.5 (2021–28 series).
- Foreign assets of monetary authorities (in millions of US$): 1,889 1,894 1,747 2,052 1,832 2,309 2,099 2,378 2,411 2,442 2,520 2,643 2,618 2,749 (selected annual observations).
- Gross official reserves (in millions of US$): 1,821 1,840 1,693 1,997 1,778 2,255 2,045 2,324 2,357 2,388 2,467 2,589 2,564 2,695 (selected annual observations).

### Program mechanics and schedule (as presented)
- Review schedule under the Policy Coordination Instrument:
  - First Review: Test Date December 31, 2022; Review Date By May 15, 2023.
  - Second Review: Test Date June 30, 2023; Review Date By November 15, 2023.
  - Subsequent reviews follow semiannual test/review cadence through June 30, 2025.
- Proposed revised schedule of disbursements under the RSF arrangement lists multiple availability dates (May 1, 2023; November 1, 2023; May 1, 2024; November 1, 2024; May 1, 2025) with individual disbursements of SDR 18.48 (and a couple at SDR 18.47) representing 11.54 percent (and 11.53 percent) of quota; total SDR 240.30 (150.00 percent of quota).  
  - Memorandum item: Quota 160.20.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1rwaea2023001.pdf*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Purpose and scope
- Shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

### Likelihood definitions (staff’s subjective assessment)
- "low" is meant to indicate a probability below 10 percent.
- "medium" a probability between 10 and 30 percent.
- "high" a probability between 30 and 50 percent.

### Risk horizon and classification
- Conjunctural shocks and scenario: highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline.
- Structural risks: those that are likely to remain salient over a longer horizon.

### Use and guidance
- The RAM shows events that could materially alter the baseline path and the relative likelihood of those events as assessed by staff.
- Staff’s likelihood assessments are subjective and reflect views at the time of discussions with the authorities.
- For operational guidance consult the G-RAM operational guidance on the SPR Risk Unit website.

*Source: Annex I. Risk Assessment Matrix*

### 1. This Program Statement describes recent economic developments and our policy

### Program Statement: Recent Economic Developments and Policy Objectives

### II. Recent Developments
- Growth and labor market
  - GDP growth: 8.2 percent in 2022, "well above its long-term average."
  - Unemployment rate: 24.3 percent at end-2022 (pre-pandemic level around 15 percent).
  - Female unemployment rate: 28.3 percent.
  - Drivers: robust manufacturing and services, strong private consumption; offset by weaker-than-usual agricultural production and contraction in construction.
- Inflation and monetary policy
  - Headline inflation: rose from 15.9 percent in August 2022 to a peak of 21.7 percent in November 2022; decelerated to 19.3 percent in March 2023, year-on-year.
  - Food inflation: spiked to 45.3 percent in November 2022; eased to 41.3 percent in March 2023.
  - Core inflation: peaked at 15.4 percent in December 2022; eased to 12.2 percent in March 2023.
  - Monetary Policy Committee action: policy interest rate raised by 50 basis points to 7.0 percent in February 2023.
- Fiscal developments H1 FY22/23
  - Fiscal deficit lower than anticipated in the first half of FY22/23, primarily due to lower expenditure execution.
  - Lower grants to local government contributed to lower expenditure execution.
  - Above-expectation nominal tax revenue growth was not matched by buoyant nominal GDP, leading to a decline in the tax to GDP ratio.
  - Some external loan disbursements came later than programmed, leading to higher-than-expected domestic financing; loans disbursed in the third quarter.
- Financial sector
  - Financial sector assets: grew by 17.7 percent to RWF 8,909 billion as at end-December 2022.
  - Banking sector share: 67 percent of financial sector; grew by 18.3 percent.
  - Loans as component of assets: banks 52 percent; MFIs 62 percent.
  - Capital adequacy: banks 21.7 percent; MFIs 34.5 percent (minimum regulatory requirement 15 percent).
  - Liquidity coverage: banks 215.9 percent (minimum prudential requirement 100 percent); MFIs liquidity ratio 90.9 percent (minimum prudential requirement 30 percent).
  - Profitability: return on average assets 3.0 percent; return on average equity 17.8 percent for banks.
  - Nonperforming loans (NPLs): banks 3.1 percent (Dec 2022) down from 4.6 percent (Dec 2021); MFIs 3.5 percent (Dec 2022) down from 4.8 percent (Dec 2021).
- External sector
  - Current account deficit: expanded by 5.1 percent year-on-year in 2022 due to widening goods deficit.
  - Merchandise exports: grew by 33.2 percent in 2022.
  - Service exports: increased by 52.3 percent.
  - Overall trade deficit (goods and services): widened by 11.1 percent.
  - Financial account surplus: decreased by 30 percent.
  - Foreign direct investment (FDI): rose by 71 percent.
  - Official reserves: declined by USD 129 million but remained adequate, covering 4.2 months of prospective imports as of end-2022.

### III. Program Performance
- General
  - Program implementation under the new PCI and RSF arrangements is "off to a good start."
- PCI quantitative and structural targets
  - All end-December quantitative targets (QTs) and standard continuous targets for the 1st review were met.
  - Reform targets (RTs) for the review are progressing well and expected to be completed.
  - Revisions to the CIT law were submitted to the Cabinet in April 2023.
  - Quarterly fiscal reporting in GFS 2014 format expanded to include all general government entities including RSSB; report published on the website at end-April 2023 as planned.
  - Monetary Policy Strategy (MPS) approved and published on the NBR’s website in February 2023.
  - NBR management approved a roadmap for Global Master Repurchase Agreement (GMRA) implementation at end-April 2023; endorsed by stakeholders.
- RSF reform measures (RMs)
  - All RSF-supported reform measures are "well on track"; three set for the first review were completed:
    - RM1: quantitative climate risk assessment incorporated into the fiscal risk statement; submitted to the Fiscal Risk Committee in April.
    - RM2: updated National Investment Policy integrating climate agenda-based PIMA/C-PIMA recommendations as of April 20, 2023.
    - RM3: new National Disaster Risk Reduction and Management Policy adopted on May 8, 2023.
  - RM5: guidelines for appraisal and selection criteria reflecting PIMA/C-PIMA recommendations published on April 27, 2023 ahead of schedule.

### IV. Outlook and Policies
- A. Outlook: Growth, inflation, and external position
  - Growth projections:
    - 2023: economic growth projected to decelerate to 6.2 percent.
    - 2024: projected growth 6.7 percent.
    - Output gap: projected to turn negative in the beginning of 2024.
    - Medium-term drivers: private consumption and investment as main growth drivers amid fiscal consolidation.
  - Inflation projections:
    - Headline inflation recorded 20.8 percent in February 2023.
    - Projected to decline to 7.8 percent by end-2023, within the 2–8 percent NBR band.
    - Projection drivers: cumulative monetary policy tightening, better domestic food production in agricultural season B, expected easing in global inflation and lower commodity prices.
    - Headline inflation projected to be maintained within the NBR band in 2024 under a no-shock scenario.
  - External sector projections:
    - Current account deficit (CAD) expected to widen to 11.3 percent of GDP in 2023, largely driven by trade deficit.
    - Gross official reserves projected to remain adequate, close to 4.2 months of prospective imports.
    - Medium-term: trade balance and current account expected to improve with higher domestic savings (from fiscal tightening) and productivity growth; gross official reserves expected to reach 5 months of imports over the medium term.
    - Financial inflows: expected to remain high but start declining from 2024, reflecting decreasing public sector borrowing; private flows, mainly FDI, expected to increase.
  - Downside risks highlighted:
    - Volatility in global energy and fertilizer prices.
    - Steeper decline in trading partners' growth.
    - Global financial market developments affecting external financing affordability.
    - Weather events affecting rain-fed subsistence agriculture.
    - Geopolitical risks affecting near-term availability of concessional resources.
- B. Fiscal Policies and Structural Reforms
  - Overall commitment
    - Continue fiscal consolidation to support macroeconomic stability, keep debt sustainable, strengthen fiscal framework, and preserve fiscal space for NST-1 priorities.
    - Implement domestic revenue mobilization (DRM) measures under the Medium-Term Revenue Strategy (MTRS) and spending rationalization measures.
    - Proceed with reforms to improve transparency and efficiency of public financial management and investment practices and enhance fiscal risk management.
  - Fiscal consolidation strategy and targets
    - FY22/23 deficit projected at 7.3 percent of GDP (against 8.1 percent envisaged at program approval), reflecting lower recurrent and capital expenditures more than offsetting lower tax revenues and grants.
    - Fiscal deficit targets:
      - FY23/24: 6.5 percent of GDP.
      - FY24/25: 4.8 percent of GDP.
    - Aggregate fiscal deficits over three years to FY24/25 are 1.1 percent of GDP lower than at program approval.
  - Domestic revenue mobilization and tax measures
    - Implementation of MTRS measures approved by Cabinet in May 2022 expected to permanently collect additional 1 percent of GDP.
    - Phase out tax exemptions is an objective.
    - Excise Duty: draft revised law submitted and approved by Cabinet on 20th April 2023; expected to be broadly revenue neutral and reduce prices of basic food such as rice and maize flour, and promote tourism.
    - Corporate Income Tax (CIT): revised draft law submitted to Cabinet; Cabinet-approved April 2023 version includes reducing statutory CIT rate from 30 to 28 percent with a gradual target of 20 percent in the medium term.
      - To achieve revenue gains envisaged at PCI approval, Cabinet will approve alternative revenue-generating and predominantly tax policy measures for completion of the second review (proposed end-September 2023 RT). Possible measures include increases to property tax, rationalization of exemptions, tax base broadening, and new tax administration measures.
      - Investment code reviewed to eliminate some year-to-year tax incentives and grandfathering; review expected to be completed by November 2023.
    - Rwanda Revenue Authority (RRA) measures: (i) taxing the shadow economy; (ii) improving voluntary compliance through better taxpayer services; (iii) promoting compliance improvement plans targeted at manufacturing sector, large businesses, customs, and combating individual tax evasion.
    - VAT: revised draft law approved by Cabinet on 20th April 2023 including VAT rebates for consumers claiming electronic invoices, rewards for consumers who denounce businesses not issuing electronic invoices, and increased penalties for VAT taxpayers not issuing receipts.
      - Measures expected to increase electronic billing use and VAT collection.
      - To tackle revenue leakages and VAT refund arrears, increased amount retained from VAT collections to be refunded.
    - Implicit fuel subsidy: ended since April 5, 2023; excises on diesel returned to previous rate of RWF 150 per liter.
      - A stabilization fee on petroleum prices introduced; lost revenue from temporary diesel subsidy anticipated to be recouped in FY23/24 through the stabilization fee.
      - Commitment under RSF: refrain from providing further fuel subsidies and support poor and vulnerable households through targeted measures.
    - Manufacture and Build to Recovery Program (MBRP) extended to expire by December 2024 (further two calendar years).
      - MBRP supports tax incentives (import duty and VAT) for agro-processing, construction materials, light manufacturing, and cross-cutting enablers.
      - MBRP has attracted 110 projects with total investment of US$1.9 billion (47 projects in manufacturing; 35 projects in construction, including 46,000 housing units; 28 projects in agro-processing).
      - Expected creation of over 38,000 jobs.
      - No new projects to be added beyond 2024.
      - Estimated impact on revenue over the period of extension is the same as at PCI program approval.
  - Spending rationalization and PFM reforms
    - New Organic Law on Public Finance Management (PFM law) enacted, replacing the Organic Budget Law (OBL); introduces a Pre-Budget Outlook Paper setting expenditure ceilings earlier to support strategic prioritization.
    - Commitment to rationalize spending, including streamlining and gradually reducing subsidies related to energy and fuel, export promotion, and strengthening oversight and governance of SOEs.
    - Enhance digitalization in delivery of public goods and services.
    - Public Investment Management Assessment (PIMA) and Public Expenditure Review (PER) action plan being implemented to promote efficiency and value-for-money via selection, prioritization, and execution of public projects. Envisaged measures include:
      - Automating and publishing a pipeline of major appraised projects and publishing project selection criteria for transparent, competitive selection.
      - Increasing selection of larger and medium-size projects over smaller short-duration projects.
      - Strengthening project implementation oversight to avoid cost overruns, abandonment, and inadequate enforcement of contract clauses.
    - On track to submit a spending rationalization strategy as part of the FY24/25 Budget Framework Paper based on the medium-term fiscal policy outlined by the Planning and Budget Outlook Paper, which will start to be produced in FY24/25.

*IMF staff report excerpt: Program Statement and recent economic developments under the PCI and RSF (Rwanda).*

### 16. Our fiscal path ensures convergence to our debt anchor keeping our debt sustainable.

### 16. Our fiscal path ensures convergence to our debt anchor keeping our debt sustainable.

### Fiscal consolidation and debt sustainability
- Maintain the fiscal consolidation path discussed at PCI approval with convergence to our 65 percent of GDP debt anchor achieved by 2030, backed by credible measures under the FY23/24 budget and the medium-term fiscal framework.
- Objective: ensure Rwanda remains at moderate risk of debt distress with sufficient buffers to absorb shocks.
- Contingent hold measures (if original measures cannot be timely implemented) include:
  - limits on new staff recruitments (excluding statutory promotions, and vital sectors such as health, education and public administration);
  - further cuts on non-essential/ non-efficient non-wage recurrent expenditure;
  - discontinuation of underperforming domestic projects.
- Debt management strategy priorities:
  - prioritize concessional resources, including climate change related financing for adaptation and mitigation;
  - strengthen debt management capacity, enhance fiscal risk monitoring, expand debt reporting coverage (inclusion of local Government debts), and develop domestic capital markets;
  - prioritize implementation of highly concessional projects over domestically or commercially financed projects when such financing opportunities arise to contain debt service burden and solvency risks.

*Fiscal Structural Reforms*

### Public financial management (PFM) and legal timetables
- Full implementation of the new PFM law is critical to:
  - improvements in the budget/medium-term expenditure framework (MTEF);
  - institutionalization of fiscal risk management practices and structures;
  - adoption of best-practices in fiscal reporting.
- Required issuances and timelines:
  - Ministerial Order on public financial management by December 2023;
  - other financial regulations by end-June 2023;
  - Ministerial Circular aligning SOE reporting periods to fiscal year calendar has been issued.

### MTEF, accrual accounting, and IFMIS rollout
- MTEF:
  - developed MTEF user manuals and adopted guidelines for budget baseline costing and templates in PBCC1 for FY23/24;
  - anticipated setting of expenditure ceilings to November 2022 for line ministries and government budgetary agencies;
  - plan to integrate the budget costing framework to IFMIS in subsequent years.
- Accrual Accounting Migration:
  - original timeline end-June 2024 deemed too ambitious; plan to finalize assessment of feasible timeline for remaining activities by end-October 2023;
  - key outstanding activities: valuation and recognition of fixed assets, accrual accounting of taxes revenues, integrating SOEs into annual consolidated financial statements.
- IFMIS Rollout to schools:
  - SDMS rollout completed for 1,836 secondary schools out of 1,924; plan to complete rollout to secondary schools by June 2023;
  - primary schools rollout assessment through World Bank PFM Reform Project to be done in June 2023 to inform feasibility/value for money.

### MININVEST, SOE oversight, and fiscal risk
- MININVEST operational role:
  - strengthen governance, oversight, management (including fiscal risks) of SOEs;
  - 15 staff members selected and appointed since February; additional technical hiring ongoing.
- Legal and institutional actions and timelines:
  - MININVEST contributed to review of National Investment Policy, Privatization Law, and Privatization Policy;
  - Presidential Order capturing other ownership principles to be submitted to Cabinet by end-November 2023;
  - draft Privatization Law and Policy expected to be submitted to Cabinet by end-July 2023;
  - MINECOFIN to issue Terms of Reference to determine stakeholders’ roles in fiscal risk quantification and management by end-August 2023.
- Technical capacity and SOE stress testing:
  - MININVEST resumed SOE health checks to identify high-risk SOEs;
  - committed to conduct stress tests in at least two previously identified high-risk SOEs to be submitted to the Fiscal Risk Committee by end-November (proposed 2nd review RT);
  - plan to conduct in 2024: SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter thereafter;
  - plans to develop mitigation measures to address vulnerabilities identified in stress tests by end-April 2024 to be published in the FY24/25 fiscal risk statement.

### Fiscal transparency and reporting
- Conduct a Fiscal Transparency Evaluation (FTE) follow-up mission and publish the subsequent report together with the original FTE report by the second half of 2024.
- Published quarterly budget execution reports under GFS 2014 for the whole general government, including RSSB, by end-April (1st review RT); commit to continue publishing these reports quarterly up to 60 days after the end of each quarter thereafter.
- Action plan for expanding coverage/frequency/timeliness of fiscal reports in GFS 2014 formats (including COFOG and balance sheets) to be developed by end-September 2023 (with IMF TA).
- RSSB asset allocation review timeline unchanged and on track for October 2023 (2nd review RT); consulting firm recruited in November 2022 and inception report received and shared with IMF mission.

### Public investment management and transparency
- Reviewed the PIMA and created an action plan; implementation report under preparation and will be published.
- Auditing of government expenditures:
  - Office of the Auditor General audited all government expenditures, including those financed by the new SDR allocation, and published audit reports by end-May 2023 as part of a full audit for FY21/22.
- Beneficial ownership (BO) and related steps:
  - electronic reporting portal for BO disclosure to the Registrar General launched in March 2023;
  - revised Company Law and revised Partnerships Law enacted in March 2023 to capture BO information;
  - inspections, audits, and sanctions for non-compliance with BO and accounting obligations have started.

### Monetary, exchange rate, and financial sector policies overview
- Continue implementation of forward-looking monetary framework to promote development, stability, and inclusion of financial markets by:
  - increasing reliance on data, analysis, and forecasts in monetary policy formulation and communication;
  - strengthening monetary policy and exchange rate operations and further developing money, domestic debt, and foreign exchange markets.

### Monetary policy stance and actions
- Inflation and interest rate actions:
  - National Bank of Rwanda (NBR) raised its policy interest rate by a cumulative 250 basis points since February 2022.
  - NBR increased the reserve requirement ratio by 100 basis points from 4.0 to 5.0 percent effective from January 2023.
  - Monetary Policy Committee (MPC) will monitor inflation projections to ensure headline inflation returns and is maintained within the NBR band of 2 to 8 percent from 2024 Q1 going forward.
  - NBR will continue to use all monetary policy tools to contain inflation in the short and medium-term.
- Institutional strengthening:
  - Adopted and published the NBR’s Monetary Policy Strategy (end-March 2023 RT) in November 2022 and February 2023, respectively.
  - Continued development of the Forecasting Policy and Analysis System (FPAS) to improve analysis, forecasting, and integration with monetary policy decision-making.
  - Proposed change to average headline inflation period in MPCC from current twelve months to three months.
  - Considering a consumer price expectations survey to be launched in 2024 and plan to request IMF TA support.

### Monetary policy operations and market development
- Market development initiatives:
  - With IFC assistance, identified legal gaps in insolvency, payment system and banking laws and formulated a roadmap to implement Global Master Repurchase Agreement (GMRA) (end-April 2023 RT).
  - NBR and Capital Market Authority (CMA) to lead legal review; envisage enacting full GMRA rollout, including signing by all banks, by end-December 2024 (proposed RT).
- Exchange rate stance and reserves objective:
  - Commit to a flexible exchange rate and limit FX market interventions to minimize excessive volatility.
  - Expect FX pressures in 2023 but anticipate subsiding over the medium term as external demand recovers and reserve coverage remains above the minimum adequate level of 4 months of imports.
  - Plan to gradually build reserves to reach 5 months of imports coverage in the medium-term as recommended in the last IMF’s External Sustainability Assessment.
  - Plan to undertake a diagnostic assessment of the FX market by end-November 2023 (proposed RT) and establish a framework for FX interventions based on the assessment.

### Financial sector policies and inclusion
- Financial stability and supervision:
  - Continue fine-tuning macroprudential analysis, standards, and processes.
  - Onsite examinations to focus on credit risks, loan classification and provisioning, and borrower assessment (including personal loans and commercial real estate).
  - Continued offsite surveillance and quarterly macro stress-tests.
  - Banks submitted second annual ICAAP and ILAAP by end of April 2023 for review; ICAAP includes banks’ risk appetite and projected capital positions for 2023/24, ILAAP provides contingency plans on liquidity.
  - NBR will monitor implications of global banking distress and apply appropriate macroprudential policies.
- Financial inclusion targets and programs:
  - Target achieving 90 percent of formal financial inclusion by 2024.
  - NBR developed a new financial inclusion strategy focusing on digitalization and gender balance; strategy expected to be finalized by end-2023.
  - Updated National Financial Education Strategy to be implemented from 2023-2027.
  - Capacity building: Leasing Seminar, Credit Reporting; upcoming programs on Corporate Governance of SACCOs and Micro-insurance underwriting.
  - National financial sector skills council established with Rwanda Finance Limited.
  - Complaints handling system (INTUMWA Chatbot) and comparator website (Gereranya) operational.
  - Finscope Survey 2024 work has started and expected to be launched in the first quarter of 2024.
  - Mobile payments market: mobile payments more than quadrupled since pre-COVID levels.
  - NBR with World Bank support developing a guideline for women finance to be finalized by May 2023.

### Structural policies and social protection
- Social safety nets and anti-poverty measures:
  - Increased monthly cash transfers:
    - NSDS: from RWF 7,500 to RWF 10,000;
    - Expanded Public Works (ePW): from RWF 10,000 to RWF 15,000.
  - Expanded NSDS from eighteen districts to twenty districts.
  - Number of workdays increased to more than 120.
- VUP and program reach since July 2022:
  - 112,190 households received direct support;
  - 201,789 households participated in classic or expanded public work;
  - 153,156 households under the Nutrition Sensitive Direct Support program;
  - 43,695 households received financial services (mainly micro/small loans);
  - 100,000 households benefited from emergency cash transfers.
- Dynamic social registry rollout:
  - Pilot completed in Gasabo and Bugesera; second phase to be finalized by end-June 2023;
  - Rollout to remaining 28 districts and CBHI expected to start in July 2023 and be finalized within envisaged timeline;
  - Plan to improve shock-adaptability focusing on climate-sensitive projects and increase emergency cash transfer coverage.
- Education and pandemic recovery:
  - Introduced a subsidized school feeding program to boost attendance; will continue improving delivery and targeting.
  - Reinforce remote learning and in-person remedial learning with development partner support.
- Trade, integration, and investment facilitation:
  - Reviewing Industrial Policy, National Trade Policy, National Export Strategy, Cross-border Trade Policy; developing an e-Commerce Strategy.
  - Fast-tracking Kigali Logistic Platform and Bugesera International Airport.
  - Currently about 37 bonded warehouses and 8 cross-border markets operational.
  - Working with partners to reduce tariff/non-tariff barriers and leverage AfCTA preferential market access.
  - Stepping up skilled labor development and considering easing entry barriers for skilled EAC workers.
- Pandemic preparedness and health resilience:
  - Government of Rwanda and WHO signed collaboration agreement on February 13, 2023 to implement three Emergency Preparedness and Response Flagship Initiatives focused on response groups, surveillance transformation, and system resilience.
  - Two-year project to strengthen epidemic intelligence across indicator-based, event-based, community-based, lab-based and One Health surveillances.
  - On track to construct first African mRNA vaccine manufacturing facility; six mobile vaccine production units by BioNTech arrived in April 2023 to support regional vaccine supply and pioneering treatments in development against malaria, tuberculosis and HIV.

*Source: 1rwaea2023001 - 16. Our fiscal path ensures convergence to our debt anchor keeping our debt sustainable.*

### 32. Our RSF-supported reforms have progressed significantly

### 32. Our RSF-supported reforms have progressed significantly

### Integrating climate risks into fiscal planning (RM1)
- Integrated climate risks into the Fiscal Risk Statement with IMF Fiscal Department (FAD) CD support in January 2023.
- Submitted a quantitative climate risk analysis in the Fiscal Risk Statement to the Fiscal Risk Committee by end-April 2023.
- Further recommendations to better quantify discrete risks from climate (including natural disasters) that could lead to unexpected expenditure or revenues of the government.
- Will request IMF assistance to meet subsequent reform targets in this area (expanding to SOEs and PPPs by May 2024).

### Improving climate-sensitivity of Public Investment Management (PIM) (RM2, RM5)
- Cabinet approved an updated National Investment Policy to integrate the climate agenda on April 20th (1st review RM).
- Updated policy improves coherence with existing PIM practices and discusses how to catalyze private climate financing.
- With FAD support, published guidelines for appraisal and selection criteria to reflect PIMA/C-PIMA recommendations (2nd review, RM5) on April 27th within the first PCI/RSF review window.

### Strengthening disaster risk reduction and management (RM3)
- Adopted a revised National Disaster Risk Reduction and Management Policy on May 8th, 2023, replacing the 2012 National Disaster Management Policy.
- Focuses on clarifying roles and responsibilities between institutions and providing clear frameworks for community-based disaster risk reduction and management.
- New policy centered on the following pillars:
  - (i) improve risk knowledge to make sure all sectors understand what are risks and factors (topography, urbanization and population density, poverty) behind those risks and how they can adapt,
  - (ii) risk governance (how decisions are taken) in terms of investment, harmonization of programs integration of planning,
  - (iii) community-based DRM,
  - (iv) risk financing (central, district, community level).
- Establishes a National Disaster Committee at the ministerial level with a coordination entity including ministerial agencies and non-governmental organizations (private sector and civil society) to harmonize plans and interventions on a quarterly basis.

### Monitoring and reporting of climate-related spending (RM4, RM6, RM9, RM11)
- Progressing toward a comprehensive climate budget tagging system under the RSF.
- Producing internal guidelines, including changes to budget circulars and user requirements for the Integrated Financial Management Information System (IFMIS) (2nd review RM4).
- MINECOFIN and the Ministry of Environment working to issue guidelines for implementation of the climate tagging system and to make it consistent with the Green Taxonomy which has been brought forward to end-2023.
- Once fully implemented, the budget tagging system will:
  - allow monitoring of climate related activities at both budget preparation and execution phases,
  - result in the publication of a climate budget statement,
  - improve transparency for the public and development partners.

### Enhancing climate-related risk management for financial institutions (RM8, RM12)
- BN is preparing a diagnostic review as a first step toward issuing a guideline for climate-related risk management for financial institutions (3rd review RM).
- The diagnostic review is expected to be concluded by end-June.

### Scaling up climate finance and safeguarding fiscal risks
- Near-term focus to scale up Rwanda’s Green Investment Facility (“Ireme Invest”).
- Scaling up will occur via a combination of:
  - (i) blending non-concessional and concessional resources,
  - (ii) de-risking,
  - (iii) issuance of sustainability-linked bonds (SLBs).
- Expect to agree on terms and conditions of the scaled-up facility, including pledges by international partners by June 2023.
- Committed to ensure that any fiscal risks stemming from government’s financial exposure through equity contributions or guarantees are well-identified, transparently reported, and mitigated.

### Program monitoring under the PCI and RSF
- Policy Coordination Instrument (PCI): implementation monitored through QTs, including an MPCC, continuous targets, and RTs (detailed in Tables 1a–2 and the Technical Memorandum of Understanding).
- Resilience and Sustainability Facility (RSF): implementation monitored through RMs (detailed in Table 3).

*Source: 1rwaea2023001 - 32. Our RSF-supported reforms have progressed significantly*

### 7.      A continuous ceiling applies to the non-accumulation of payment arrears on external

### 1rwaea2023001 - 7. A continuous ceiling applies to the non-accumulation of payment arrears on external

### Continuous ceiling on non-accumulation of 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 of external payment arrears:
  - Amount of overdue external debt service obligations (principal and interest) arising in respect of obligations incurred directly or guaranteed by the budgetary central government and entities that form part of the budgetary process.
  - A payment is overdue when it has not been paid in accordance with the contractual date (considering any contractual grace periods).
  - Arrears resulting from the nonpayment of debt service for which a clearance framework has been agreed or 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 of domestic expenditure arrears:
  - Unpaid claims that are overdue by more than 90 days.
  - 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 in the calculation.
- Note: A negative target thus represents a floor on net repayment.

### Ceiling on the present value (PV) of new external debt contracted or guaranteed by the government
- Definition of debt (per paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements):
  - Debt means a current (i.e., not contingent) liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time.
  - Primary forms include:
    - Loans (including deposits, bonds, debentures, commercial loans and buyers’ credits; repurchase agreements and official swap arrangements);
    - Suppliers’ credits (deferral of payments after delivery of goods/services);
    - Leases (debt equals the present value at inception of all lease payments expected to be made during the agreement, excluding payments for operation, repair or maintenance).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on obligations not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
- External debt defined as debt contracted or serviced in a currency other than the Rwandan Franc.
- A continuous ceiling is applied to the PV of all new external debt (concessional or non-concessional) contracted or guaranteed by the central government, including commitments contracted or guaranteed for which no value has been received.
  - The ceiling for July 1, 2023, is cumulative from January 1, 2023.
  - The ceiling for December 31, 2023, is cumulative from January 1, 2023.
  - 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 for refinancing existing public-sector external debt that helps improve the repayment profile;
    - IMF disbursements.
- For program monitoring, a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda.
- For program purposes, the value in U.S. dollars of new external debt is calculated using the program exchange rates.

### PV calculation method, concessionality, and interest-rate treatment
- PV of new external debt:
  - Calculated by discounting all future debt service payments (principal and interest) based on a program discount rate of 5 percent and taking account of all loan conditions, including maturity, grace period, payment schedule, front-end fees and management fees.
  - PV is calculated using the IMF model for this type of calculation based on the amount of the loan.
- Concessionality rule:
  - A debt is concessional if on the date on which it is contracted the ratio of its present value to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent).
  - In the case of loans for which the grant element is zero or less than zero, the PV is set at an amount equal to the face value.
- Variable-rate debt:
  - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract.
  - Program reference rate for the six-month USD LIBOR is 3.34 percent.
  - Spreads of six-month LIBOR relative to six-month USD LIBOR:
    - Euro: -150 basis points.
    - JPY: -350 basis points.
    - GBP: -250 basis points.
  - For currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -150 basis points.
  - Where the variable rate is linked to a benchmark other than six-month USD LIBOR, a spread reflecting the difference between the benchmark and six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
  - The program reference rate and spreads will remain fixed for the duration of the program.
  - TMU can be updated to reflect benchmark replacements (SOFR; SONIA; EURIBOR; TONAR) prior to complete phase out, once operationally feasible.

### Adjustor and reporting
- An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies to this ceiling in case deviations are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees) of a debt or debts.
  - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed.
- Reporting requirement:
  - The authorities will inform IMF staff of any planned external borrowing and the conditions on such borrowing before the loans are either contracted or guaranteed by the government.

### Monetary Policy Consultation Clause (MPCC)
- Definition:
  - MPCC headline inflation is defined as the year-on-year rate of change in the monthly Consumer Price Index (CPI), averaged for the past 3-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-June 2023 and end-December 2023 as specified in Table 1a in the PS, the authorities will conduct discussions with Fund staff.
  - If observed headline inflation falls outside the ±4 percentage point range around mid-point of the target band value for end-June 2023, and end-December 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
- Submission timetables unless specified otherwise:
  - Weekly data within seven days of the end of each week;
  - Monthly data within five weeks of the end of each month;
  - Quarterly data within eight weeks.
- Data items and definitions:
  - Priority expenditure:
    - Transmitted on a quarterly basis.
    - Defined as the sum of those recurrent expenditures, domestically financed capital expenditures, and policy lending identified as priority in line with 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.
  - Detailed data on domestic revenues:
    - Transmitted monthly.
    - Defined according to GFSM 2014 taxes and other revenues per the budgetary central government statement of operations table, but including:
      - (a) local government taxes (business licenses, property tax, and rental income tax);
      - (b) local government fees;
    - Excluding receipts from Peace Keeping Operations.
  - Data on contracting and guaranteeing of new non-concessional external borrowing with non-residents:
    - Transmitted on test dates.
    - Excludes external borrowing by two state-owned banks, the Bank of Kigali and Rwanda Development Bank (RDB), assumed not to seek or be granted a government guarantee.
    - Applies to private debt for which official guarantees have been extended, including future swaps involving foreign currency loans guaranteed by the public sector (contingent liabilities).
    - Excludes external borrowing solely for the purpose of refinancing existing public-sector debt that helps improve the repayment 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 the outcome of the financial program (including customs and tax laws, wage policy, and 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 the QTs as well as reform targets within 8 weeks of a test date.
  - Information to be submitted with the frequency and submission time lag indicated in Table 2 of the TMU; to be mailed electronically to the Fund (email to the Resident Representative and the Mission Chief).

### Reporting frequency summary (Table 2 highlights)
- Frequency codes used: 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

### World Bank Assessment Letter update — climate vulnerability and fiscal implications
- Recent event:
  - Severe floods and landslides on May 2 and 3, 2023 affected 10 of Rwanda’s 30 districts:
    - 130 deaths reported;
    - 5,174 houses either destroyed or damaged;
    - 2,510 houses needing to be evacuated;
    - 8 national and 9 district road sections damaged by landslides;
    - 26 bridges damaged by the floods.
  - Damages to assets of households and enterprises and recovery costs have yet to be quantified.
- Fiscal context and constraints:
  - Limited fiscal space and tightening global financing conditions limit government capacity to respond to climate-related crises.
  - Rwanda engaged in fiscal consolidation to address a historically high level of public debt: 73 percent of GDP in 2021.
  - Concurrently deployed fiscal policy measures to mitigate the cost-of-living crisis through increased subsidies for fertilizers, fuel, public transportation, and school feeding programs.
  - These expenditures contributed to expansion of Rwanda’s overall deficit, which is estimated at 6.9 percent of GDP for FY23.
  - Reserves declined from 5.1 months of imports in 2021 to 4.1 months in 2022.
- Policy responses and resilience-building:
  - Effective implementation of the National Disaster Risk Reduction and Management Policy (adopted in early May) should strengthen institutional capacity to manage natural hazards; Policy aligned with the Sendai Framework for Disaster Risk Reduction (SFDRR).
  - Government policy developments relevant to climate adaptation:
    - Parliament approved the Law Governing National Parks and Reserves in February 2023 to facilitate private sector engagement in management of national parks and reserves, many located in areas vulnerable to extreme weather events.
    - MINECOFIN launched development of an integrated Climate Finance Strategy to promote institutional coordination in scaling climate financing, including policy, debt, and non-debt instruments and innovative financing.
      - Strategy aims to ensure coherence between Rwanda’s strategic national plans and sector/geography efforts, and to lay out vision, goals, governance, roles, and responsibilities to mobilize financial resources at scale.
      - Will include a work plan, a climate finance taxonomy, project selection process, an information system to track and monitor financing of climate and environmental protection sensitive projects, and a regulatory framework for climate-focused financial instruments such as thematic bonds or Sustainability Linked Bonds (SBL).

*Source: RWANDA — INTERNATIONAL MONETARY FUND*

### 4.      In February 2023, the Rwanda Green Fund launched the first call for proposals under

### 1rwaea2023001 - 4.      In February 2023, the Rwanda Green Fund launched the first call for proposals under

### INTEGO (NDC Facility) and Climate Finance Instruments
- INTEGO is Rwanda’s nationally determined contributions (NDC) Facility, currently capitalized with financing from the German Government.
- INTEGO provides public institutions in Rwanda, at central and local level, access to funding for climate change adaptation and mitigation projects on the priority issues identified in Rwanda’s NDC.

### Government policies, institutional frameworks, and mitigation priorities
- The government, led by Rwanda Environmental Management Authority (REMA), is preparing a National Carbon Market Framework to facilitate Rwanda’s participation in carbon markets both within and outside Article 6 and in non-market approaches.
  - Objectives of the Framework:
    - Provide a new vision and resource mobilization strategy focused on the private sector.
    - Establish a governance and institutional structure to guide participation in carbon markets.
    - Guide operationalization of technical elements, including project cycle procedures, environmental integrity requirements, and reporting processes.
- The Climate Finance Strategy and INTEGO will support delivery of the government’s mitigation commitments.
- Rwanda’s 2020 NDC estimates total emissions reduction potential of around 4.6 million tons of carbon dioxide equivalent (MtCO2e) in 2030, or a 38 percent reduction against projected business as usual (BAU) emissions in the same year of 12.1 MtCO2e.
  - Reduction breakdown:
    - Agriculture, land use, and related investments (soil conservation, composting, animal husbandry) would provide almost half of this reduction: 2.2 MtCO2e.
    - Energy measures (increased hydropower, efficient cook stoves, motor vehicle standards, solar power in irrigation and mini grids) aim for 1.5 MtCO2e reduction.
  - The reduction potential includes an unconditional target of 1.9 MtCO2e plus an additional conditional reduction of 2.7 MtCO2e requiring new financing and assistance.
- Rwanda’s emissions profile and related figures:
  - Rwanda contributes 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.
  - Sector shares: livestock, agriculture, and land use together account for 74 percent of total emissions; Energy 18 percent; Waste sector 8 percent; Industrial processes and product use (IPPU) 1 percent.
  - Government estimate: agriculture accounted for 49 percent of GHG emissions in 2018, followed by energy (35 percent) and waste management (14 percent).

### Climate vulnerability, impacts, and adaptation priorities
- Vulnerability and exposure:
  - ND-GAIN Index: Rwanda ranked 124th out of 182 countries in vulnerability and readiness.
  - Climate-sensitive sectors in 2021: accounted for an estimated 65 percent of employment, 45 percent of GDP, and 40 percent of exports.
- Projected macroeconomic impact:
  - 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 (depending on the climate scenario) than a no-climate-change baseline.
  - Annual deviations could be 5.0–7.0 percent lower than the baseline in some years.
- Historical disasters and social vulnerability:
  - Droughts have affected as much as 12 percent of the population (1996 drought).
  - 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.

### Financing gap, fiscal implications, and public investment management
- NDC investment needs and financing profile:
  - Total estimated cost of NDC actions: approximately US$11.0 billion.
    - Unconditional: US$4.16 billion (52 percent for adaptation and 48 percent for mitigation).
    - Conditional: US$6.89 billion (47 percent for adaptation and the rest for mitigation).
- Policy and fiscal responses suggested:
  - Need for additional fiscal space via increased spending efficiencies and spreading investments over a longer timeframe.
  - Greater private sector participation through public-private partnerships or joint management of protected areas.
  - Refinements to public investment management systems:
    - Systematic assessment of 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.
- Developing a green finance market as part of broader capital market development:
  - Requires financial regulators and supervisors to implement environmental, social, and governance standards in operations of Rwanda’s financial institutions.
  - Need to develop a pipeline of bankable and monitorable green projects.
  - Introduction of new financial products will require new technical knowledge (e.g., crop and livestock insurance products for smallholders).

### Ongoing domestic and multilateral initiatives supporting climate action
- Domestic instruments and mobilization:
  - National Fund for Environment (FONERWA) with Development Bank of Rwanda mobilized US$104 million via the Rwanda Green Investment Facility to support private sector climate-friendly development.
  - Ireme Investment Facility created with the Development Bank of Rwanda has already secured commitments of USD104 million.
  - Kigali International Financial Center (KIFC) developed a Sustainable Finance Roadmap and is working to deploy resources for green and resilient assets.
- World Bank engagement and technical assistance:
  - Continued support to design and operationalize Ireme Invest and TA on climate finance, including expanded focus on carbon market ambitions.
  - Additional Finance–Access to Finance for Recovery and Resilience Project (AFIRR) (P179999) expected to be approved in FY23 will support development of a Sustainability Linked Bond (SLB) with the Rwanda Development Bank (BRD) to mobilize private capital; BRD's first issuance expected before the end of Q3 2023.
  - PROGREEN financing launched TA for REMA and related MDAs to deliver on NDC landscape restoration commitments and to formulate a strategic program focused on landscape management and natural asset–based economic activities.
  - Preparation of a Private Sector Green Growth Development Policy Financing series expected to incorporate climate measures, unlock climate finance, and improve management of national parks, nature reserves, and buffer zones.
  - World Bank active and pipeline operations addressing climate:
    - Active operations: Second Rwanda Urban Development Project (P165017) (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) and Volcanoes Community Resilience Project (P178161).
    - Analysis and TA: Rwanda CCDR, support for Rwanda Green Investment Facility, and Green Growth and Climate Resilient Development Project (P169151).

### Recent natural disaster (May 2–3, 2023 floods and landslides) — impacts and risks
- Event and immediate impacts:
  - Severe floods and landslides on May 2–3, 2023 resulted in 131 deaths and 5,963 houses damaged.
  - The event is categorized among severe events when adjusted for economic and population sizes.
- Economic and sectoral risks:
  - Affected regions account for significant shares of domestic production of staple foods and tea (a major export crop).
  - Potential for food inflation to reverse recent declines if production losses are not compensated elsewhere.
  - Damages to infrastructure and power supply may add to production and transportation costs, increasing inflationary pressures.
  - Affected areas host important tourism and mining sites, which generate foreign currency inflows.
- Ongoing actions:
  - Costing of damages and reconstruction needs is underway.

*Source: IMF staff and World Bank content as provided in the excerpt.*

### 2. Fiscal deficits for FY22/23 and FY23/24 could deteriorate, depending on the extent of

### 1rwaea2023001 - 2. Fiscal deficits for FY22/23 and FY23/24 could deteriorate, depending on the extent of

### Fiscal impact and estimated reconstruction costs
- Authorities’ emergency response plan: total estimate RFW 301 billion (1.8 percent of FY23/24 GDP) covering support to affected residents and rehabilitation of necessary infrastructure through end of FY23/24.
- Staff short-term fiscal cost estimate for FY22/23: RFW 30-75 billion (0.2-0.5 percent of GDP).
- Short-term cost components included in the RFW 30-75 billion estimate:
  - provision of basic needs to affected residents
  - resettlement of the almost 6,000 households whose housing was destroyed or badly damaged
  - medical expenses
  - cash transfers to residents
  - the beginning of reconstruction
- Remaining FY23/24 costs: rebuilding transport, water and education infrastructure; relocating high risk residents to less flood prone areas.

### Policy guidance on fiscal priorities
- Staff view: authorities should strive to reprioritize existing expenditure, while protecting budgetary allocations to the most vulnerable.
- Recommendation to accelerate reforms to strengthen disaster risk reduction management frameworks and fully integrate climate risks into building new infrastructure.
- Several RSF reforms are expected to support these efforts, including by increasing climate-resilient public investments.

### Balance of payments (BOP) and financing implications
- Additional demand for imports from reconstruction estimated at about USD 50 million over the reconstruction period.
- Further BOP pressures could come from:
  - lower exports of coffee and tea
  - higher imports of food
  - magnitudes of these impacts are still to be determined.
- BOP effect depends on international community response: additional grants and concessional loans would support international reserves.
- Staff actions: remain engaged to assess ramifications for the PCI program, re-evaluate policy priorities, and firm up estimates of BOP financing needs and sources.

### Donor and World Bank engagement
- UN and World Bank engaged with authorities to determine emergency assistance needs.
- World Bank options: rapid financial assistance possibly by reallocating already committed resources via the contingency emergency response framework, to be replenished by activating the IDA crisis response window.
- Based on other countries’ experience, the available envelope under the IDA crisis response window is estimated at USD 25-100 million.
- Any World Bank support conditional on burden-sharing by authorities and other development partners.

### Monetary policy, inflation, and staff assessment
- April CPI: headline inflation decelerated from 19.3 percent in March to 17.8 percent in April.
- Core inflation declined from 12.2 percent to 11.4 percent.
- Instantaneous measures signal inflationary pressures not firmly contained: instantaneous headline inflation has increased; instantaneous core inflation downward trend has started to level off.
- End-June 2023 outer band of the MPCC is likely to be breached, triggering a formal consultation with the Executive Board.
- NBR Monetary Policy Committee decision (May 10): policy rate maintained at 7 percent.
  - NBR target band: 2–8 percent.
  - NBR justification: faster-than-expected downward path of headline and core inflation, less inflationary domestic output gap, softening external demand, decreasing international commodity prices, weak and delayed monetary policy transmission.
  - NBR acknowledged inflationary pressures may re-emerge due to the natural disaster’s impact on food inflation, infrastructure damages, and exchange rate pressures; MPC will monitor second round effects and is committed to adjust policy stance if projected inflation outlook comes under pressure.
- Staff view: decisive monetary policy tightening is critically needed to contain persistent inflationary pressures and preserve external stability.
  - Staff assessment: recent MPC decision falls short given need to curb double-digit credit growth, deeply negative real interest rates, erosion of FX reserve buffers, and disaster-related supply shocks.
  - With current expansionary monetary stance, external adjustment would need to come from stronger fiscal consolidation and greater nominal exchange rate depreciation—this mix may be suboptimal given global uncertainty and reconstruction spending needs.
  - Risks of policy inaction: slower real exchange rate adjustment, added pressure on international reserves, increased external stability risks, undermined NBR credibility, and risks of de-anchoring inflation expectations.
  - If risks materialize, a combination of stronger nominal exchange rate adjustment and tighter monetary and fiscal policy might be needed to restore internal and external stability.

### Authorities’ assessment, program performance, and reform priorities
- Authorities’ statement highlights:
  - Gratitude for IMF support, selection among first five pilot countries for RSF, and broader reform engagement under PCI and RSF.
  - Recognition that the May 2 natural disaster (heavy rainfalls, flooding, landslides) caused more than one hundred and thirty deaths and thousands homeless.
  - Pre-disaster 2022 growth: 8.2 percent.
  - Inflation peaked at 21.7 percent in November 2022; was 19.3 percent in March 2023 and on a declining path; new projections show inflation easing faster than earlier anticipated and should fall below the target band’s upper end of 8 percent in 2023 Q4.
  - End-2022 reserves: 4.2 months of prospective imports.
  - Current account deficit expected to temporarily widen to 11.3 percent of GDP in 2023; recovery of service exports and increasing remittances help lessen pressures.
- Program performance: PCI/RSF performance strong during first reviews; all end-December 2022 Quantitative Targets, standard continuous targets and Reform Targets met.
- Fiscal strategy and measures:
  - Medium-Term Revenue Strategy (MTRS) approved May 2022 expected to yield additional revenue worth 1 percent of GDP per fiscal year.
  - DRM spans FY22/23 to FY24/25; includes New Operating Model (NOM) and improved Electronic Billing Machine (EBM) program.
  - Authorities plan to analyze phasing out some tax exemptions and propose a new package of tax policy measures by second review.
  - Expenditure expected cuts: 3.4 percent of GDP in FY22/23 and a further 1.8 percent of GDP in FY23/24.
  - New Ministry of Public Investment and Privatization to conduct SOE health checks and quarterly stress-test exercises.
  - Plans for a new Fiscal Transparency Evaluation and related reports.
  - Rwanda’s debt assessed as sustainable with a moderate risk of debt distress; fiscal consolidation to be complemented with sound debt and fiscal risk management.
- Monetary and financial sector actions:
  - NBR tightening yielding results in curbing inflation; MPC committed to being data driven.
  - Authorities retain flexible exchange rate regime.
  - Continued intensive supervisory oversight, macroprudential analysis, onsite inspections, and steps to enhance financial inclusion and digitalization.
  - AML/CFT reforms ongoing; AML/CFT strategy recently approved.
- Structural agenda priorities:
  - Address pandemic scars: support private sector-led growth, economic diversification, human capital accumulation, trade-logistics strategy, easing tariff and non-tariff barriers, leverage AfCFTA.
  - Social protection: continue progress implementing social registry in Vision 2020 Umurenge Program (VUP).
  - Climate change: integrate climate issues in macroeconomic policy, incorporate climate risks into fiscal risk statements (with IMF TA), strengthen disaster risk reduction and management, monitor and report climate-related spending, launch green initiatives.
  - RSF implementation critical to build resilience; IMF coordinating with European Investment Bank, Agence Française de Développement and World Bank to catalyze climate finance.

*Source: IMF staff report and authorities’ statement contained in the provided content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1rwaea2023001.pdf_