## 1rwaea2023003 — Executive Summary ## Source details **Canonical URL:** [1rwaea2023003 — Executive Summary](https://www.imf.org/-/media/files/publications/cr/2023/english/1rwaea2023003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1rwaea2023003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1rwaea2023003.pdf.json) --- ### Context - Rwanda faces large development needs compounded by overlapping shocks, including devastating floods in May 2023. - Reconstruction costs: up to US$451 million (3 percent of GDP) over the next five years (authorities’ assessment with World Bank support). - A 3-year Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF) arrangements were approved in December 2022. ### PCI/RSF performance and program adjustments - Quantitative performance: - All but one end-June 2023 quantitative targets and standard continuous targets were met. - 3-month average headline inflation: 15.2 percent (end-June 2023), marginally outside the outer bound (15.0 percent), triggering the monetary policy consultation clause. - Ceiling on the debt-creating overall balance, including grants, missed by RWF 4 billion due to RWF 23 billion (0.1 percent of GDP) flood-related emergency expenditure in the last 5 weeks of the fiscal year. - Two end-December 2023 quantitative targets and one continuous target are requested to be modified. - Reform targets and measures: - Four PCI reform targets were met; one implemented with delay as a prior action. - Two RSF reform measures met, one completed early. - Authorities requested rephasing of four reform measures and proposed two new reform measures (see RSF section). ### New Fund financing (SCF request) and financing composition - Authorities request a 14-month Stand-by Credit Facility (SCF) arrangement concurrent with the PCI: - Proposed access: 125 percent of quota (SDR 200.25 million). - Disbursement design: four-fifths of each SCF disbursement for balance of payments support to cushion reserves; one-fifth for budget support to accommodate temporary fiscal relaxation. - World Bank commitment: US$135 million (US$60 million from Crisis Response Window + repurposed projects). - EIB commitment: US$150 million (new flood-related project support, disbursed over a 10-year window). - Staff-supported disbursements cited: SDR 36.97 million under the RSF and SDR 66.75 million under the SCF. ### Article IV consultation focus - Options and strategies for credible domestic revenue mobilization. - Monetary policy transmission mechanism and strengthening FPAS. - Opportunities and challenges of climate adaptation policies and financing. ### Recent developments and selected macro outcomes - Growth and inflation: - Real GDP growth decelerated to 6.3 percent y/y in 2023Q2 from 9.2 percent in 2023Q1. - Headline inflation: 11.2 percent in October 2023 (down from 21.7 percent peak in November 2022). - Core inflation: 7.4 percent in October 2023 (8.3 percent noted in September in other section); food-driven pressures resurfaced in Aug–Sep 2023. - Labor market: - Unemployment rate: 18 percent (August 2023). - Female unemployment: 21.9 percent; youth unemployment: 21 percent. - Fiscal FY22/23 outturn: - Fiscal deficit: 7.3 percent of GDP. - Total revenue: 0.5 percent of GDP lower than expected. - Recurrent expenditure: 0.4 percent of GDP lower than anticipated despite emergency flood spending (~0.2 percent of GDP). - Capital expenditure: higher than planned by 0.1 percent of GDP. - External sector and reserves: - Trade deficit on goods grew by almost 20 percent (first half of 2023) driven by sharp import increase. - Food import volumes rose by +64.7 percent y/y following two poor agricultural seasons. - Nominal exchange rate: depreciated about 16.6 percent y/y in September 2023. - Reserve coverage projected to drop to 3.4 months by end-2023 and 3.2 months by end-2024 absent new financing and additional policy adjustment (adequacy range cited as 4–5 months). ### Outlook and balance of risks - Growth and inflation outlook: - Real GDP growth expected to soften in 2023–24 amid fiscal consolidation and tight monetary/exchange rate policies despite reconstruction and agricultural recovery. - Average inflation in 2024: 6 percent (noted higher than previous envisaged). - External sector projections: - Current account deficit: 11.5 percent of GDP in 2023 and 11.8 percent of GDP in 2024. - Reserves projected to rebound to US$2.0 billion (4.0 months of imports) in 2024 and stabilize around 4.4 months from 2025 onward (with additional financing). - Balance of risks: tilted to the downside — geopolitical fragmentation, spikes in global energy/food/fertilizer prices, weaker trading partner growth, tighter global financial conditions, climate-related shocks, and regional conflict spillovers. ### Debt sustainability and DSA findings - Updated DSA: Rwanda remains at moderate risk of debt distress. - Public debt trajectory: - Public debt projected to peak at 78 percent of GDP in 2024 before gradual improvement. - PPG debt projected to return to the debt anchor of 65 percent of GDP by 2031. - PV of PPG debt expected to achieve East African Community debt convergence criterion of 50 percent by 2026. - Key DSA numeric highlights: - Total PPG debt: 68 percent of GDP at end-2022 (5.4 percentage points lower than in 2021). - External PPG debt: 48.9 percent of GDP in 2022. - Reconstruction cost estimate repeated: US$451 million (3 percent of GDP). - SCF access planned: 125 percent of quota (SDR 200.25 million). - Projected peak outstanding credit to IMF: 383.75 percent of quota in 2024 once RSF and SCF fully disbursed (outstanding credit as of Nov 9, 2023: 169.91 percent of quota). ### Fiscal policy guidance and DRM - Near-term fiscal stance: - Staff supports temporary fiscal relaxation in FY23/24 to cushion flood impacts; reconstruction spending anticipated around 3 percent of GDP over next five years. - Despite temporary relaxation, fiscal impulse in FY23/24 remains sharply negative: primary balance excluding grants contracting by 1.7 percent of GDP compared to FY22/23. - By FY24/25, 72.8 percent of flood expenditure expected to be accommodated by reprioritization within the existing expenditure envelope; by FY25/26 all flood expenditure to fit within the envelope. - Domestic revenue mobilization: - Financing gap to achieve SDGs by 2030: between 18.7 and 21.3 percent of GDP. - Cabinet approved revenue package (prior action) amounting to about 1 percent of GDP through FY25/26: VAT on IT equipment and mobile phones, increase in fuel levy, increases in excises, and revenue administration enhancements. - MTRS successor to be a comprehensive strategy to broaden tax base, eliminate tax holidays, and streamline tax expenditures; Cabinet to approve comprehensive package by end-January 2025 RT (proposed). - Historical tax effort: tax revenue ratio rose from just under 8 percent of GDP to over 16 percent of GDP between 1992 and 2020; revenue-raising reforms stopped since 2019 with exemptions reducing revenues in 2021–22. ### Expenditure rationalization, PIM, OBL, and fiscal transparency - Expenditure rationalization: - Outline of spending rationalization policies included in FY24/25 Planning and Budget Outlook Paper (end-November 2023 RT); final strategy to be in FY24/25 Budget Framework Paper (end-May 2024 RT). - Emphasize rationalization of subsidies (esp. export promotion), digital delivery of public services, and PIMA/PER recommendations. - PIM and OBL: - Ministerial Order for OBL implementation to be issued by end-2023. - Plan to publish pipeline of appraised major projects annually alongside budget documentation (proposed new end-June 2024 RT / end-October 2024 RT referenced elsewhere). - Consolidated annual financial statement for entire public sector, including SOEs and PPPs, to be finalized by end-June 2025. - Fiscal risk management: - Stress tests of two high-risk SOEs completed (end-November 2023 RT); SOE health-checks planned for all SOEs in 2024 and quarterly stress tests for at least two high-risk SOEs. - Staff urged a follow-up Fiscal Transparency Evaluation (FTE) and publication of results alongside original 2019 document. ### Monetary, exchange rate, and financial sector policies - Monetary policy stance: - Maintain an appropriately tight, forward-looking, data-driven stance to bring inflation toward target. - Cumulative policy rate hikes since Feb 2022: 300 bps (including 50 bps in Aug 2023). Policy rate raised to 7.5 percent in Aug 2023 (series: 6.0 percent Aug 2022; 6.5 percent Nov 2022; 7.0 percent Feb 2023; 7.5 percent Aug 2023). - Reserve requirement ratio increased from 4.0 percent to 5.0 percent effective Jan 2023. - Further tightening needed if second-round effects, stronger pass-through, or external pressures accelerate. - Exchange rate and FX market: - Greater exchange rate flexibility and strengthened FX intervention framework recommended to absorb external shocks and improve monetary transmission. - Diagnostic assessment of FX market completed (end-November 2023 RT); NBR to revise official exchange rate calculation methodology (proposed new end-June 2024 RT) to better reflect market conditions. - Staff recommendations: formulate FX intervention strategy guided by market conditions, switch to competitive auction mechanism, incentivize de-dollarization by raising required reserves on FX deposits vs RWF deposits, and apply well-designed incentives as market matures. - Financial sector stability: - Financial sector stable; credit to private sector grew at about 11 percent on average; NPLs decreased from 4.3 percent (June-2022) to 3.6 percent (June-2023); “watch” loans dropped to 7.8 percent from 10.6 percent a year earlier. - Credit concentration in corporate sector; collateralization high; rise in large exposures concentrated in construction, manufacturing, financial and insurance activities, transportation, and trade. - Staff recommended enhanced supervision, granular data collection, longer-horizon stress testing, and consideration of IMF Financial Sector Assessment Program. ### RSF, climate resilience, and financing needs - RSF progress and reforms: - Guidelines for climate budget tagging system produced (November 2023; second review RM4). - Guidelines for climate-related risk management for financial institutions issued in November 2023 ahead of original RSF timeline (third review RM8). - Authorities requested rephasing and acceleration of several RSF reform measures and proposed two new RMs (RM14 and RM15). - RSF financing and impacts: - RSF total access remains 150 percent of quota; re-phasing to distribute remaining RSF access among remaining and new RMs while keeping disbursements below 50 percent of quota per review. - RSF disbursements expected to boost gross official reserves by an additional 0.7 month of imports starting from end-2024 after SCF financing and policy adjustment. - Climate investment and financing needs: - Authorities estimated overall financing need for NDCs at US$5.1 billion and US$5.9 billion for 2020–25 and 2026–30 periods, respectively. - Authorities identified a pipeline of green projects valued at US$4.5 billion for 2020–25. - Authorities estimate NDC implementation financing gap at US$6.5 billion for 2020–30. - Full NDC implementation fiscal cost: estimated at 7 percent of GDP annually; if debt-financed, model simulations indicate it would undermine debt sustainability unless supplemented by DRM and spending rationalization. - Recent climate finance developments: - AFD approved US$50 million budget support linked to RSF reforms. - Green investment facilities (Ireme and Intego) progressing; government and partners announced cooperative approach to mobilize EUR 300 million for climate resilience. - At COP28 government to announce first phase of green taxonomy and carbon market regulatory framework. ### Socioeconomic resilience and social protection - Social safety nets: - Nutrition Sensitive Direct Support increased from RWF 7,500 to RWF 10,000 monthly. - Cash transfer for expanded Public Works increased from RWF 10,000 to RWF 15,000. - NSDS coverage expanded to twenty districts; 164,434 beneficiaries (including 28,929 pregnant women and 146,171 children under 2); total beneficiaries since 2019: 323,370. - VUP: 123,015 households received direct support since July 2022; gender distribution provided for program components. - Dynamic social registry: - Rollout on track to finalize roll-out to all VUP beneficiaries and CBHI subsidized beneficiaries by end-May 2024 RT. - Financial inclusion: - Target: 90 percent of formal financial inclusion by 2024; FinScope 2020 baseline: 77 percent overall, 74 percent for women, 81 percent for men. - Guideline for women’s financial inclusion launched in September 2023. ### Program monitoring, conditionality, and reporting - Program period and coverage: - Program period: July 1, 2023––December 31, 2024; supported by PCI and SCF. - Quantitative targets and definitions: - Ceiling on debt-creating overall fiscal deficit, floor on NFA of the NBR, continuous ceiling on external payment arrears, ceiling on net accumulation of domestic expenditure arrears, and ceiling on PV of new external debt are central program QTs (definitions and adjustors specified). - MPCC specifics: - MPCC midpoint set to 5 percent for end-June and end-December 2024 (consistent with projected decline in average inflation and NBR medium-term target). - Consultation triggers: ±3 percentage point range around mid-point for staff discussions; ±4 percentage point range triggers Executive Board consultation. - Data and reporting frequency: - Weekly data within seven days; monthly data within five weeks; quarterly data within eight weeks; detailed tables of reporting requirements provided (Table 2 summary). ### Key policy recommendations (staff appraisal) - Overarching objective: preserve macroeconomic and financial stability, ensure fiscal sustainability, rebuild buffers, and advance socio-economic resilience. - Fiscal: - Allow a temporary and modest fiscal relaxation to support flood reconstruction while implementing medium-term consolidation and comprehensive tax reforms to increase fiscal space. - Continue expenditure rationalization, improve PIM and fiscal transparency, and prepare contingency measures (limits on new staff recruitments, further cuts on non-essential non-wage recurrent spending, discontinuation of underperforming projects). - Monetary and exchange rate: - Keep monetary policy appropriately tight and forward-looking; maintain exchange rate flexibility; strengthen FX intervention framework and develop FX market mechanisms (competitive auctions, de-dollarization incentives). - Financial sector: - Intensify supervision, develop granular stress testing, monitor large exposures, and consider IMF FSAP to strengthen resilience. - Climate and RSF: - Maintain momentum on RSF-supported reforms (climate budget tagging, climate-related financial risk management, green taxonomy) to increase adaptation, resilience, and catalyze climate financing; scale up green investment facilities and blending strategies. *Source: EXECUTIVE SUMMARY (1rwaea2023003).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - The Rwandan economy is undergoing challenging times with large development needs compounded by overlapping shocks. - Devastating floods from May 2023 amplified underlying internal and external imbalances; reconstruction costs are projected to be substantial. - Based on the authorities’ assessment with World Bank support, up to US$451 million (3 percent of GDP) over the next five years could be needed to address emergency reconstruction spending and rebuild climate resilient infrastructures. - A 3-year Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF) arrangements were approved in December 2022. ### PCI/RSF performance - Performance during the first reviews continued to be strong, with caveats. - Quantitative performance: - All but one end-June 2023 quantitative targets and standard continuous targets were met. - The 3-month average headline inflation fell marginally outside the outer bound value for end-June 2023, triggering the monetary policy consultation clause. - The completion of the monetary policy consultation with the IMF Executive Board is requested. - The ceiling on the debt-creating overall balance, including grants, was missed by RWF 4 billion due to RWF 23 billion (0.1 percent of GDP) flood related emergency expenditure in the last 5 weeks of the fiscal year. - Two end-December 2023 quantitative targets and one continuous target are requested to be modified. - Reform targets and measures: - Four PCI reform targets were met; an additional one was implemented with a delay as a prior action. - Two RSF reform measures were met, one of which was completed early. - The authorities requested to change availability dates and rephase four existing reform measures and proposed to add two new reform measures. - Specific PCI reforms met as planned: review of RSSB asset allocation (end-October 2023 RT); outline of policies underlying the spending rationalization strategy in the FY24/25 Planning and Budget Outlook Paper (end-November 2023 RT); diagnostic study of foreign exchange markets (end-November 2023 RT); stress tests of two high-risk SOEs (end-November 2023 RT). - RSF reforms: guidelines for the implementation of the climate budget tagging system (second review RM4) produced in November 2023; guidelines for climate-related risk management for financial institutions (third review RM8) issued in November ahead of original RSF timeline. ### New Fund financing - The authorities request a 14-month Stand-by Credit Facility (SCF) arrangement to be implemented concurrently with the PCI with proposed access of 125 percent of quota (SDR 200.25 million). - SCF arrangement conditionality will focus on recalibration of the near-term policy mix. - Financing composition and purpose: - Four-fifths of each disbursement under the SCF arrangement would be disbursed as BOP support to cushion reserves. - One-fifth, and the World Bank, and the EIB financing would provide financing support to accommodate the temporary fiscal relaxation in response to the recent natural disaster. - The current PCI will remain the main policy framework to support the authorities’ medium-term policy objectives. ### Article IV consultation focus - The Article IV consultation focused on: - options and strategies for credible domestic revenue mobilization; - the monetary policy transmission mechanism; - opportunities and challenges of climate adaptation policies. ### Recent developments and program performance (selected findings) - Growth and inflation: - Real GDP growth decelerated to 6.3 percent year-on-year in 2023Q2 from 9.2 percent in the previous quarter. - Headline inflation decelerated to 11.2 percent in October 2023 from a 21.7 percent peak in November 2022. - Core inflation was 7.4 percent in October 2023. - Inflationary pressures temporarily resurfaced in August-September 2023 due to consecutive climate-induced poor agricultural seasons affecting food production. - Labor market: - Unemployment rate in August 2023 was 18 percent. - Female unemployment rate was 21.9 percent; youth unemployment rate was 21 percent. - Fiscal outcomes FY22/23: - Fiscal deficit was 7.3 percent of GDP. - Total revenue were 0.5 percent of GDP lower than expected. - Recurrent expenditure outturn was 0.4 percent of GDP lower than anticipated despite increased spending on goods and services related to the emergency response to floods (about 0.2 percent of GDP). - Capital expenditure was higher than planned by 0.1 percent of GDP. - Interest expenditure and net lending were lower than expected. - External sector and reserves: - Over the first half of 2023, the trade deficit on goods grew by almost 20 percent driven by a sharp increase in imports. - Food import volumes rose by +64.7 percent y/y following two poor agricultural seasons. - The nominal exchange rate depreciated by about 16.6 percent y/y in September 2023. - Reserve coverage, which was slightly above the bottom of the adequacy range of 4-5 months of prospective imports at end-2022, is projected to drop to 3.4 months by end-2023 and 3.2 months by end-2024 absent new financing and additional policy adjustment. ### Outlook and risks - Existing balance of payments pressures—stemming from poor agricultural seasons, still high food and energy prices, and reduced availability of concessional financing—are expected to persist in the coming months amid costs from flood-related reconstruction and the need for large food imports. - Key policy challenge: balancing alleviating the impact of the recent natural disaster, advancing developmental and climate agendas, and rebuilding policy buffers through appropriately phased adjustment. ### Policy recommendations - Overarching objective: preserve macroeconomic and financial stability, ensure fiscal sustainability, rebuild buffers, and advance the socio-economic resilience agenda. - Fiscal policy: - A temporary fiscal relaxation in FY23/24 is appropriate to help cushion the effects of the recent floods. - Medium-term fiscal policy should be geared towards maintaining fiscal and external sustainability. - Comprehensive tax reforms are critical to help create fiscal space for developmental spending. - Expenditure rationalization and fiscal risk management efforts should continue to consolidate gains from fiscal reforms. - Monetary and exchange rate policies: - An appropriately tight, forward-looking, and data-driven monetary policy stance is needed. - Further policy tightening would be necessary should second round inflation effects from supply shocks prove more pronounced, exchange rate depreciation result in stronger inflation passthrough, or external pressures accelerate. - Greater exchange rate flexibility is key to absorb external shocks. - Strengthening the FX intervention framework will help develop the FX market and improve the effectiveness of monetary policy transmission. - Socioeconomic resilience: - Continue efforts to foster socioeconomic resilience through enhancing social protection programs, improving human capital accumulation, and promoting private sector-led economic diversification. - Maintain momentum on RSF-supported climate-related reforms to close adaptation gaps, increase resilience to climate-induced shocks, and catalyze climate financing. ### Mission and report preparation - Approved by Catherine Pattillo (AFR) and Martin Čihák (SPR). - Mission team: Ruben Atoyan (Mission Chief), Chie Aoyagi, Irena Jankulov Suljagic, Sampawende Jules Tapsoba (all AFR), Andrew Ceber (FAD), Karim Foda (SPR), Tumer Kapan (MCM), Gabor Pula (Resident Representative in Kigali Office), and John Kayemba (local economist). Loy Nankunda (OEDAF) attended mission meetings. Mission facilitated by Patience Mugishakazi. - Report preparation assisted by E. Chueca Montuenga, Mireille Nsanzimana, Fernando Morán Arce (AFR). - Discussions were held remotely during October 10–13, and in Kigali from October 17–31, 2023, including meetings with the Minister of Finance and Economic Planning, Governor of the National Bank of Rwanda, other ministers, Parliament Budget Committee, development partners, heads of commercial banks, and representatives of the private sector and civil society. *Source: EXECUTIVE SUMMARY (1rwaea2023003).* ### 10. The economic recovery is expected to moderate on account of continued fiscal ### 10. The economic recovery is expected to moderate on account of continued fiscal consolidation and tight monetary and exchange rate policies. ### Outlook and key macroeconomic projections - Real GDP growth is expected to soften in 2023-24 despite acceleration of post-disaster reconstruction spending and recovery in the agricultural sector, amid envisaged policy measures to support external balance and price stability. - Inflation expectations: - Average inflation in 2024, at 6 percent, will be higher than previously envisaged due to continued exchange rate depreciation passthrough. - External sector: - Current account deficit is expected to widen to 11.5 percent of GDP in 2023 and 11.8 percent of GDP in 2024 due to high food imports, post-flood reconstruction efforts, and the large airport construction project. - Over the medium term, a steady improvement in the current account is anticipated supported by higher domestic savings due to the policy adjustment. - Reserves would rebound to US$2.0 billion, equivalent to 4.0 months of prospective imports, and stabilize around 4.4 months of imports from 2025 onward. ### Balance of risks - The balance of risks to the outlook remains tilted to the downside. - Key downside risk drivers: - Further deepening of geopolitical fragmentation. - Another spike in global energy, food, and fertilizer prices. - A steeper decline in trading partners’ growth. - Global financial market developments, including tightening of financial conditions affecting availability and affordability of external financing. - Climate-related shocks given Rwanda’s dominantly rain-fed agriculture sector. - Fallout from the conflict with the Democratic Republic of Congo affecting regional trade and aid flows. ### Authorities’ views - Authorities agreed with staff’s assessment of the outlook and risks. - They noted uncertainties to the inflation forecast in 2024, including unpredictable climate shocks affecting agricultural harvests. - Authorities anticipate pressures on concessional financing to continue. ### Fiscal policy: managing near-term trade-offs - Near-term stance: - A moderate loosening of the FY23/24 and FY24/25 fiscal deficit is warranted to allow for reconstruction from the floods. - Staff supports temporary relaxation of the deficit compared to the first review given urgent rebuilding needs and limited short-term reprioritization scope. - Despite this relaxation, the fiscal impulse in FY23/24 remains sharply negative with the primary balance excluding grants contracting by 1.7 percent of GDP compared to FY22/23. - Reconstruction spending is anticipated to be around 3 percent of GDP over the next five years. - By FY24/25, most flood expenditure (72.8 percent) will be accommodated by reprioritization within the existing expenditure envelope set at the first review; by FY25/26 all flood expenditure will fit within the existing expenditure envelope. - Most rephased spending is anticipated to come from the capital expenditure envelope. - Expenditure transparency: - Transparency on flood related expenditures, including reporting on projects to support emergency response and reconstruction, will be critical. - Debt dynamics: - Updated Debt Sustainability Analysis (DSA) confirms Rwanda remains at moderate risk of debt distress. - Under the baseline, public debt would peak at 78 percent of GDP in 2024 before gradually improving over the medium term. - PPG debt is projected to return to the debt anchor of 65 percent of GDP by 2031 and its present value to achieve the East African Community debt convergence criterion of 50 percent by 2026. - The moderate improvement relative to program approval is primarily driven by a significantly lower-than-forecasted level of public debt at end-2022 (4.2 percentage points less) and higher real GDP growth outcomes, partially offset by larger REER depreciation and looser fiscal stance over 2024–25. - Fiscal consolidation strategy and contingency measures: - The revised fiscal deficit path preserves external stability and remains consistent with gradual convergence to the fiscal anchor. - Adjustment burden is split between revenues and expenditures. - Authorities will prepare contingency measures to meet fiscal objectives, including spending reprioritization while protecting priority spending. - Specific measures include limits on new staff recruitments, further cuts on non-essential and non-efficient non-wage recurrent expenditure, and discontinuation of underperforming domestic projects. ### Domestic revenue mobilization (DRM) and tax reform - Importance of DRM: - Bolder domestic revenue mobilization is key to achieving fiscal objectives under the program and to support the SDG and climate agenda. - The financing gap to achieve the Sustainable Development Goals by 2030 ranges between 18.7 and 21.3 percent of GDP. - Recent and planned measures: - Revenue administration reforms continued with RRA organizational changes, continued digitization of the tax system, and improved compliance. - Cabinet approved a package of revenue generating and predominantly tax policy measures, supported by IMF technical advice, amounting to about 1 percent of GDP through FY25/26 (prior action). - Measures focus on application of VAT to IT equipment and mobile phones, an increase in the fuel levy, increases in excises, and revenue administration enhancements. - The Cabinet will approve a comprehensive package of measures consistent with the program’s revenue targets by the fifth review (proposed new end-January 2025 RT). - Comprehensive vs selective reforms: - Staff’s analysis suggests selective implementation of reforms tends to yield protracted loss of revenue, while comprehensive packages are revenue neutral in the near term and thereafter (beyond 3 years) lead to significant increases in revenue. - Authorities agreed that the MTRS successor will be a comprehensive strategy to increase tax revenues by broadening the domestic tax base, eliminating tax holidays, and streamlining tax expenditures, implemented concurrently with improving compliance and curbing tax evasion. - Historical context and targets: - Rwanda’s tax revenue ratio rose from just under 8 percent of GDP to over 16 percent of GDP between 1992 and 2020. - Since 2019, revenue-raising reforms stopped with the introduction of exemptions and other measures that reduced revenues in 2021 and 2022. - To meet developmental challenges, Rwanda will need to raise its revenue effort significantly and prioritize a comprehensive strategy that increases progressivity and reduces the tax gap. ### Expenditure rationalization, PIM, and fiscal transparency - Expenditure rationalization: - Authorities prepared an outline of spending rationalization policies for the FY24/25 Planning and Budget Outlook Paper (end-November 2023 RT). - Final spending rationalization strategy (to be included in the FY24/25 Budget Framework Paper, end-May 2024 RT) should include cost-savings and efficiency gains, including rationalization of subsidies (particularly those related to export promotion) and digital delivery of public services, based on World Bank PER and IMF PIMA recommendations. - Public Investment Management (PIM) and Organic Budget Law (OBL): - In line with 2022 PIMA recommendations, authorities plan to start publishing a pipeline of appraised major projects and project selection criteria annually alongside budget documentation (proposed new end-June 2024 RT), redacting commercially sensitive information. - To support OBL implementation, a Ministerial Order will be issued by end-2023 to improve the budget and medium-term expenditure framework, institutionalize fiscal risk management practices and structures, and help adopt best practices in fiscal reporting. - Fiscal risk management and transparency: - Following integration of the former Ministry of Public Investment and Privatization into MINECOFIN, authorities completed stress tests of two high-risk SOEs (end-November 2023 RT). - Authorities committed to SOE health-checks in 2024 for all SOEs and continuation of quarterly stress tests for at least two high-risk SOEs. - Staff urged a follow-up Fiscal Transparency Evaluation (FTE) and publication of results alongside the original 2019 document that remains unpublished. - Authorities continued to publish quarterly financial statistics in GFS 2014 covering all the general government following first publication in April 2023. - Rwanda Social Security Board (RSSB) reviewed its asset allocation (end-October 2023 RT). ### Monetary, exchange rate, and financial sector policy guidance - Monetary policy stance: - Monetary policy should focus on bringing inflation down towards target. - Inflationary pressures remain above pre-pandemic levels driven by high domestic food inflation and still elevated core inflation. - The 300-bps cumulative hike since February 2022—including an appropriate 50 bps increase in August 2023—will help steer inflation towards the NBR inflation target. - Further policy rate hikes would be necessary should second-round inflation effects from the May 2023 floods and reconstruction spending prove more pronounced, exchange rate depreciation result in stronger-than-expected inflation passthrough, or external pressures accelerate. - With core inflation remaining high, staff cautioned against premature easing and advised that the policy stance remains appropriately tight long enough to durably bring inflation back to the target. - Strengthening the interest rate-based framework and communications: - Staff recommended introducing judgement and additional information into the QPM model and fully incorporating the Forecasting Policy and Analysis System into the NBR’s decision-making. - Reforms to enhance the forward-looking nature of the monetary policy framework, clear communication of data-driven policy decisions, and greater exchange rate flexibility remain critical for long-term price and external stability. - The full rollout of Global Master Repurchase Agreement (GMRA) is expected by end-2024 (end-December 2024 RT). *Source: IMF staff report chapter provided in content unit 1rwaea2023003.* ### 25. FX interventions should support rebuilding external buffers and facilitating external ### 25. FX interventions should support rebuilding external buffers and facilitating external ### FX interventions and exchange rate policy - The nominal exchange rate depreciated in line with program expectations, but "more is needed to support external adjustment given the slower pace of fiscal consolidation in the near term and the limited effectiveness of monetary policy transmission." - The NBR should stand ready to accommodate deeper exchange rate adjustment—beyond what is assumed under the program baseline—should program reserve targets come under pressure. - FX interbank market liquidity remains limited despite the NBR's recognition of the importance of exchange rate flexibility and financial market development. - The authorities conducted a diagnostic assessment of the FX market (end-November 2023 RT), supported by IMF TA, to support plans to establish a formal framework to guide FX intervention policy. - As a first step, the NBR will revise its official exchange rate calculation methodology to allow for greater price discovery by better reflecting market conditions (proposed new end-June 2024 RT). - Staff recommendations for FX market development and intervention strategy: - Formulate the NBR’s FX intervention strategy with interventions guided by FX market conditions. - Switch to a competitive auction mechanism. - Incentivize de-dollarization of deposits by raising the required reserves on FX deposits relative to reserves on RWF deposits. - Move from providing agile liquidity support toward applying well-designed incentives as the market matures. - Staff confirmed that the FX market development strategy remains consistent with Article VIII obligations. ### Monetary policy transmission and central bank stance - Exchange rate flexibility and proactive use of the central bank rate as the main policy instrument are key for enhancing the effectiveness of monetary policy. - Results from VAR analysis using quarterly data show that although statistically insignificant, inflation responds to monetary policy shocks in the expected direction. - Factors impairing monetary transmission include: - consumption basket heavily dominated by food items; - monetary policy inertia and less proactive use of the policy rate; - underdeveloped financial markets and weak competition in the banking sector; - structural FX shortages and the NBR’s dominant footprint in the FX market; - limited exchange rate flexibility. - Rwanda’s exchange rate passthrough to inflation, while still high, declined in recent years, likely signaling notable improvement after the 2019 transition to an interest-rate based monetary policy regime. - The NBR is determined to strengthen the credibility of its interest-rate based regime and improve the monetary transmission mechanism. ### Financial sector stability and credit developments - The financial sector remains stable; there were no immediate major disruptions from recent floods. - Credit to GDP ratio increased modestly in the first half of 2023. - Credit to the private sector continued to grow robustly at about 11 percent on average. - Banks maintained strong capital and liquidity positions. - Nonperforming loans (NPLs) decreased from 4.3 percent in June-2022 to 3.6 percent in June-2023. - Loans classified as “watch” categories dropped to 7.8 percent of total loans, relative to 10.6 over the same timeframe. ### Credit concentration and large exposures - Credit is concentrated in the corporate sector; banks’ lending to households remains limited. Household loans consist mainly of personal loans and mortgage loans are still rare. - Most loans are collateralized, lowering financial risks for banks but increasing cost/access barriers for small and individual borrowers and resulting in market segmentation. - Banks have increasingly accumulated large exposures in recent years, with state guarantees covering some exposures contributing to the bank-sovereign nexus. - Sectors with the largest contributions to banks’ large exposures include construction, manufacturing, financial and insurance activities, transportation, and trade. - A significant downturn in these sectors has the potential to lead to sizeable losses for banks. ### Financial stability monitoring and recommendations - Financial stability risks need close monitoring via intensive supervision, regular stress tests, and quarterly Financial Stability Committee meetings. - The NBR’s stress testing capacity is being developed, albeit from a low base. - Staff recommended: - adopting a more granular approach to data collection, risk monitoring, and analysis; - developing stress testing models with longer term horizons; - gathering more granular exposure data and conducting more detailed risk analysis, given growing large exposures; - tightening regulatory limits on large exposures should risks increase. - Staff recommended conducting an IMF Financial Sector Assessment Program in the coming period to enhance resilience and identify opportunities to strengthen supervisory, regulatory, and crisis management frameworks. ### AML/CFT and beneficial ownership - Rwanda is undergoing its second mutual evaluation assessment by ESAAMLG. - Rwanda has enacted several AML/CFT laws and issued guidelines to improve technical compliance with FATF standards, including more dissuasive sanctions for ML/TF and proliferation financing. - Rwanda is updating its national AML/CFT risk assessment with respect to virtual assets/virtual asset service providers and legal persons and arrangements. - Companies have begun submitting beneficial owner (BO) information in compliance with the revised Company Law and Partnerships Law and the Rwanda Development Board (RDB)’s October 31, 2023 deadline to submit BO information. - Going forward, priority actions include: - cross-checking company information with tax and revenue authorities; - ensuring a consistent BO definition across all laws (including Public Procurement); - ensuring competent authorities, including law enforcement, have direct and full access to BO information. ### Socioeconomic resilience and structural reforms - Fostering socioeconomic resilience is essential: enhance coverage, targeting, and shock-adaptability of social safety nets; improve access and quality of health and education among vulnerable groups; promote economic diversification. - Authorities continued progress on social protection under Vision 2020 Umurenge Program (VUP); roll-out of the dynamic social registry is on track (end-May 2024 RT). - Key VUP elements include social safety nets, graduation, shock response, and sensitization/public communications. - Recent adjustments to mitigate rising prices for vulnerable households: - Nutrition Sensitive Direct Support monthly cash transfer increased from RWF 7,500 to RWF 10,000. - Cash transfer for the expanded Public Works increased from RWF 10,000 to RWF 15,000. - Authorities target achieving 90 percent of formal financial inclusion by 2024; the NBR developed a new financial inclusion strategy focused on digitalization and gender balance. - Efforts to promote private-sector-led diversification should place greater emphasis on building a more skilled labor force and move beyond excessive reliance on tax incentives. ### Climate resilience, financing needs, and RSF-supported reforms - Building resilience to climate change remains strong and RSF-supported reforms continue. - IMF technical assistance supported preparation of guidelines for implementing a climate budget tagging system (second review RM4) and a roadmap for gradual roll-out, with a prototype for development expenditures (third review RM6). - The NBR published a guideline for climate-related risk management for financial institutions (initially third review RM8), including a timeline for tiered implementation. - Authorities committed to strengthen the RSF arrangement by bringing forward availability dates of future RSF reform measures and adding two additional reform measures. - As part of mitigation efforts, fuel taxation measures will increase the levy on diesel and petroleum from 115 RFW per liter to 150 RFW per liter in FY25/26. - Climate finance and project pipelines: - Authorities estimated overall financing need for NDCs at US$ 5.1 and 5.9 billion for the 2020–25 and 2026–30 periods, respectively. - Authorities identified a detailed pipeline of green projects valued at US$ 4.5 billion for the 2020–25 period. - Authorities estimate Rwanda’s NDC implementation financing gap at US$6.5 billion for the 2020–30 period. - Full NDC implementation is estimated to have a fiscal cost of 7 percent of GDP annually and could crowd out other development spending. - Model simulations indicated that full NDC implementation, if debt financed, would undermine debt sustainability; debt would remain sustainable by supplementing the financing gap with DRM and spending rationalization policies. - Full implementation of RSF reforms would improve macro-outcomes by increasing public investment efficiency and catalyzing additional climate financing; using programmatic synergies across development objectives would enhance returns and lower pressure on other development spending. - Recent climate finance developments: - The recently approved US$50 million budget support by Agence Française de Développement (AFD) is linked to RSF reform measures. - Private and public green investment facilities (Ireme and Intego) have progressed in pipeline development; Ireme pursuing private projects in clean energy, sustainable cities, and e-mobility; Intego compiling a public pipeline on landscape restoration, climate-smart agriculture, and sustainable urbanization. - Government and development partners announced a cooperative approach to climate finance to mobilize EUR 300 million of investments to build climate resilience. - Blending concessional and non-concessional resources, de-risking, and issuing a sustainability-linked bond will be used to scale up Ireme Invest. - At COP28, the Government will announce the first phase of its green taxonomy and a carbon market regulatory framework, together with additional contributions to Ireme Invest. *Source: IMF country report content provided.* ### 39. The prevalence of women working in the agriculture sector makes them more exposed ### 39. The prevalence of women working in the agriculture sector makes them more exposed to climate shocks ### Gender, climate vulnerability, and policy responses - Women’s heavy participation in agriculture increases their exposure to climate shocks, necessitating gender-sensitive climate policy responses that: - reduce women’s vulnerability; - promote gender-sensitive measures; and - include women in climate change adaptation and mitigation decision-making processes. - Rwanda recognizes climate and gender as cross-cutting, trans-sectional, and multi-dimensional issues to be reflected across national strategies. - Institutional steps: - FONERWA published a Gender Mainstreaming Strategy and Gender Action Plan addressing institutional gender mainstreaming, including in FONERWA’s project portfolio management. - Authorities are implementing support measures to increase female employment in non-agricultural sectors. ### Authorities’ views on climate financing and implementation - Authorities reaffirm strong commitment to the climate agenda. - They note the cost of implementing Rwanda’s NDC objectives is sizeable but argue a programmatic approach leveraging synergies with other development goals should help limit implementation costs. - Authorities emphasize efforts to accelerate the RSF to capitalize on its catalytic role to mobilize further private climate financing. ### Program modality: SCF arrangement and objectives - Arrangement and access: - 14-month Stand-by Credit Facility (SCF) arrangement. - Access: 125 percent of quota (SDR 200.25 million). - The SCF will support short-term BOP needs, guide recalibration of policy adjustment in response to climate-related shocks, and protect priority spending. - Justification for access: - Strength of authorities’ reform agenda. - Strong capacity to repay. - Significant BOP financing gaps from climate-shock-induced increases in food and post-disaster reconstruction imports. ### Phasing, catalytic financing, and external support - Disbursement structure under SCF: - Four-fifths of each SCF disbursement for BOP support to cushion reserves. - One-fifth of each disbursement for budget support. - Specific financing commitments: - World Bank: US$135 million (US$60 million from crisis response window; remainder from repurposed existing projects). - European Investment Bank (EIB): US$150 million in new flood-related project support, with disbursements over a 10-year window. - Expected outcomes: - Financing under SCF and PCI/SCF policy adjustment should allow Rwanda to rebuild external buffers toward the middle of the 4–5-month adequacy range. - Proposed burden sharing initially skewed toward the Fund but expected to improve from 2023 to 2025. - Other development partners are supporting Rwanda with significant budget and project financing under the baseline. ### Conditionality, targets, and monetary policy parameters - Conditionality adjustments: - Proposed modifications to end-December 2023 QTs on debt-creating overall balance and stock of net foreign assets, and continuous target on PV of new public and publicly guaranteed external debt; new end-June 2024 and end-December 2024 QTs/QPCs set aligned with updated macro framework. - Monetary policy consultation clause: - MPCC midpoint set to 5 percent for end-June and end-December 2024, consistent with projected decline in average inflation and NBR’s medium-term inflation target. - Prior actions: - Missed end-September 2023 RT on revenue-generating package of measures was set as a prior action to achieve envisioned revenue gains. ### RSF reform measures and timeline - Rephasing and enhancement: - Authorities requested bringing forward availability dates of three RMs and introducing two additional RMs. - One existing RM8 (initially third review) on guideline for climate-related financial risk management for financial institutions implemented and availability date requested to be moved forward to the current review. - Three RMs initially scheduled for the fifth review will be accelerated: - RM11 (publish comprehensive tagging results; publish quarterly climate expenditure report) moved to fourth review. - RM12 (issue guideline to financial institutions on implementation of ISSB recommendations) moved to fourth review. - RM13 (develop financing mechanism at local level for disaster risk reduction and management strategy) moved to third review. - Two new RMs: - New RM14 (third review): publish individual risk analysis of SOEs and PPPs vulnerable to climate change risks submitted to fiscal risk committee. - New RM15 (fourth review): MINECOFIN to adopt a green taxonomy adapted to Rwanda’s NDCs covering seven sectors (agriculture, energy, construction, transportation, manufacturing, wastewater management, and ICT). - RSF access and disbursement design: - Total access under RSF remains 150 percent of quota with re-phasing starting from the third review by uniformly distributing remaining RSF access between remaining and new RMs. - This re-phasing keeps disbursements of future reviews below the maximum 50 percent of quota per review rule. - Intended uses and impacts: - RSF disbursements will create fiscal space to support climate adaptation and mitigation priorities including low-carbon transport networks, low carbon and climate-resilient infrastructure and energy access, resilient urban landscapes, sustainable water systems, agriculture, forestry, and conservation. - RSF disbursements will augment international reserves and are expected to boost gross official reserves by an additional 0.7 month of imports starting from end-2024, after SCF financing and agreed policy adjustment close BOP financing gaps from climate shocks. ### Financing breakdown (selected figures) - Total access and disbursement support: - SCF total access: 125 percent of quota (SDR 200.25 million). - RSF total access: 150 percent of quota. - Staff-supported disbursements: SDR 36.97 million under the RSF and SDR 66.75 million under the SCF. - External financing commitments cited: - World Bank commitment: US$135 million (US$60 million CRW + repurposed project funds). - EIB commitment: US$150 million. - Table excerpt (cumulative totals by year in US$ mn and percent of total) shown in source. ### Capacity to repay, debt trajectory, and safeguards - Capacity to repay: - Rwanda’s outstanding credit: 169.91 percent of quota (as of November 9, 2023). - Projected peak outstanding credit: 383.75 percent of quota in 2024 once RSF and SCF fully disbursed. - Peak described as high: 39.3 percent of gross international reserves, or 6.0 percent GDP. - Peak debt service to the Fund in 2028: 4.3 percent of gross international reserves, or 3.1 percent of revenues excluding grants. - Downward debt trajectory in medium term with moderate risks of external and public debt distress; strong reform track record supports capacity to repay. - Safeguards and institutional arrangements: - January 2022 safeguards assessment found a well-established governance and control framework aligned with international standards. - May 2023 MoU between NBR and the government formalized practice on credit to government, including enforcement mechanisms on limits. - A new SCF-related MoU between NBR and government will be signed shortly to clarify responsibilities for servicing Fund obligations for the budget support portion of disbursements. - An updated safeguards assessment is in progress and expected to be completed by the time of the first SCF review. ### Program financing assurances, risks, and capacity development - Financing assurances: - Program fully financed over next 12 months with good prospects thereafter. - Assurances mainly concessional grants and loans from World Bank, AfDB, other multilateral and bilateral partners. - EIB indicates strong prospects for additional medium-term financing. - Risks to implementation: - Downside risks persist but mitigated by authorities’ strong ownership of reforms. - Capacity development focus: - Recent TA: strengthen FPAS, FX market diagnostics, DRM and MTRS, fiscal risk management, financial supervision and regulation. - Going forward: revenue administration, public financial management, financial supervision and regulation, and monetary and macroprudential policies. ### Staff appraisal: macroeconomic context and policy recommendations - Recent performance and challenges: - Rwanda withstood overlapping shocks well; economic growth remained robust despite droughts and May 2023 severe floods. - Headline inflation decelerated in first half of year, but food price-driven inflationary pressures resurfaced in August 2023. - Policy space constrained by diminished policy buffers, tight global financing conditions, and structural decline in external concessional financing. - Post-flood reconstruction costs projected at 3 percent of GDP over the next five years. - Policy recommendations: - Fiscal: - Continued fiscal consolidation while allowing a slower near-term pace to support flood recovery. - Timely implementation of reforms to broaden domestic tax base and improve tax compliance. - Continued expenditure rationalization focusing on efficiency of public investments, better targeting of subsidies and transfers, and digital delivery of public services. - Enhance fiscal risk management framework. - Monetary and exchange rate: - Monetary policy should remain appropriately tight. - Exchange rate should continue to play a shock-absorber role with continued nominal exchange rate flexibility to support external adjustment. - Develop foreign exchange market and strengthen intervention framework to improve monetary policy transmission. - Climate and RSF support: - Progress on RSF is exceptionally strong; green investment facilities to start lending operations before end-2024. - Reforms under RSF will improve transparency and efficiency of climate-related public spending and attract climate finance. - Staff supports rephasing and enhancement of RSF reform measures, including implementing an internationally recognized green taxonomy. - Overall program support: - Staff supports completion of second PCI/RSF reviews and authorities’ request for 14-month SCF arrangement with total access of 125 percent of quota (SDR 200.25 million), implemented concurrently with the PCI. - Staff supports disbursements totaling SDR 36.97 million under the RSF and SDR 66.75 million under the SCF. *Source: IMF staff summary of content unit "39. The prevalence of women working in the agriculture sector makes them more exposed" from the provided PDF content.* ### 57. Staff recommends the next Article IV consultation with Rwanda to be held on the 24- ### 1rwaea2023003 - 57. Staff recommends the next Article IV consultation with Rwanda to be held on the 24-month cycle. ### Social development and labor market - Primary education completion rate (Male and Female) reached more than 90 percent (chart annotation). - Life expectancy (life expectancy at birth, total years) has improved significantly, "supassing regional peers" (chart annotation). - Infant mortality (mortality rate, infant per 1,000 live births) declined below regional averages (chart annotation). - Human Development Index shows "constant improvement and catching up with the SSA" (chart annotation). - Inequality in Rwanda is high compared to peers (chart annotation referring to Gini Index). - Unemployment remains high and persistent; unemployment remained above pre-pandemic trend and the gender gap increased in Q2 2023 (chart annotation). ### Recent economic developments and sectoral performance - Tourism: "Rwanda Tourism revenue after the COVID-19 pandemic has recovered stongly during 2022." Annual total tourism revenues shown in RWF Billions (chart). - Agriculture: The agricultural sector suffered from low production of major crops in the first season of 2023 due to unfavorable weather conditions; year-on-year volume growth by crop categories shown for 2021, 2022, 2023 (chart). - Female share in agricultural employment rose to the highest in recent years (chart indicator). ### Financial conditions, borrowing costs, and sovereign spreads - Borrowing costs have significantly increased, with "interest payments as a share of revenue doubling in the last decade" (chart annotation). - Sovereign spreads declined and approached EMBIG spreads over the sample period (chart annotation showing RWA spread series relative to SSA (excl. Zambia) and EMBIG (excl. Russia)). ### External sector and exchange rate - The trade deficit widened, reflecting high oil prices and strong demand for imports (chart annotation). - 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 (chart annotations). - International reserves declined (chart annotation). - Foreign assets of monetary authorities (in millions of US$) reported: 1,747 1,832 1,720 2,099 2,104 2,411 2,369 2,520 2,452 2,618 2,559 2,749 2,639 (series shown in Table 1). - Gross official reserves (in millions of US$) reported: 1,693 1,778 1,667 2,045 2,050 2,357 2,315 2,467 2,398 2,564 2,505 2,695 2,585 (series shown in Table 1). - Months of next year's imports (series reported in Table 1): 4 4.3 4.5 4.2 4.8 4.8 5.2 5.2 5.1 5.2 5.1 5.2. ### Fiscal developments and budgetary flows - Fiscal developments: "Deficit remained broadly stable"; "Revenues were slightly above expectations"; "Expenditure was higher due to spending on the floods and domestic capital expenditure"; "Financing was in line with past projections" (chart annotations). - Table 1 (selected fiscal metrics, percent of GDP unless otherwise indicated): - Total Revenue and Grants (FY22/23 row): 25.9 (Revenue as percent of GDP noted in table header). - Overall fiscal balance (incl. grants, policy lending): series includes -7.6 -7.3 -7.3 -6.5 -6.8 -4.8 -5.3 -3.2 -3.4 -3.0 -3.0 -3.0 (Table 1). - Debt-creating overall balance (excl. PKO): -7.4 -7.0 -7.3 -6.5 -6.8 -4.8 -5.3 -3.2 -3.4 -3.0 -3.0 -3.0 (Table 1). - Primary balance (excl grants): -12.7 -10.6 -10.7 -8.6 -9.1 -6.4 -7.1 -4.5 -4.8 -4.0 -4.1 -3.7 -3.8 (Table 1 shows multi-year series). - Table 2 (Budgetary central government flows, FY22/23–27/28, Billions of Rwandan francs): - Revenue (selected years): 3,382 3,400 3,708 3,743.9 4,392 4,391 5,214 5,186 5,924 5,862 6,670 6,677 (series in Table 2). - Grants (selected years): 743 711 652 690 844 843 979 988 924 908 958 965 (series in Table 2). - Expense (selected years): 2,847 2,857 3,153 3,164 3,466 3,456 3,706 3,739 4,102 4,135 4,729 4,777 (series in Table 2). - Net acquisition of nonfinancial assets (capital spending, selected years): 1,461 1,518 1,538 1,632 1,802 1,838 2,207 2,051 2,550 2,337 2,763 2,623 (Table 2). - Net lending (+) / borrowing (-) including grants (billions): -926 -976 -982 -1,051 -875 -903 -699 -604 -728 -609 -822 -723 (Table 2). - Memorandum: Overall fiscal balance (incl. grants, policy loans) (billions): -1,091 -1,117 -1,114 -1,159 -914 -1,030 -699 -731 -728 -731 -822 -834 (Table 2, memorandum). ### Public debt and creditor composition - Table 3 (Decomposition of Public Debt, 2022): - Total public debt (end-2022, US$ mn): 8,648.1 (100.0 percent of total debt) (Table 3). - External public debt: 6,193.6 (71.6 percent of total) (Table 3). - Domestic public debt: 2,454.5 (28.4 percent of total) (Table 3). - Multilateral creditors (2022): 4,633.6 (53.6 percent of total debt); IMF component listed as 451.1 (5.2 percent of total debt) (Table 3). - Bonds (2022): 680.6 (7.9 percent of total debt) (Table 3). - EXIM-CHINA exposure (2022): 334.0 (3.9 percent of total debt) (Table 3). - Memo (from Table 3): Nominal GDP (US$ million) reported as 13,309 13,846 13,657 across reporting rows (Table 3 footnote). ### Program indicators, financing, and IMF engagement - Table 6 and related program indicator figures are presented (charts and tables across the document). - Table 7 (Gross External Financing Needs and Sources, USD millions, selected rows): - Gross external financing needs (2021–28 series): 1,906 1,440 1,827 1,749 1,684 1,913 1,908 1,799 (Table 7). - Current account deficit (2021–28 series): 1,243 1,306 1,597 1,616 1,440 1,519 1,480 1,367 (Table 7). - Public debt amortization (excl. IMF) (selected years): 620 113 197 961 993 513 753 538 (Table 7). - External financing sources (row total): 2,042 1,369 1,737 1,570 1,684 1,913 1,908 1,799 (Table 7). - Table 8a (Indicators of Capacity to Repay the Fund, selected indicators): - IMF debt service based on existing credit (SDR millions), principal (selected early years): 8.0 24.0 28.0 34.0 32.0 32.0 32.0 32.0 (Table 8a series). - IMF credit outstanding (end-of-period, in millions of SDRs): 375.9 614.8 586.7 552.7 513.2 444.1 367.6 307.1 ... (multi-year series in Table 8a). - IMF credit outstanding (end-of-period, in millions of U.S. dollars): 502.9 826.0 792.6 748.3 696.8 604.9 500.7 418.2 ... (Table 8a). - Table 9 (Review Schedule Under the PCI and SCF Arrangement): - Board discussion of a PCI request: December 12, 2022. - First PCI Review test date December 31, 2022; review date By May 15, 2023. - Second PCI Review / SCF Approval test date June 30, 2023; review date By November 15, 2023. - Third PCI Review / First SCF Review test date December 31, 2023; review date By May 15, 2024. - Fourth PCI Review / Second SCF Review test date June 30, 2024; review date By November 15, 2024. - Fifth PCI Review test date December 31, 2024; review date By May 15, 2025. - Sixth PCI Review test date June 30, 2025; review date By November 15, 2025 (Table 9). - Table 11 (Proposed Schedule of Disbursements Under the Stand-by Credit Facility Arrangement): - Availability Date / Millions of SDR / Percent of Quota / Conditions: - Date of approval of SCF arrangement: 66.75000 SDR / 41.67 percent of quota / Condition: Arrangement Approval. - May 1, 2024: 66.75000 SDR / 41.67 percent of quota / Condition: Observance of end-December 2023 performance criteria and completion of the first review. - November 1, 2024: 66.75000 SDR / 41.67 percent of quota / Condition: Observance of end-June 2024 performance criteria and completion of the second review. - Total: 200.25000 SDR / 125.00 percent of quota. - Memorandum item: Quota 160.20000 (Table 11). ### Key descriptive conclusions stated in the source - Unemployment remains above pre-pandemic trend, and the gender gap increased in Q2 2023. - Borrowing costs and interest payments as a share of revenue have increased substantially over the last decade. - Tourism recovered strongly in 2022 after the COVID-19 shock. - Agricultural output in Season A 2023 fell for major crops due to unfavorable weather. - Sovereign spreads trended downward and approached EMBIG spreads over the sample period. - Trade deficit widened amid higher oil prices and strong import demand; international reserves declined and the nominal exchange rate depreciated in the second half of 2022 while the REER appreciated due to rising inflation. - Fiscal pressures: higher expenditure from floods and domestic capital spending, with revenues slightly above expectations and financing broadly in line with past projections; overall deficit remained broadly stable. *Source: Rwandan authorities and IMF staff calculations and estimates as presented in the referenced IMF document.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### External Sector Assessment: Overall assessment and policy responses - Overall Assessment: The external position of Rwanda in 2022 was weaker than the level implied by fundamentals and desirable policies. - Reserves level (end-2022): assessed to be slightly above the lower bound of the adequacy range. - Potential Policy Responses: - Allow exchange rate flexibility within a forward-looking monetary policy framework to absorb external shocks and reduce external imbalances. - Accumulate international reserves toward the higher end of the adequacy range to provide further cushion. - Fiscal consolidation and structural reforms to improve the business climate and boost competitiveness to bring the current account balance to a level consistent with fundamentals. ### Foreign Assets and Liabilities: position and trajectory - Background: - NIIP improved for the first time in a decade in 2022. - NIIP (end-2022): -68.6 percent of GDP. - NIIP (2017): -49.3 percent of GDP. - Deterioration driven by significant increase in foreign liabilities due to financial account inflows; foreign assets broadly stable as a share of GDP. - Projection: In 2023-2025, the NIIP is expected to deteriorate further before stabilizing and starting to improve because of the current account adjustment. - Assessment: - Sustainability of the NIIP is not an immediate concern given the dominant share of concessional loans and foreign direct investments in foreign liabilities. - Debt sustainability analysis suggests Rwanda faces a moderate risk of debt distress. - Key 2022 figures (percent of GDP): - NIIP: -68.6 - Gross Assets: 18.1 - Debt Assets: 5.9 - Gross Liab.: 86.7 - Debt Liab.: 65.8 ### Current Account: background, projection, and assessment - Background: - Current account (CA) deficit: 9.8 percent of GDP in 2022 (improved from 11.2 percent of GDP in 2021). - CA deficit remained high over the last five years, driven by significant access to concessional loans by the government. - From a saving-investment perspective, the CA deficit is driven by the public sector. - CA structure: dominated by trade deficit; budget grants and remittances provide offsetting positive impact. - 2023 projection: CA deficit projected to deteriorate to 12.7 percent due to an increase in imports and lower current transfers. - Medium term: fiscal balance adjustment projected to drive CA adjustment. - Assessment: - EBA-lite CA model estimates: - CA gap: -2.1 percent of GDP in 2022. - Cyclically-adjusted CA balance: -10.4 percent of GDP. - Cyclically-adjusted CA norm: (-8.3) percent of GDP. - Staff assessment: CA in 2022 is weaker than the level implied by fundamentals and desirable policies. ### Real Exchange Rate: background and assessment - Background: - Rwandan franc REER appreciated by 8 percent in 2022. - REER strengthening occurred on the back of high inflation, contributing to the decline of international reserves and provoking accelerated nominal exchange rate depreciation at the end of 2022. - Projection: REER is projected to return to the depreciation trajectory in the next several years before stabilizing in the medium term. - Assessment: - EBA-lite CA model implies a REER overvaluation of 12.4 percent in 2022. - Projected large deterioration of the CA deficit in 2023 and limited real exchange rate depreciation year-to-date suggest the EBA-lite model would likely yield a much larger REER overvaluation at end-2023. - EBA-lite REER model suggests an undervaluation of 5.1 percent, but staff finds it inconsistent with recent FX market pressure and decline in reserves. - Staff view: CA model considered more reliable than REER model given heavy external concessional financing and the REER equilibrium assumption. ### Capital and Financial Accounts: flows and policy measures - Background: - In net terms, the CA deficit in 2022 was financed through public sector borrowing (4 percent of GDP) and FDI inflow (3 percent of GDP). - In 2021, Rwanda issued a new Eurobond and used part of proceeds for maturing Eurobond buyback; most existing Eurobond repayment is due in 2031, so associated rollover risk remains remote. - Assessment: - Financial flows are dominated by external concessional financing and private capital flows are small. - Risks and vulnerabilities related to capital flows are related to prospects for donor financing. ### EBA-lite model table highlights (Rwanda: EBA-lite Model Results, 2022) — selected entries (in percent of GDP) - CA-Actual: -9.8 - Cyclical contributions (from model): (-)0.5 - Natural disasters and conflicts: (-)0.1 - Adjusted CA: -10.4 - CA Norm (from model) 1/: -8.3 - Adjusted CA Norm: -8.3 - CA Gap: -2.1 0.9 - o/w Relative policy gap: 1.3 - Elasticity: -0.2 - REER Gap (in percent): 12.4 -5.1 - Notes: - 1/ Based on the EBA-lite 3.0 methodology - 2/ Cyclically adjusted, including multilateral consistency adjustments. ### FX Intervention and Reserves Level - Background: - Gross official reserves declined to 12.7 percent of GDP in 2022, or 4.1 months of prospective imports. - Decline driven by deterioration in trade balance due to high energy prices and REER appreciation; decline particularly marked in second half of 2022 amid decline in external budget support. - National Bank of Rwanda continued sales on the shallow FX market while allowing greater exchange rate flexibility; pace of exchange rate depreciation against US dollar increased in the last quarter of the year. - Assessment: - At end-2022, international reserves assessed to be slightly above the lower bound of the adequacy range. - ARA-CC indicates optimal range of 4-5.2 months of imports under the flexible exchange rate classification. - Staff considers international reserves in the 4–5 months range of imports to be adequate for Rwanda. - Given limitations to exchange rate flexibility on the shallow FX market, the upper end of the range may be more relevant; additional reserve accumulation might be needed. - Maintaining exchange rate flexibility remains crucial. - Net sales of FX amid strong inflow of external budget grants and loans have been an essential feature of central bank FX operations; size of these operations should be better calibrated to the size of such inflows. ### Annex III. Capacity Development Strategy for FY23/24 — overview and priorities - Context: - Rwanda is a high-intensity TA user with strong institutional capacity and a good track record of implementing TA recommendations. - TA supports implementation of the National Strategy for Transformation (NST-1) while ensuring macro stability. - TA focus areas: fiscal transparency, DRM, implementation of forward-looking monetary policy framework, and financial stability. - Key overall capacity development priorities and objectives (selected): - Public Financial Management: - Implement recommendations of recent PIMA and C-PIMA and the spending rationalization strategy. - Support green PFM (climate budget tagging, assessment of climate-related fiscal risks). - Improve fiscal transparency, expand fiscal risk statement to include risks from SOEs and PPPs; support analysis of those fiscal risks. - Assist ongoing implementation of the OBL and with a Fiscal Transparency Evaluation (FTE); explore scope to strengthen fiscal transparency (tentative timing: first half of 2025). - Government Finance Statistics: - Continue transition to GFSM 2014 including expanding public sector coverage and reduce lag to publish general government statistics. - Tax Policy and Revenue Administration: - Assist implementation of the MTRS announced May 2022, informed by latest TADAT; develop successor MTRS; VAT refund forecasting; develop Compliance Improvement Plans (CIPs) and Dynamic Risk Management for Customs; assess tax expenditures; overall diagnostic of policy and legislative framework. - Monetary Policy: - Provide TA on FPAS to support move to an interest rate-based monetary framework. - Incorporate climate change risks into FPAS and FPAS into policymaking, including alternative scenarios and expert judgement. - Financial Supervision and Regulation: - Build on the FSSR to strengthen risk-based supervision and stress-testing. - Strengthen risk management and governance frameworks; increase capacity in evaluating ICAAP reports to set different capital charges above minimum requirements. - Financial Stability: - Build on the FSSR to strengthen financial safety net, crisis preparedness and management, resolution frameworks, financial market infrastructure, and government debt and money markets. ### Annex IV. The 2021 Article IV Consultation: Key policy commitments and implementation (selected items) - Fiscal Policy — Domestic revenue mobilization: - Objective: Approve medium-term revenue strategy (MTRS) to permanently increase revenue-to-GDP ratio by 1 percentage point through tax policy and administration reform. - Status: - MTRS approved by Cabinet in May 2022. - PIT, VAT, excise and CIT laws legislated in FY22/23, but key revenue-raising measures in CIT not approved in final law. - A package of revenue generating and predominantly tax policy measures approved by Cabinet in November 2023 to ensure MTRS objectives are met. - RRA continued tax admin measures: efforts to tax shadow economy, improve voluntary compliance, introduce comprehensive Compliance Improvement Plans, and launch new operation model to strengthen RRA capacity. - PFM: - Objectives: Improve MTEF, strengthen monitoring/managing fiscal risks, increase fiscal reporting transparency. - Status: - Organic Budget Law enacted in 2022 improves MTEF, institutionalizes fiscal risk management, and helps adoption of best practices in fiscal reporting. - SOE health check and stress test results reported in fiscal risk statement. - RSSB asset review completed in October 2023. - Quarterly budget execution reports under GFS 2014 for general government begun in April 2023. - C-PIMA, PER, PEFA conducted in 2022. - Beneficial Ownership: - Companies began submitting beneficial owner (BO) information since April 2023. - Monetary and Exchange Rate Policy: - Strengthen interest rate-based monetary policy framework and deepen money markets: - NBR published Monetary Policy Strategy in February 2023. - NBR continued FPAS development and integration into monetary policy decision-making. - NBR identified legal gaps for GMRA implementation and formulated stakeholder-endorsed roadmap. - Allow more exchange rate flexibility and limit FX interventions: - Diagnostic assessment of FX market completed by November 2023. - Financial Sector Policies: - Close monitoring of risks: - Banks submitted first and second annual ICAAP and ILAAP reports in 2022. - NBR conducts macro stress tests every quarter; issued “Guidelines for Stress Testing for Banks” in July 2023. - Structural Policies: - Mitigate pandemic scars and advance climate agenda: - Launch of school feeding program and teacher salary increases expected to improve education outcomes (efficiency to be monitored). - Strong progress on climate agenda; RSF reforms on track ahead of timelines. - Mobilization of additional public and private climate finance ongoing; Public and Private Green Investment Facilities to start lending by end-2023. - October 2023: completed first sustainability-linked bond issuance; finalized carbon market regulatory framework; completed preliminary green financial market taxonomy covering five major carbon emitting sectors. ### Appendix I. Letter of Intent — key points (Kigali, November 29, 2023) - Context and constraints: - Since 2015, public debt nearly doubled to 67 percent of GDP in 2022 due to development spending and pandemic mitigation. - Headwinds: geopolitical fragmentation, tightening global financial conditions, consecutive weak agricultural seasons, and May 2023 devastating floods. - Reconstruction cost estimate (assessment with World Bank): up to US$451 million (3 percent of GDP) over the next five years for emergency outlays and climate-resilient infrastructure rebuilding. - Balance of payments pressures expected to persist amid flood-related reconstruction costs and large food import needs. - Financing request and program coordination: - Request: fourteen-month arrangement under the Stand-by Credit Facility (SCF) with total access of 125 percent of quota (SDR 200.25 million), to be implemented concurrently with current Policy Coordination Instrument (PCI). - Financing use: four-fifths of SCF financing to be disbursed as balance of payment support to cushion reserves; remainder to provide budget support for temporary fiscal relaxation due to natural disaster. - World Bank committed to project financing for flood reconstruction; further support expected from European Investment Bank. - Request completion of second review under PCI and approval of SCF arrangement. - Program performance and proposed adjustments: - Program performance under the PCI remained strong. - End-June 2023 quantitative targets: floor on stock of net foreign assets and ceiling on net accumulation of domestic arrears (continuous targets) and all standard continuous targets were met. - Ceiling on debt-creating overall balance breached by small margin due to flood emergency expenditure. - 3-month average headline inflation marginally fell outside the outer bound at end-June 2023. - Four out of five PCI reform targets met on time; fifth reform target implemented as a prior action for this review. - Proposals: modify end-December 2023 QTs on ceiling on debt-creating overall balance and floor on stock of net foreign assets (NFA), and continuous target on PV of new public and publicly guaranteed external debt. - SCF reviews to be semi-annual and coincide with PCI and RSF reviews. - RSF (Resilience and Sustainability Facility) and climate agenda: - Progress on climate agenda under RSF remains very strong. - Reform due at second RSF review on guidelines for climate budget tagging system completed as planned. - Implemented reform originally due at third RSF review: guidelines for climate-related risk management for financial institutions; request to bring forward completion date and associated disbursement to second review. - Proposal to accelerate originally agreed RSF reform measures and introduce new measures: - Change availability dates and rephase two reform measures on climate budget tagging and climate-related risk management for financial institutions from fifth to fourth review. - Rephase one reform measure related to disaster risk reduction and management from fifth to third review. - Introduce two new reform measures: publishing individual risk analysis on SOEs and PPPs vulnerable to climate change risks; adopting a green taxonomy adapted to Rwanda’s NDCs. - Commitments: - Authorities commit to consult IMF on adoption of new measures and revisions to policies in the Letter of Intent and MEMPF. - Timely information for monitoring will be provided under the Technical Memorandum of Understanding. - Authorities will finalize a new MOU between NBR and MINECOFIN clarifying responsibilities for timely servicing IMF financial obligations under RSF and SCF arrangements. - Agreement to publication of this Letter of Intent and attachments and related Staff Report on the IMF website. - Signatories: - Ndagijimana, Uzziel — Minister of Finance and Economic Planning - Rwangombwa, John — Governor, National Bank of Rwanda *Source: 1rwaea2023003 - Annex I. Risk Assessment Matrix (selected content from the supplied document).* ### 1. This Memorandum of Economic and Financial Policies describes recent economic ### Memorandum of Economic and Financial Policies ### Recent developments - Purpose and context - Describes recent economic developments and policy objectives and priorities under the Policy Coordination Instrument (PCI), the Resilience and Sustainability Facility (RSF), and the newly requested Stand-By Credit Facility (SCF). - SCF requested to guide adjustment and preserve macroeconomic and external sustainability in the near term. - The 14-month SCF will be concurrent with the 3-year PCI and RSF arrangement approved in December 2022. - PCI and SCF will focus on strengthening fiscal and monetary frameworks and building socio-economic resilience; RSF aims at reforms in green Public Financial Management (PFM), climate Public Investment Management (PIM), climate-related risk management for financial institutions, and disaster risk reduction and management. - Macroeconomic performance - GDP growth: 2023Q2 GDP growth decelerated to 6.3 percent year-on-year from 9.2 percent in the previous quarter. - Sectoral performance: slowdown broad based; agricultural output weak due to unfavorable weather conditions and crop diseases; industry and services moderated largely due to external factors. - Unemployment (August): 18 percent overall; female unemployment 21.9 percent; youth unemployment 21 percent. (Based on Rwanda Labor Force Survey.) - Inflation: Headline inflation was 13.9 percent in September, down from a peak of 21.7 percent in November 2022. Food inflation increased, with food inflation reversing trend and headline food inflation rising to 29.6 percent in September from 24.6 percent in August. Core inflation stands at 8.3 percent. Monetary Policy Committee raised policy interest rate by 50 basis points to 7.5 percent in August 2023. - Fiscal FY22/23 outturn: fiscal deficit was 7.3 percent of GDP. Total revenue 0.5 percent of GDP lower than expected. Recurrent expenditure 0.4 percent of GDP lower than anticipated. Emergency flood-related spending around 0.2 percent of GDP. Interest expenditure lower by 0.3 percent of GDP. Net policy lending lower by 0.2 percent of GDP. Capital expenditure higher by 0.1 percent of GDP. - Financial sector: credit to private sector grew about 11 percent on average. NPLs decreased from 4.3 percent in June-2022 to 3.6 percent in June-2023. Loans in “watch” categories dropped to 7.8 percent of total loans from 10.6 percent a year earlier. - External position: trade deficit on goods widened by nearly 1 percent of GDP in H1 2023 versus H1 2022. Food import volumes increased 64.7 percent year on year. Nominal exchange rate depreciated about 16.6 percent year on year in September. Reserve coverage projected to drop to 3.4 months by end-2023 and 3.2 months by end-2024 absent new financing and additional policy adjustment. ### Performance under the PCI/RSF arrangements - Overall assessment - Program implementation under the PCI and RSF arrangements is broadly on track. - PCI quantitative and consultation outcomes - End-June 2023 quantitative targets: - Floors on stock of net foreign assets and ceiling on net accumulation of domestic arrears met (continuous targets). - Ceiling on the debt-creating overall balance, including grants, slightly breached by RWF 4 billion due to RWF 23 billion flood-related emergency expenditure in the last months of the fiscal year. - 3-month average headline inflation of 15.2 percent marginally fell outside the outer bound value (15.0 percent) at end-June 2023, triggering the monetary policy consultation clause and requiring consultation with the IMF Executive Board. - PCI reform targets (selected) - End-September 2023 RT: Cabinet approval of a package of revenue-generating and predominantly tax policy measures (prior action for this review). - End-October 2023 RT: RSSB finalized and submitted its asset allocation review to its Board. - End-November 2023 RT: Submitted outline of policies behind spending rationalization strategy in FY24/25; conducted and submitted to Fiscal Risk Committee a stress test of two high-risk SOEs (Bella Flowers and King Faisal hospital); NBR finalized diagnostic study of foreign exchange markets. - RSF reform measures (selected) - Published guidelines for implementation of climate budget tagging system, including user requirements for the IFMIS (published by end-November; second review RM4). - Issued guideline for climate-related risk management for financial institutions (third review RM8) and requested to re-phase this reform measure and associated disbursement to the second review. ### Outlook and policies A. Outlook - Growth projections - GDP growth projected to decelerate from 8.2 percent in 2022 to 6.2 percent in 2023 and 6.6 percent in 2024. - Demand side: private consumption and investment expected to be main growth drivers in the medium term as fiscal consolidation ensues. - Supply side: services sector to expand robustly; agricultural sector expected to recover. - Inflation outlook - Headline inflation projected to decline to 9 percent by end-2023, slightly above NBR’s 2-8 percent target band. - Under a no-shock scenario and continuously tight monetary policy stance, inflation is projected to fall within the band in 2024. - Projection conditional on food and energy prices easing and extent of exchange rate pass-through. - External sector outlook - Current account deficit expected to widen to 11.5 percent of GDP in 2023, largely driven by trade deficit due to high food imports. - Post-flood reconstruction imports projected to add to imports in 2023-24; policy adjustment to moderate aggregate demand will reduce import growth. - Reserves, supported by additional IFI financing and policy adjustment, projected to rebound to US$2.0 billion in 2024 (equivalent to 4.0 months of prospective imports) and stabilize around 4.4 months of imports from 2025 onward. - Medium-term: concessional financing expected to decline, partially offset by increase in private flows, mainly FDI. - Risks - Downside risks include: deepening geopolitical fragmentation; another spike in global energy, food, and fertilizer prices; steeper decline in trading partners’ growth; tightening of financial conditions in advanced economies affecting external financing; climate-related shocks given dominantly rain-fed agriculture. B. Fiscal policies and fiscal structural reforms - Reconstruction and financing - Total reconstruction spending anticipated to be around 3 percent of GDP over the next five years. - Intend to meet two-third of flood-related expenditure by reprioritizing spending within existing fiscal envelope in FY24/25. - Temporary deficit relaxation by 0.3 percent of GDP in FY23/24 and 0.5 percent of GDP in FY24/25. - Flood reconstruction financing package includes: - US$ 135 million in World Bank project financing (repurposing unused project allocations, Crisis Response Window, and accelerating Volcano Community Project disaster risk management component). - Portion of SCF funds allocated for budget support. - Prospective US$150 million loan from European Investment Bank for medium-term financing of disaster-resilient infrastructure investment. - Commit to transparency on flood-related expenditures, including reporting in the Budget Execution Report. - Fiscal sustainability and consolidation - Continue fiscal consolidation supported by domestic revenue mobilization (DRM) measures under the Medium-Term Revenue Strategy (MTRS) and spending rationalization measures. - Improve transparency and efficiency of PFM and investment practices and enhance fiscal risk management. - MTRS objectives: - Tax-to-GDP ratio target: 17 percent by end of the first phase of MTRS in FY25/26. - MTRS successor target: raise tax-to-GDP ratio to 18.3 percent by FY27/28 (MTRS-2 to be developed jointly with the IMF; Cabinet approval of comprehensive package by end-January 2025 RT). - Near-term revenue measures (prior action): - Tax policy: (i) VAT on mobile phones and selected telecommunication equipment, (ii) increases in the fuel levy and registration fees for imported vehicles, (iii) gaming taxes, (iv) excise tax increases on beer, tobacco, and IT services, and (v) increased mineral taxation. - Tax administration: (i) controls to stop customs over-valuation, (ii) introduction of custom scanners, and (iii) integration of invoice systems of hospitality sector with the RRA tax system. - Manufacture and Build to Recovery Program (MBRP) - Committed to not extending MBRP beyond end of December 2024. - MBRP has attracted 130 projects with total investment of US$2.3 billion (52 projects in manufacturing; 43 projects in construction, including 46,000 housing units; and 35 projects in agro-processing) with expected creation of over 42,000 jobs. - 89 projects have received tax incentives amounting to RWF 21.9 billion. - No new projects will be added to the scheme beyond 2024. - Revenue administration reforms - RRA continued MTRS reforms including: - New Operating Model (NOM) from January 1, 2023. - Comprehensive Compliance Improvement Plans (CIPs) from 2022/23. - Digitalization of tax system for enhanced VAT and income tax controls. - Adoption of Common External Tariff (CET) version 2022 for customs and introduction of dynamic risk management using modern technologies. - RRA will continue using existing monitoring and enforcement framework while considering opportunities to strengthen it. - Spending rationalization and contingency measures - Submitted outline of spending rationalization strategy to Cabinet in FY24/25 Planning and Budget Outlook Paper (end-November 2023 RT). - Final strategy to be annexed to FY24/25 Budget Framework Paper (end-May 2024 RT). - Contingency plan identifies recurrent and capital expenses to be put on hold if original measures cannot be timely implemented, including limits on new staff recruitments (excluding statutory promotions and vital sectors), further cuts on non-essential and non-efficient non-wage recurrent expenditure, and discontinuation of underperforming domestic projects. - Fiscal policy on fuel subsidies - Will refrain from providing any subsidies on fuel prices going forward and will support poor and vulnerable households through other targeted measures as needed. - Phased out diesel subsidy in April 2023 (introduced in October 2022); allowed domestic prices to reflect international market price. - Introduced stabilization fee on petroleum prices to recoup losses; all losses from previous policy recouped and current prices fully in line with market prices. - Debt and debt management - Fiscal path aims for convergence to 65 percent of GDP debt anchor by 2031, backed by credible medium-term fiscal consolidation including DRM and spending rationalization. - Rwanda expects to remain at moderate risk of debt distress with buffers to absorb shocks. - Debt management strategy prioritizes concessional resources, including climate finance, and strengthening debt management capacity, fiscal risk monitoring, debt reporting, and domestic capital markets. - Additional highly concessional financing, if available, would be prioritized for implementation over domestically or commercially financed projects to contain debt service burden and solvency risks. *Source: Memorandum of Economic and Financial Policies (content unit: 1rwaea2023003).* ### 20. The implementation of our new Organic Budget Law (OBL) is on course. The Ministerial ### 20. The implementation of our new Organic Budget Law (OBL) is on course. The Ministerial ### Public Financial Management and OBL Implementation - The Ministerial Order required for the full implementation of the OBL will be issued by end 2023. - The implementation of the OBL: - improves the budget and medium-term expenditure framework (MTEF), - institutionalizes the fiscal risk management practices and structures, - helps the adoption of best practices in fiscal reporting. - Reporting periods for all public sector entities are now aligned to the fiscal year from calendar years. Data are being received in a timely manner. ### Medium Term Expenditure Framework and IFMIS - MTEF user manuals have been developed and are being adopted to instill greater prioritization and top-down orientation to the budget process. - Plan to integrate the budget costing framework to IFMIS in subsequent years and continue to improve the process for the FY24/25 planning cycle. - IFMIS rollout: - SDMS (Schools Data Management System) rollout of financial modules completed for 1,836 secondary schools out of 1,924 schools. - Anticipate completing the rollout to all secondary schools in December 2023. - For primary schools, plan to complete the rollout by 2025. ### Accrual Accounting and Consolidated Financial Reporting - Continued expansion of accrual financial reporting coverage in the public sector. - On track to have valuation and recognition of non-financial public assets and liabilities completed by end-FY23/24. - Production of a consolidated annual financial statement for the entire public sector, including SOEs, contingent liabilities and PPPs, will be finalized by end-June 2025. ### Fiscal Risk Oversight and SOE Management - The OBL institutionalized oversight and management of fiscal risks by: - clarifying the role of the Fiscal Risk Committee (FRC), - mandating MINECOFIN to appoint FRC members, - requiring publication of an annual Fiscal Risk Statement (FRS) as part of the annual budget documents. - The new Public Procurement law was gazetted in November 2022; relevant Ministerial Orders establishing regulations governing public procurement were gazetted in October 2023. - Specific provisions to strengthen procurements in SOEs will be implemented by end-2023. - Institutional changes: - MININVEST (created in August 2022) was dissolved by Cabinet decree on August 22, 2023 and its mandate transferred back to MINECOFIN to a new department. - Plan to fully staff Portfolio Monitoring team by June 2024, increasing current staffing levels from 15 to 26 persons. - Legal and governance reforms: - Reviewed and incorporated all key ownership principles in the approved National Investment Policy. - Other ownership principles to be captured in the draft Presidential Order, which shall be submitted to Cabinet by end-November 2023. - Draft Privatization Law and Policy, supported by the World Bank, has been passed by parliament and will soon be enacted. - SOE health-checks and stress tests: - Submitted stress tests of two previously identified high-risk SOEs (Bella Flowers and King Faisal Hospital) to the Fiscal Risk Committee (end-November 2023 RT). - In 2024, will continue conducting SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter. - MINECOFIN will develop mitigation measures to address key vulnerabilities identified in the stress tests to be published in Fiscal Risk Statements starting from FY24/25. ### Fiscal Transparency and Reporting - Plan to conduct an FTE follow up mission by the first half of 2025 to underscore progress since the 2019 Fiscal Transparency Evaluation (FTE). - Committed to expanding coverage of fiscal reports in GFS 2014. - Started publishing quarterly budget execution reports under GFS 2014 for the general government in April 2023 and have continued to do so 60 days after the end of each quarter. - RSSB completed its asset allocation review and submitted the associated report to RSSB management (end-October 2023 RT). ### Public Investment Management (PIM) - Published the 2022 PIMA in August 2023 and will continue to implement recommendations from the assessment. - Will publish a pipeline of appraised major projects (over RWF 15 billion, as defined in Section 4.3 of the National Investment Policy), and project selection criteria annually alongside budget documentation, while redacting any commercially sensitive information (new end-October 2024 RT). - Committed to implementing PIMA recommendations including: - improving reporting of contingent liabilities from public corporations, PPPs, and districts; - making all project appraisal documents public; - publishing multi-year project costs using existing data stored in the IFMIS. ### Beneficial Ownership (BO) Transparency - Companies have begun to submit BO information since April 2023. - Requirement that new companies are not registered until BO information is provided; failure to provide BO information for existing companies will result in sanctions. - Will continue supervision to ensure compliance with BO obligations and implement enforcement measures to increase compliance level. - Maintain cross-checking company information with tax and revenue authorities and removing dormant companies from the register; conduct on-site inspections to verify submitted self-assessments. - Will amend the definition of BO in the Public Procurement law with the provisions of the AML/CFT law to have one harmonized understanding of BO. - Will consider granting law enforcement direct and full access to BO information in the central register. ### Monetary Policy Framework and Inflation Targeting - Continue strengthening implementation of forward-looking monetary policy framework and reforms to develop and stabilize 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. - Inflation management: - NBR raised its policy interest rate by a cumulative 300 basis points since February 2022. - The MPC will monitor inflation developments and outlook to ensure that headline inflation returns to the NBR’s target of 5 percent in the medium term. - NBR stands ready to adjust policy stance should second round inflation effects, exchange rate depreciation passthrough, or external pressures accelerate. - Forecasting and communications: - Continued development of the Forecasting Policy and Analysis System (FPAS) to guide monetary policy stance. - Developing a consumer price expectations survey to be launched in 2024. ### Monetary Policy Operations and Market Development - With IFC assistance, identified and analyzed legal gaps in insolvency, payment system and banking laws and formulated a roadmap to implement Global Master Repurchase Agreement (GMRA). - NBR and Capital Market Authority (CMA) to lead legal review; envisage enacting full GMRA rollout, including securing the signing of the GMRA by all banks, by end-December 2024 (end-December 2024 RT). - Exchange rate and reserves: - Committed to a flexible exchange rate and more proactive liquidity management. - Expect FX pressures to continue in 2023 and 2024 driven by increased import bill related to food and reconstruction, and lower-than-expected external financing flows. - Reserve coverage is expected to recover to above the minimum adequate level of 4 months of imports in 2024. - Specific actions: - Finalized and adopted a diagnostic study of foreign exchange markets (end-November 2023 RT). - Will revise NBR’s official exchange rate calculation methodology to include exchange rates from market transactions from the previous day (new end-June 2024 RT); progressive implementation starting July 2024. - Explore if further excess liquidity reduction could improve transmission under interest rate based policy. - Set up a framework for regular, formal and transparent consultation with FX market participants; Research Department to be more involved in analysis of high-frequency market data. ### Financial Sector Policies and Stability - Continue fine-tuning macroprudential analysis, standards, and processes to safeguard financial stability. - Supervisory focus: - Onsite examinations to focus on credit risks, adequate loan classification and provisioning, and scrutiny of banks’ borrower assessments. - Continued offsite surveillance and credit surveys to the private sector. - NBR conducts macro stress tests on a quarterly basis. - Banks submitted the second annual ICAAP and ILAAP by end of May 2023 for review. - Commitments: - Enhance NBR’s risk monitoring and stress testing capacity through more granular data collection, analysis, and developing stress test models with longer term horizons. - Explore greater use of macroprudential policies to contain emerging risks. - Increase monitoring intensity of banks’ large exposures, gather more granular data, and carry out more detailed risk analysis; commit to tightening regulatory limits on large exposures if associated risks increase. - Current financial conditions: - NBR assessed no immediate major disruptions from the recent floods. - Credit growth remains at double digits, although still below nominal GDP growth. - Credit to GDP ratio increased modestly in H1 2023. - Credit is mainly concentrated in the corporate sector; banks’ lending to the HH sector remains limited. - Most loans are collateralized, lowering banks’ risks but increasing costs for small/individual lenders. - Ongoing monitoring via intensive supervision, quarterly stress tests, and quarterly Financial Stability Committee meetings. ### Financial Inclusion and Digital Finance - Target achieving 90 percent of formal financial inclusion by 2024. - Draft financial inclusion strategy focusing on digitalization and gender balance expected to be finalized by end-2023. - Leveraging data: - NBR’s financial inclusion data dashboard is operational. - Based on FinScope 2020 Survey, formal financial inclusion stands at 77 percent of adult population, with 74 percent for women, and 81 percent for men. - Work on 2024 FinScope Survey started; expected to be launched in the first quarter of 2024. - Digital financial services: - Mobile payments have more than quadrupled since pre-COVID levels. - Interbank settlement service expanded to 24/7 basis and to microfinance institutions (MFIs). - Multilateral interoperability for retail digital payments is operational to mobile money services providers, banks and MFIs. - Consumer protection and market conduct: - Complaints handling system (INTUMWA Chatbot) and comparator website (Gereranya) are operational. - Female access to finance: - NBR with World Bank support developed a guideline for women’s financial inclusion launched in September 2023. - Guiding pillars include: (i) integrating female financial inclusion in institutions’ strategic plans, (ii) customizing products for women and mainstreaming gender within existing products, (iii) leveraging digital financial technology, and (iv) building female financial capabilities. *Source: Excerpt from Rwanda IMF report content unit 1rwaea2023003* ### 34. We continue our efforts to make our economy and society more resilient. We have ### 34. We continue our efforts to make our economy and society more resilient. We have ### Social safety nets, human capital, and poverty reduction efforts - Increased monthly cash transfers to offset high fuel and food prices: - Nutrition Sensitive Direct Support (NSDS): from RWF 7,500 to RWF 10,000. - Expanded Public Works (ePW) beneficiaries: from RWF 10,000 to RWF 15,000. - NSDS geographic and beneficiary coverage: - Expanded from eighteen districts to twenty districts. - Total of 164,434 beneficiaries that included 28,929 pregnant women and 146,171 children under 2 years of age. - The number of supported beneficiaries under NSDS has reached 323,370 since it was started in 2019. - Vision 2020 Umurenge Program (VUP) performance and beneficiary counts (since July 2022): - 123,015 households (HHs) received direct support (DS), including 34,106 (27.7 percent) HHs headed by males and 88,909 (72.3 percent) headed by females. - 109,217 HHs employed in classic and expanded public work (cPW), including 49,046 female-headed HHs and 60,171 male-headed HHs. - 100,136 eligible HHs benefited from ePW, including 70,168 HHs headed by females & 30,068 HHs headed by males. - Microcredit and emergency transfers: - About 51,741 microcredit loans were issued to 56,719 beneficiaries including 29,335 females and 27,384 male beneficiaries. - Microcredit repayment rate stands at 75%. - 100,000 households have benefited from emergency cash transfers. - Targeted initiatives in the City of Kigali: - Unemployed women and single mothers organized in formal trading and provided trainings/capacity building, financial education, and support through concessional micro loans. - Education and nutrition interventions: - Introduced a subsidized national school feeding program to boost school attendance; plans to continue improving delivery and targeting. - Scaled up reducing stunting and promoting early childhood development through child sensitive Expanded Public Works and Nutrition Sensitive Direct Support co-responsibility cash transfer. - Plan to increase access of the extremely poor households to complementary livelihoods enhancement services. ### Dynamic social registry, shock-adaptability, and climate-sensitive social protection - Dynamic social registry rollout: - On track to finalize roll-out to all beneficiaries of social protection schemes under VUP and beneficiaries of subsidized enrollment in the Community Based Health Insurance (CBHI) by end-May 2024 RT. - Roll out to all districts and CBHI expected to start in January 2024 and be finalized within the envisaged timeline. - Shock-adaptability measures: - Focus on climate-sensitive projects (e.g., agricultural terracing) in areas more prone to disasters. - Increased coverage of emergency cash transfers. - Over 90,780 households supported with relief items to cope with negative floods and landslide effects of May-2023. - Climate-sensitive social protection instruments introduced: - Providing agriculture inputs, insurance to agriculture products and livestock, and creating green jobs. - Intensified sensitizing and mobilizing households to adopt a culture of savings via the EjO HEZA saving scheme. - Advocacy to increase cultivable land areas, including previously under-utilized areas, to help mitigate food price pressures. ### Pandemic preparedness and health capacity strengthening - Collaboration with WHO: - On February 13, 2023, Government of Rwanda and WHO signed a collaboration agreement to implement three Emergency Preparedness and Response Flagship Initiatives: (i) Strengthening and Utilizing Response Groups for Emergencies (SURGE), (ii) transforming African surveillance system (TASS), and (iii) Promoting Resilience of Systems for Emergencies (PROSE). - Two-year project will strengthen epidemic intelligence focusing on indicator-based, event-based, community-based, lab-based and One Health (OH) based surveillances. - mRNA vaccine manufacturing initiative: - Initiative to construct the first African mRNA vaccine manufacturing facility to supply vaccines regionally. - Six mobile vaccine production units by German pharma company BioNTech arrived in Rwanda in April 2023. ### Trade, industrial policy, and regional integration to strengthen economic resilience - Policy reviews and strategies: - Reviewing the Industrial Policy, the National Trade Policy, and the National Export Strategy. - Developing an e-Commerce Strategy. - New trade policy aims to increase the contribution of manufactured value-added products and services, improve the domestic trade and investment environment, and strengthen the trade capacity of the private sector. - New industrial policy will target upgrading industrial capabilities in targeted subsectors, increase Made in Rwanda production and access to markets, and support environmental sustainability and green growth. - AfCFTA and export promotion: - AfCFTA Implementation Strategy adopted in June 2022 to fast-track integration of competitive firms into commodity value chains and prioritize support to competitive services hubs (tourism, financial services, ICT, logistics and distribution). - Prioritized projects to implement trade-logistics strategy and attract private investment: Kigali Logistic Platform and Bugesera International Airport. - With support from the World Bank and development partners, working to reduce tariff and non-tariff barriers and seize AfCFTA preferential market access opportunities. - Efforts to build more skilled labor force underway. ### Climate resilience, mitigation, and RSF-supported reforms - RSF progress on climate budget tagging and fiscal integration: - Produced internal guidelines on the planned climate budget tagging system, including anticipated changes to the budget call circular and user requirements for the IFMIS (second review RM4) with IMF Fiscal Department (FAD) CD support during 2023. - Roadmap with clear milestones for implementation included in guidelines. - On track to fulfill third review RM6 to: - (i) implement climate change budget tagging as a prototype on development expenditure only and publish a climate budget statement using the first budget tagging results, and - (ii) identify in the Budget Framework Paper (BFP) how climate information has been used in decision making. - Plan to use the climate budget tagging prototype in planning the FY24/25 budget and expand framework to cover all expenditure. - Once fully implemented, the budget tagging system will allow monitoring of climate related activities at budget preparation and execution phases. - Climate-related financial risk management for financial institutions: - Issued a guideline for climate-related financial risk management for financial institutions (third review RM8), including a timeline for implementation. - Implementation plan envisions a phase-in approach towards mandatory implementation, with tiered requirements for systemic segments of the financial sector. - Early stages focus on assessing exposure to climate and environmental risks and embedding them in governance, strategies, and risk management. - This reform was achieved ahead of the initial RSF reform timeline. - Proposed acceleration and addition of RSF reform measures: - Reschedule from fifth to fourth review (RM11): publish comprehensive tagging results in the climate budget tagging statement and start publishing a quarterly climate expenditure report that compares climate change expenditure execution with budget plans. - Reschedule from fifth to fourth review (RM12): issue a guideline to financial institutions with regard to the implementation of recommendations of the International Sustainability Standards Board (ISSB). - Reschedule from fifth to third review (RM13): develop financing mechanism at the local level to enhance local governments’ ability to mobilize resources for disaster risk reduction and management strategy implementation. - Proposed new RM14 (third review): publish individual risk analysis of SOEs and PPPs that are vulnerable to climate change risks and that have been submitted to fiscal risk committee. - Proposed new RM15 (fourth review): MINECOFIN to adopt a green taxonomy adapted to Rwanda’s NDCs covering seven sectors (agriculture, energy, construction, transportation, manufacturing, wastewater management, and ICT). ### Climate-related investments, tax measures, and green finance - Climate-related investment projects included in 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. - Second Rwanda Urban Development Project (RUDPII). - Nyabarongo II Hydro Power Plant. - Rwanda Universal Energy Access Program. - Rwanda Sustainable Water Supply and Sanitation Program. - Objectives of these projects: - Support investments in low-carbon transport networks, low carbon and climate-resilient infrastructure and energy access, resilient urban landscapes, sustainable water systems, agriculture, forestry, and conservation. - Tax and regulatory measures to reduce CO2 emissions and promote e-mobility: - New tax policy measures introduced to encourage higher fuel-efficiency through increase in fuel levy and higher registration fees for high-emission vehicles. - Complemented by zero VAT rating on all e-vehicles and parts. - Measures intended to better reflect externalities of fossil fuel consumption and help achieve emission reduction goals. - Green finance scaling and institutional steps: - Near-term focus to scale up Rwanda’s Green Investment Facility (“Ireme Invest”) via blending non-concessional and concessional resources, and de-risking. - At COP28 presented and sought support for three programs on landscape restoration, climate-smart agriculture, and sustainable urbanization to be rolled out using a programmatic approach. - Plans to introduce green taxonomy to catalyze private financing to green projects. - Commitment to identify, transparently report, and mitigate fiscal risks from government financial exposure through equity contributions or guarantees. - In September 2023, Cabinet approved a carbon market framework developed with World Bank and UNDP to establish a regulatory framework for accessing the international carbon market. - MINECOFIN created a new climate finance unit. ### Program monitoring under PCI, RSF, and SCF - Policy Coordination Instrument (PCI): - Progress monitored through quantitative targets, a monetary policy consultation clause, standard continuous targets, and reform targets (detailed in Tables 1a–2 and definitions in the Technical Memorandum of Understanding). - Resilience and Sustainability Facility (RSF): - Progress monitored through reform measures (detailed in Table 3). - SCF: - Program subject to semi-annual reviews coinciding with the PCI and monitored through quantitative performance criteria, continuous performance criteria and structural benchmarks (common with PCI quantitative targets, standard continuous targets, and reform targets), as set out in Tables 1a-2 and the TMU. *Source: Rwanda — IMF Country Report (text from Content unit 1rwaea2023003).* ### 1. This memorandum defines the quantitative targets described in the Program ### 1. This memorandum defines the quantitative targets described in the Program ### Program coverage and exchange rates - Program period: July 1, 2023––December 31, 2024. - Supported by: IMF Policy Coordination Instrument (PCI) and Stand-by Credit Facility (SCF) Arrangement. - Program exchange rates: end-June 2023 values in the IMF’s International Financial Statistics database (Table 1). - Rwanda Franc (per US$) 1,164.6 - Euro 1.087 - Japanese Yen (per US$) 144.9 - SDR 1.330 ### A. PCI Quantitative Program Targets / SCF Performance Criteria — Ceiling on Debt-Creating Overall Fiscal Deficit - Coverage and periodicity: - Ceiling applies to the debt-creating overall fiscal deficit of the budgetary central government, excluding Peace-Keeping Operations and including grants. - Ceilings for December 31, 2023, and June 30, 2024, are cumulatively measured from July 1, 2023. - Ceiling for December 31, 2024, is cumulatively measured from July 1, 2024. - Definition of debt-creating overall fiscal deficit: - Overall fiscal deficit valued on a commitment basis including grants and excluding: (i) any transaction in expense and/or financial assets added to the budgetary central government arising from debt assumption of called loan guarantees for which the corresponding guaranteed loan had already been included in the Debt Sustainability Analysis (DSA); and (ii) all expenses in UN peace-keeping operations (PKO) and disbursed PKO financing. - Overall fiscal deficit defined according to GFSM 2014 as net lending/net borrowing after transactions in assets and liabilities are adjusted for transactions deemed to be for public policy purposes (policy lending). - Budgetary central government expenditure (expenses plus net acquisition of non-financial assets) is defined based on payment orders accepted by the Treasury, as well as those executed with external resources. - The quantitative target is set as a ceiling on the debt-creating overall fiscal deficit as of the beginning of the fiscal year. - Adjustors to the debt-creating overall fiscal deficit: - The ceiling will be adjusted upward: - by the amount of any shortfall between actual and programmed budgetary grants (as defined in Table 1a of the PS). - by the amount of unexpected budgetary central government expenditure on cereals imports in the case of a food emergency and in spending relative to the programmed amount on fertilizer subsidy in the case of significant increases in fertilizer import price. - The ceiling will be adjusted upward to a maximum of 137 billion, representing the amount of foreign financed net acquisition of non-financial assets (foreign financed capital expenditure) financed with a drawdown of accumulated government deposits from previously disbursed capital grants and loans. ### Floor on Net Foreign Assets (NFA) of the National Bank of Rwanda (NBR) - Coverage and periodicity: - Floor applies to NFA of the NBR for December 31, 2023, June 30, 2024, and December 31, 2024. - Definition of NFA: - NFA of the NBR in Rwandan francs is defined, consistent with the e-GDDS template, as external assets readily available to, or controlled by, the NBR net of its external liabilities. - Exclusions from NFA: pledged or otherwise encumbered reserve assets (including swaps with resident institutions with original maturity of one year or less, and with non-resident institutions); reserve assets used as collateral or guarantee for third party external liabilities; reserve assets corresponding to undisbursed project accounts; holdings of Eurobonds issued by the Government of Rwanda. - Conversion rules: - Foreign assets and foreign liabilities in U.S. dollars are converted to Rwandan francs by using the U.S. dollar/Rwanda franc program exchange rate. - Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate. - Foreign liabilities include, inter alia, use of IMF resources. RSF disbursements are excluded from both the foreign assets and the foreign liabilities side. - Adjustors: - The floor on NFA will be adjusted downward by the amount of any shortfall between actual and programmed budgetary loans (excluding RSF disbursements) and grants per Table 1a of the PS. - The floor on NFA will be adjusted downward by the amount of unexpected public expenditures on cereal imports in the case of a food emergency and/or on fertilizer imports in the case of significant fertilizer import price increases. ### Ceiling on the Stock 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 of the Budgetary Central Government - 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 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): - Debt: a current (non-contingent) liability created under a contractual arrangement through provision of value in assets or services, requiring future payments in assets or services to discharge principal and/or interest. - Primary forms: (i) Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements), (ii) Suppliers’ credits, (iii) Leases (PV at inception of lease of all lease payments expected during the agreement period excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - External debt: debt contracted or serviced in a currency other than the Rwandan Franc. - Coverage and periodicity: - Continuous ceiling 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. - Ceiling for December 31, 2023, is cumulative from January 1, 2023. - Ceilings for June 30, 2024, and December 31, 2024, are cumulative from January 1, 2024. - Exclusions from this quantitative target: - Normal import-related commercial debts having a maturity of less than one year. - Rescheduling agreements. - External borrowing for the sole purpose of refinancing existing public-sector external debt that helps improve repayment profile. - IMF disbursements. - Contracting and valuation rules: - A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda. - Value in U.S. dollars of new external debt is calculated using the program exchange rates. - 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 accounting for all loan conditions (maturity, grace period, payment schedule, front-end fees and management fees) using the IMF model. - A debt is considered concessional if on the date on which it is contracted the ratio of its present value to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent). - For loans with grant element zero or less than zero, the PV is set equal to the face value. - Variable-rate debt treatment: - For variable interest rate debts (benchmark rate plus fixed spread), PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. - Program reference and spreads: - Program reference rate for the six-month USD LIBOR is 3.34 percent. - Spread of six-month Euro LIBOR over six-month USD LIBOR is -150 basis points. - Spread of six-month JPY LIBOR over six-month USD LIBOR is -350 basis points. - Spread of six-month GBP LIBOR over six-month USD LIBOR is -250 basis points. - For interest rates on currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -150 basis points. - Where variable rate 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. - Given anticipated global transition away from LIBOR, the TMU can be updated to reflect benchmark replacements (U.S. Secured Overnight Financing Rate (SOFR); U.K. Sterling Overnight Index Average (SONIA); EURIBOR; and Tokyo Overnight Average Rate (TONAR)) prior to complete phase out, once operationally feasible. - Adjustor: - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies if deviations from the PV target are prompted by a change in financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees). - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed. - Reporting requirement: - Authorities will inform IMF staff of any planned external borrowing and the conditions before loans are contracted or guaranteed by the government. ### Monetary Policy Consultation Clause (MPCC) - Definition of MPCC headline inflation: - 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-December 2023, end-June 2024, and end-December 2024 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 the same test dates, 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 - Data submission timing: - Unless specified otherwise, weekly data within seven days of the end of each week; monthly data within five weeks of the end of each month; quarterly data within eight weeks. - Priority expenditure: - Data on priority expenditure transmitted quarterly. - Priority expenditure = recurrent expenditures + domestically financed capital expenditures + policy lending identified as priority per Rwanda’s National Strategy for Transformation (NST-1). - Monitored through Integrated Financial Management System (IFMS) at program level at the end of each quarter. - Domestic revenues: - Detailed data transmitted monthly. - Domestic revenue defined according to GFSM 2014 taxes and other revenues, per budgetary central government statement of operations, but including: (a) local government taxes (business licenses, property tax, and rental income tax); and (b) local government fees; and excluding receipts from Peace Keeping Operations. - New non-concessional external borrowing reporting: - Data on contracting and guaranteeing of new non-concessional external borrowing with non-residents transmitted on test dates. - Excludes external borrowing by Bank of Kigali and Rwanda Development Bank (RDB) (assumed not to seek or be granted government guarantee). - Applies to private debt for which official guarantees extended, including future swaps involving foreign currency loans guaranteed by the public sector. - Excludes external borrowing for sole purpose of refinancing existing public-sector debt that improves debt profile, and excludes on-lending agreements between Government of Rwanda and public-sector enterprises. - Policy and program change notifications: - Authorities will inform IMF staff in writing prior to making changes in economic and financial policies that could affect program outcomes (e.g., customs and tax laws, wage policy, financial support to public and private enterprises). - Authorities will inform IMF staff of changes affecting continuous QTs and furnish a description of program performance for the QTs and reform targets within 8 weeks of a test date. - Information to be submitted with frequency and submission time lag indicated in Table 2 of the TMU and mailed electronically to the Fund (email to the Resident Representative and the Mission Chief). ### Table 2: Summary of Reporting Requirements (selected entries and frequency codes) - Frequency codes: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I). - Examples of data series and frequencies (Frequency of Data / Frequency of Reporting / Frequency of Publication): - 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 - Volume of transactions in interbank money market, repo/reverse repo, foreign exchange interventions: D W W - Composite Index of Economic Activity (CIEA) and sub-components compiled by the NBR: M M M - Budgetary Central Government: Q Q Q (Revenue, Expenditure, Balance and Composition of Financing) - Comprehensive list of tax and other revenues: M M M - Disposal of non-financial assets and policy lending: 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 - Exports and Imports of Goods and subcomponents: M M Q - Exports and Imports of Goods and Services and subcomponents: A A A *Source: Memorandum defining quantitative targets and data reporting requirements for the Program Statement for the period July 1, 2023––December 31, 2024.* ### 1. To better achieve its primary objective of low and stable inflation (i.e., to maintain ### 1rwaea2023003 - 1. To better achieve its primary objective of low and stable inflation (i.e., to maintain ### Monetary policy framework and objectives - In January 2019 the NBR adopted a forward-looking price-based monetary policy framework using the interest rate as an operating target to maintain inflation within a benchmark band of 5±3 percent. - Monetary policy transmission has been improving due to: - continued positive development in the financial sector; - improvement in the NBR’s liquidity forecasting and management; - enhancement of analytical and research capacities. - Recent shocks that challenged transmission: COVID-19, the Russia-Ukraine war, and domestic supply shocks. ### Monetary Policy Consultation Clause (MPCC) adjustments - Under the MPCC the CPI inflation target (measured as an average over the past three months) was set at: - 11.0 ±4 percent for end-June 2023; - 6.0 ±4 percent for end-December 2023. - Not meeting the MPCC target would trigger formal consultation with the Executive Board. ### Near-term inflation projections (from NBR MPCs) - Inflations projected at successive MPCs (values are quarter and percent): - 2022Q3: 14.8 - 2022Q4: 16.0 (August 2022 MPC), 19.1 (November 2022 MPC) - 2023Q1: 13.5 (August 2022 MPC), 17.8 (November 2022 MPC), 19.5 (February 2023 MPC) - 2023Q2: 8.8 (August 2022 MPC), 14.1 (November 2022 MPC), 15.6 (February 2023 MPC), 15.7 (May 2023 MPC) - 2023Q3: 6.6 (August 2022 MPC), 11.1 (November 2022 MPC), 12.2 (February 2023 MPC), 12.1 (May 2023 MPC) - 2023Q4: 4.6 (August 2022 MPC), 7.8 (November 2022 MPC), 7.1 (February 2023 MPC), 7.1 (May 2023 MPC) - 2024Q1: 3.2 (August 2022 MPC), 4.9 (November 2022 MPC), 4.9 (February 2023 MPC), 4.5 (May 2023 MPC) - 2024Q2: 2.5 (August 2022 MPC), 2.9 (November 2022 MPC), 3.3 (February 2023 MPC), 3.8 (May 2023 MPC) - 2024Q3: 1.7 (February 2023 MPC), 2.3 (May 2023 MPC), 3.4 (May 2023 MPC) - 2024Q4: 1.9 (February 2023 MPC), 3.2 (May 2023 MPC) - 2025Q1: 3.1 (May 2023 MPC) ### Inflation developments and drivers - Three-month average inflation: - June 2023 three-month average inflation: 15.2 percent (marginally above the MPCC upper bound). - Three-month-average CPI inflation rose from 16.4 percent in 2022Q3 to 21.1 percent in 2022Q4, then reduced to 15.2 percent in 2023Q2. - Food price dynamics: - Domestic food inflation accelerated from 29.2 percent in July 2022 to 50.1 percent in December 2022. - Imported food inflation picked up from 26.9 percent in July 2022 to 27.9 percent in December 2022, driven mainly by cereals, sugar, and rice international prices. - Causes of food inflation spike: - weak agricultural production due to unfavorable weather conditions; - May 2023 floods affected agriculture at growing and harvesting stages, contributing to higher food inflation. - Structural driver: headline inflation is driven by prices for fresh foodstuffs, dominated by vegetables. - Projection accuracy: NBR’s projections of core inflation have been quite accurate; projections of food inflation have been less precise due to unexpected weather-related challenges. ### Short-term policy actions and stance - Central bank rate (CBR) changes: - Raised to 6.0 percent in August 2022 from 5.0 percent; - Raised to 6.5 percent in November 2022; - Raised to 7.0 percent in February 2023; - Raised to 7.5 percent in August 2023. - Reserve requirement ratio: - Increased from 4.0 percent to 5.0 percent effective since January 2023 (pre-COVID level). - Purpose of tightening: curb supply-side inflationary pressures and contain second-round effects. ### Inflation indicators (Table 2: Percent, Y-o-Y) - Headline and component inflation by quarter: - 2022Q3: Headline Inflation 16.4; Core Inflation (excluding fresh food products and energy) 12.9; Food and Non-Alcoholic Beverages Inflation 30.3; Fresh Foods Inflation 29.7 - 2022Q4: Headline Inflation 21.1; Core Inflation 14.9; Food and Non-Alcoholic Beverages Inflation 43.1; Fresh Foods Inflation 48.1 - 2023Q1: Headline Inflation 20.2; Core Inflation 13.9; Food and Non-Alcoholic Beverages Inflation 41.6; Fresh Foods Inflation 48.9 - 2023Q2: Headline Inflation 15.2; Core Inflation 9.7; Food and Non-Alcoholic Beverages Inflation 29.3; Fresh Foods Inflation 40.4 - 2023Q3: Headline Inflation 12.7; Core Inflation 8.4; Food and Non-Alcoholic Beverages Inflation 25.7; Fresh Foods Inflation 31.6 ### Outlook, risks, and policy commitment - Outlook: - Current projections suggest headline inflation is expected to continue declining towards the NBR-targeted 5±3 percent band next year as a result of cumulative tightening and government actions. - Main risks to the inflation outlook: - weather-related challenges; - geopolitical tensions; - reduced oil supply by OPEC and Saudi Arabia. - NBR commitment: - continues monitoring global and domestic developments and stands ready to take appropriate actions to ensure inflation remains within the benchmark band. *Source: Excerpt from IMF staff report informational annex for Rwanda (prepared by The African Department, November 29, 2023).* ### 1. Rwanda’s public and publicly-guaranteed (PPG) external debt-to-GDP ratio increased by ### 1. Rwanda’s public and publicly-guaranteed (PPG) external debt-to-GDP ratio increased by ### Recent debt dynamics and drivers - PPG external debt-to-GDP ratio increased by 33.1 percentage points over the last decade. - Main drivers: - Loans to meet development needs envisaged in the National Strategy for Transformation (NST). - Borrowing to respond to the fallout from the COVID-19 pandemic. - Large projects supported by public-private partnerships and external guarantees outside the budgetary central government (construction of the Kigali Convention Center completed in 2016, the expansion of RwandAir, and the ongoing construction of the Bugesera airport). - Timing and magnitude: - Increase of 21.8 percentage points in the five years preceding the COVID-19 shock. - Additional sharp increase of 12.1 percentage points in 2020 due to revenue shortfalls and scaling up in COVID-19 spending. - Decline of 1.9 percentage points in 2021. - Levels: - External PPG debt rose from 15.6 percent of GDP in 2012 to 48.9 percent in 2022. - Total PPG debt stood at 68 percent of GDP at end-2022, 5.4 percentage points lower than in 2021 due to favorable price and exchange rate dynamics. - Market interest rates: - Interest rates on domestic T-bills and T-bonds currently range from 8.3 percent (28 days) to 13.2 percent (20 years). ### Coverage, contingent liabilities, and tailored stress test parameters - DSA coverage: - Covers the central government, guarantees, and state-owned enterprises (SOEs); includes domestic and external debt and guarantees. - No debt from extra budgetary funds, long-term central bank financing of the government, nor the state-owned social security fund. - Local government debt is marginal (RWF 2.4 bn or 0.02 percent GDP at end-2022) and subject to MINECOFIN approval. - Contingent liabilities: - The contingent liabilities shock is set at 6 .5 percent of GDP and accounts for potential fiscal costs associated with a theoretical banking crisis and fiscal risks of existing PPPs. - All SOE guaranteed and non-guaranteed debt is included in the baseline. ### Macroeconomic and reconstruction assumptions - Flood-related reconstruction: - Reconstruction cost could go up to US$451 million (3 percent of GDP) over the next five years to address emergency outlays and rebuild climate-resilient infrastructures. - Growth outcomes and projections: - 2022 outturn: 8.2 percent (better than previous expectation of 6.8 percent). - Growth projected at 6.2 percent in 2023 and 6.6 percent in 2024. - Medium-term drivers: private sector-led diversification, pickup in construction of the new airport, private consumption and investment as main drivers as fiscal consolidation proceeds. - Long-term supply-side: dynamic service sector, gradual industrialization, continued contributions from agriculture. - Inflation and external sector: - Headline inflation expected to decline to 6.0 percent in 2024 (higher than previous forecasts of 5.0 percent). - Current account improved in 2022 but projected to widen in 2023 due to poor agricultural seasons and flood-related reconstruction; gradual improvement over the medium term with real effective exchange rate adjustment and higher domestic savings. ### Fiscal policy, financing strategy, and realism of projections - Fiscal stance: - Fiscal consolidation path is more backloaded to accommodate reconstruction spending; moderate fiscal loosening in near term warranted. - Fiscal impulse in FY23/24 remains sharply negative compared to FY22/23 despite relaxation. - Projections assume strong fiscal policy consolidation to accelerate public debt convergence to the anchor. - Revenue and expenditure measures: - Revenue measures: application of VAT to IT equipment and mobile phones, increase in the fuel levy, increases in excises, and revenue administration measures through FY25/26; more comprehensive revenue strategies thereafter. - Spending measures: spending rationalization strategy underpinning medium-term consolidation to be detailed in FY24/25 Budget Framework Paper; implementation of the Organic Budget Law and institutionalizing fiscal risk management practices. - PIMA recommendations: annual publication of a pipeline of appraised major projects and project selection criteria to improve expenditure efficiency. - Financing assumptions: - Continued support from bilateral and multilateral development partners (World Bank, IMF, African Development Bank, and other partners). - Share of domestic financing projected to remain low until 2030 and pick up thereafter. - Share of market-based external financing projected to increase starting 2030, albeit slowly. - Under IDA20 terms, volume of loans projected to increase (shift from 50-50 grant-loan under IDA19 to 100 percent loans under IDA20); IDA20 loans remain highly concessional with marginal impact on PV of debt. - IDA20 50-year loans have grant element of about 74 percent; 50-50 grant-loan financing under IDA19 had grant element of about 77 percent; a 3 percentage points difference implies if cumulative disbursements under IDA20 reach 3.2 percent GDP, the effect on PV of external debt would increase by about 0.1 percent GDP. - SCF and RSF support: - DSA incorporates a proposal for a 14-month SCF-supported program with access of 125 percent of quota (SDR 200.25 million). - RSF loan: 20-year maturity with 10 ½ year grace period; interest rate with a modest margin over the three-month SDR rate. - Concessional external financing under SCF and recalibrated policy mix projected to rebuild external buffers and improve public debt dynamics by replacing more expensive domestic financing. - Realism and risks: - Realism tools indicate planned fiscal adjustment is ambitious: a 3-year fiscal consolidation in the primary balance expected to peak at 4.3 percentage points of GDP from 2024 to 2027 (lies in the top quartile for LICs). - Past PPG debt dynamics were strongly affected by realized fiscal risks: higher-than-anticipated primary deficits and developments of debt outside the budgetary central government led to higher-than-expected debt accumulation of about 20 percentage points of GDP over the past five years. - Future public debt evolution will be dominated by the path of the primary fiscal deficit, real GDP growth, real effective exchange rate adjustment, and availability of concessional financing. ### Key numeric statistics and projections (selected) - Increase in PPG external debt-to-GDP over last decade: 33.1 percentage points - Increase in five years preceding COVID-19: 21.8 percentage points - Increase in 2020 due to COVID-19 response: 12.1 percentage points - Decline in 2021: 1.9 percentage points - External PPG debt: 15.6 percent of GDP in 2012 → 48.9 percent in 2022 - Total PPG debt: 68 percent of GDP at end-2022; 5.4 percentage points lower than in 2021 - Domestic interest rate range: 8.3 percent (28 days) to 13.2 percent (20 years) - Reconstruction cost estimate: US$451 million (3 percent of GDP) over next five years - 2022 growth outturn: 8.2 percent (vs 6.8 percent previously expected) - Growth projections: 6.2 percent in 2023; 6.6 percent in 2024 - Headline inflation forecast: 6.0 percent in 2024 (previous forecast 5.0 percent) - Contingent liabilities shock used in tailored stress test: 6 .5 percent of GDP - SCF access planned: 125 percent of quota (SDR 200.25 million) - Peak fiscal consolidation in primary balance: 4.3 percentage points of GDP from 2024 to 2027 - Past unanticipated debt accumulation: about 20 percentage points of GDP - IDA grant elements: IDA20 50-year loans ~74 percent; IDA19 50-50 grant-loan ~77 percent; cumulative disbursements under IDA20 reaching 3.2 percent GDP → PV effect ~0.1 percent GDP - RSF loan maturity and grace: 20-year maturity with 10 ½ year grace period ### Policy implications and recommendations highlighted - Continue strong fiscal policy consolidation to accelerate public debt convergence to the anchor while accommodating urgent reconstruction needs. - Implement revenue measures: VAT application to IT equipment and mobile phones, increase fuel levy, increases in excises, and enhanced revenue administration through FY25/26; pursue comprehensive revenue strategies thereafter. - Pursue spending rationalization and institutional reforms: implement Organic Budget Law, institutionalize fiscal risk management practices, follow PIMA recommendations, and publish an annual pipeline of appraised major projects with selection criteria. - Maintain reliance on concessional external financing where available to limit costly domestic financing and support public debt sustainability. - Strengthen monitoring and mitigation of fiscal risks arising outside the central government, including PPPs and SOE-related exposures, supported by continued IMF technical assistance. *Source: IMF — Rwanda Debt Sustainability Analysis and supporting DSA materials as provided in the content unit.* ### 8. Rwanda’s debt-carrying capacity continues to be assessed as “strong”, unchanged from the ### 8. Rwanda’s debt-carrying capacity continues to be assessed as “strong”, unchanged from the previous DSA ### Debt-carrying capacity: composite index and classification - CI Score: 3.18 - Basis: macroeconomic data from the October 2023 WEO and from the 2022 Country Policy and Institutional Assessment (CPIA) of the World Bank. - Cut-off value for strong capacity countries: 3.05 - CI rating: Strong ### Market-financing stress tests and liquidity - Gross financing needs (GFNs) are described as significant. - Sovereign spreads have increased following the recent rise of sovereign spreads globally. - Under stress tests: - Both GFNs and spreads are below their relevant thresholds. - Liquidity risks are judged to be manageable/remote, helped by the authorities’ debt management strategy to smooth out the debt servicing profile. - Prudence note: prudent debt management would be needed to mitigate risks associated with the repayment of the existing Eurobond in 2031. ### External debt: baseline and scenarios - Under the baseline, external debt indicators remain below their respective thresholds. - Breaches under severe scenarios: - PV of external debt-to-GDP ratio would breach the threshold under the most extreme shock scenario in 2026. - PV of external debt-to-GDP ratio would breach the threshold in 2030 under the historical scenario. - Historical scenario dynamics: - PV of external debt-to-GDP ratio increases steadily under the historical scenario, driven by a large current account deficit and negative USD GDP deflator calibrated on historical averages covering several large shocks (commodity prices and drought), and large external imbalances observed and corrected over 2015–17. - Policy adjustment to ensure steady narrowing of the current account deficit, as envisaged under the baseline, is key to strengthen debt dynamics. ### Public debt: baseline projections and anchors - Program debt anchor under the PCI: 65 percent of GDP by 2031. - Nominal PPG debt projections: - Projected to peak at 78 percent of GDP in 2024, then gradually converge to 65 percent of GDP by 2031. - PV of PPG debt: - Projected to decline and achieve the East African Community debt convergence criterion of 50 percent by 2026. - In the baseline scenario, PV of PPG debt “peaks at 5 4.6 percent in 2024 and declines to below 50 percent in 2027.” (text as provided) - Fiscal adjustment needed: - Requires a cumulative reduction in the primary fiscal deficit by 4.3 percentage points of GDP between 2024 and 2026. - Scenario sensitivities: - Growth shock scenario: PV of PPG debt would reach 69 percent in 2033, just below the 70 percent threshold. - Extreme natural disaster shock scenario: PV of PPG debt would briefly cross the 70 percent threshold in 2024 before falling back below it the following year. - Climate note: authorities’ climate-related reform measures, including under the RSF, and climate-related investment priorities should help reduce variability to climate shocks and strengthen resilience. - Debt service costs: while muted in the baseline (reflecting smooth debt service path achieved by Eurobond issuance), debt service costs would remain elevated under severe growth and extreme natural disaster shocks. ### Quantitative indicators (selected exact values from tables and text) - CI Score components summary (selected entries as presented): - CPIA component: 0.394.06 -> 1.564 contribution (49%) - Real growth rate (in percent): 2.726.84 -> 0.196 contribution (?) - Import coverage of reserves (in percent): 4.0539.25 -> 1.595 contribution (50%) - Import coverage of reserves^2 (in percent): -3.9915.40 -> -0.61 contribution (-19%) - Remittances (in percent): 2.023.14 -> 0.062 contribution (?) - World economic growth (in percent): 13.522.89 -> 0.391 contribution (12%) - CI Score total: 3.18 (100%); CI rating: Strong - External debt (nominal) (In percent of GDP, baseline projections): - 2022: 68.1 - 2023: 74.5 - 2024: 84.2 - 2025: 88.4 - 2026: 88.5 - 2027: 86.6 - 2028: 83.6 - 2032: 78.1 - 2033: 69.3 - 2043: 53.2 - Of which: public and publicly guaranteed (PPG) (In percent of GDP): - 2022: 48.9 - 2023: 54.7 - 2024: 63.6 - 2025: 67.1 - 2026: 67.4 - 2027: 65.6 - 2028: 62.7 - 2032: 51.4 - 2033: 32.2 - 2043: 38.7 - Sustainability indicators (external DSA, baseline): - PV of PPG external debt-to-GDP ratio: 28.4 (2022), 31.2 (2023), 37.9 (2024), 41.5 (2025), 41.9 (2026), 40.6 (2027), 39.2 (2028), 32.7 (2032), 21.2 (2033) - PV of PPG external debt-to-exports ratio: 126.4 (2022), 118.8 (2023), 131.8 (2024), 131.9 (2025), 132.9 (2026), 124.2 (2027), 118.1 (2028), 110.1 (2032), 73.0 (2033) - PPG debt service-to-exports ratio: 7.3 (2022), 8.3 (2023), 5.5 (2024), 6.3 (2025), 7.7 (2026), 8.9 (2027), 8.6 (2028), 7.5 (2032), 7.0 (2033) - PPG debt service-to-revenue ratio: 9.0 (2022), 12.2 (2023), 8.8 (2024), 10.3 (2025), 12.2 (2026), 14.2 (2027), 13.7 (2028), 10.0 (2032), 8.1 (2033) - Gross external financing need (Billion of U.S. dollars): 1.3 (2022), 1.7 (2023), 1.5 (2024), 1.2 (2025), 1.3 (2026), 1.4 (2027), 1.4 (2028), 2.5 (2032), 5.7 (2033) - Key macro assumptions (selected): - Real GDP growth (in percent): 8.2 (2022), 6.2 (2023), 6.6 (2024), 7.0 (2025), 7.3 (2026), 7.3 (2027), 7.3 (2028), 7.0 (2032), 6.5 (2033), 6.3 (2043), 7.0 (final listed) - GDP deflator in US dollar terms (change in percent): 11.3 (2022), -2.1 (2023), -7.5 (2024), -3.6 (2025), 0.1 (2026), 0.6 (2027), 1.4 (2028), 2.0 (2032), 2.0 (2033), -0.4 (later), -0.1 (later) - Effective interest rate (percent): 1.5 (2022), 2.0 (2023), 2.3 (2024), 2.5 (2025), 2.6 (2026), 2.5 (2027), 2.5 (2028), 2.7 (2032), 3.5 (2033), 2.9 (later), 2.5 (later) - Public sector debt (In percent of GDP, baseline projections): - Public sector debt: 68.0 (2022), 71.6 (2023), 78.0 (2024), 77.2 (2025), 74.8 (2026), 72.3 (2027), 69.5 (2028), 62.4 (2032), 58.7 (2033), 69.6 (2043) - PV of public debt-to-GDP ratio: 48.7 (2022), 50.5 (2023), 54.6 (2024), 52.7 (2025), 50.3 (2026), 48.1 (2027), 46.6 (2028), 44.2 (2032), 47.9 (2033) - Gross financing need: 14.7 (2022), 13.0 (2023), 13.0 (2024), 9.1 (2025), 6.5 (2026), 6.0 (2027), 7.1 (2028), 10.7 (2032), 14.5 (2033) ### Risk assessment and policy implications - Overall assessment: Rwanda’s debt is assessed to be sustainable with a moderate risk of external and public debt distress. - Mechanical ratings: suggest moderate risk of external debt distress and moderate risk of overall debt distress. - Some debt indicators breach thresholds under the most extreme standard shock scenarios. - As a result: - The limit on the stock of new external PPG debt will continue to be monitored under the PCI and the new SCF. - Downside risks: - Risks to the debt outlook could elevate if the external environment deteriorates (e.g., war in Ukraine, commodity prices, foreign inflation and growth). - Baseline assumes robust medium-term growth and concessional financing declines only gradually; deviations could change the risk assessment. ### Authorities’ views and policies - Authorities broadly agree with DSA results and the overall assessment of moderate risk. - Debt management strategy: - Continue to maximize external concessional financing to minimize debt servicing pressures. - Remain committed to revenue and spending measures agreed under the PCI to underpin medium-term fiscal consolidation and bring debt to the anchor of 65 percent of GDP. - Extension of maturities in domestic borrowing and re-openings of longer-term bonds have helped lower domestic portfolio re-financing risks and reduce the cost of new domestic borrowing. - Fiscal and contingent liability risks: - Authorities recognize potential fiscal risks from PPAs and WPAs and continue strengthening capacity to manage such risks, including coverage in the fiscal risk statement. - IMF-World Bank DSA feedback: - Authorities noted the LIC DSA would benefit from better incorporating new and evolving climate financing instruments and improved adaptation to climate shocks resulting from climate investments. *Source: IMF country report text provided in Content unit 1rwaea2023003.* ### 1. The importance of investing in measures to augment the resilience of Rwanda ### 1. The importance of investing in measures to augment the resilience of Rwanda ### Key event and immediate impacts - Severe floods and landslides in the Western, Northern and Southern Provinces on May 2 and 3, 2023 affected 10 of Rwanda’s 30 districts. - Reported human and physical impacts: - 130 deaths reported. - Many more injured. - 5,174 houses either destroyed or damaged. - 2,510 houses needing to be evacuated. - 8 national and 9 district road sections damaged by the landslides. - 26 bridges damaged by the floods. - Estimated costs: - Total damage and loss is estimated to RWF 215.8 billion (US$187 million). - Total recovery needs for the physical damages and economic losses are estimated at RWF 629.38 billion (US$547.29 million). ### Government policies and commitments — Climate change adaptation (major actions) - Legal and institutional developments: - Law Governing National Parks and Reserves (Law No. 001/2023) approved and gazetted in February 2023; enables authorized private persons to manage national parks and nature reserves and convert private land to nature reserves. - Adoption of the National Disaster Risk Reduction and Management Policy (adopted in early May) to strengthen institutional capacity to manage natural hazards; aligns with the Sendai Framework for Disaster Risk Reduction (SFDRR). - Strategic initiatives: - MINECOFIN launched development of an integrated Climate Finance Strategy to promote institutional coordination in scaling climate financing (as recommended by the CCDR, 2022). The strategy will: - Cover private and public sector financing for climate actions. - Include roles and responsibilities, and a work plan. - Define a climate finance taxonomy and a project selection process. - Create an information system to track and monitor financing of climate and environmental protection sensitive projects. - Define a regulatory framework for climate-focused financial instruments, such as thematic bonds or Sustainability Linked Bonds (SBL). - Objective: align financing needs with financing instruments and mobilize private and public sector financing for adaptation and mitigation actions. - Expected benefits from Law No. 001/2023: - Reduce vulnerability of degraded landscapes to climate events by injecting private financing and capacity for landscape restoration and management. - Expand nature-based tourism offerings, diversify rural incomes, and build resilience in rural livelihoods. ### Government policies and commitments — Climate change mitigation (major actions) - National Carbon Market Framework: - Adopted by Cabinet to facilitate Rwanda’s participation in carbon markets both within and outside Article 6 and in non-market approaches. - Aims to provide a new vision and resource mobilization strategy focused on the private sector. - Establishes governance and institutional structure and operationalizes technical elements (project cycle, environmental integrity requirements, reporting processes). - Complementary instruments: - Climate Finance Strategy and INTEGO (Rwanda’s NDC Facility; call for public sector proposals issued in February 2023) will support delivery of mitigation commitments. ### Fiscal constraints and macro-financial considerations - Fiscal and financing environment: - Public debt projected at 74 percent of GDP in 2023. - Fiscal consolidation underway to address high public debt, while deploying fiscal measures to mitigate cost-of-living pressures (increased subsidies for fertilizers, public transportation, and school feeding programs). - Reduction in reserves from 5.1 months of imports in 2021 to 4.2 months in 2022. - Tightening global financing conditions and reduction in concessional resources constrain government capacity to respond to climate-related crises. - Policy implication: - Effective implementation of the National Disaster Risk Reduction and Management Policy should strengthen disaster risk management systems and institutional capacity. ### Challenges in mobilizing finance and institutional actions - Remaining challenges: - Mobilizing financing for investments in Rwanda’s 2020 NDC remains important and challenging. - Limited fiscal space and tightening global financing conditions constrain capacity. - Ongoing responses: - Cabinet adoption in October 2023 of a National Carbon Market Framework. - Preparation, under a World Bank Development Policy Financing operation, of a National Climate Finance Strategy. - Efforts to systematically assess fiscal risks from climate change and mainstream climate appraisal into the public investment management system, supported by the RST. ### World Bank and multilateral engagements (selected initiatives) - World Bank support and instruments: - Continued technical assistance on climate finance, building on support for Ireme Invest and expanded attention to carbon market ambitions. - Additional Finance–Access to Finance for Recovery and Resilience Project (AFIRR) (P179999) launched a Sustainability Linked Bond (SLB) with BRD; BRD's first issuance completed in October 2023. - PROGREEN financing provides technical assistance for REMA and MDAs to deliver on NDC commitments on landscape restoration and to formulate a strategic government program focused on landscape management and natural asset-based economic activities. - Private Sector Green Growth Development Policy Financing series incorporates climate measures; first operation expected to be approved by the World Bank’s Board in December 2023. - Volcanoes Community Resilience (VCRP) Project approved financing in October 2023: US$50 million IDA credit and US$12 Million Grant from PROGREEN. VCRP objective: reduce risk of flooding, strengthen watershed management and improve livelihoods in the project area. EIB committed to providing US$110 million; additional financing expected from Nordic Development Fund, Climate Investment Fund, and Global Environment Facility. - ASCENT program approved on November 28 to boost access to sustainable and clean energy for 100 million people in up to 20 countries across Eastern and Southern Africa; financing approved for Rwanda is US$100 million. - Knowledge dissemination: - Forthcoming Country Economic Memorandum (CEM) includes chapters integrating climate considerations into sector policies and investments and recommendations for policy reforms to boost climate resilience with special attention to natural and urban landscapes and low-carbon transition. ### Annex I — Vulnerability, emissions profile, NDC costs, and financing needs (summary) - Vulnerability and economic exposure: - ND-GAIN Index ranks Rwanda as 124th out of an 182 countries on vulnerability and readiness. - Climate-sensitive sectors in 2021 accounted for an estimated 65 percent of employment, 45 percent of GDP, and 40 percent of exports. - CCDR (2022) estimates Rwanda’s annual GDP during 2022–50 could be between 0.6 and 2.6 percent lower on average, depending on the climate scenario, than in a baseline with no climate change; annual deviations could be 5.0-7.0 percent lower than the baseline in some years. - Droughts have historically affected as much as 12 percent of the population. - The 2018 floods caused damage to physical assets valued at RWF 201 billion and economic losses of RWF 21 billion (2.4 percent and 0.3 percent of GDP, respectively). - Nearly 52 percent of the Rwandan population lives below the international poverty line. - Emissions profile: - Rwanda contributed 0.003 percent to global greenhouse gas emissions and emitted 5.34 MtCO2e in 2015. - Per capita emissions about 0.5 tCO2e. - Emissions intensity around 0.6 tCO2e per 1000 2015 US$ GDP. - Livestock, agriculture, and land use together account for 74 percent of total emissions; energy, waste sector, and IPPU account for 18 percent, 8 percent, and 1 percent respectively. - NDC mitigation potential and cost estimates: - Rwanda’s 2020 NDC estimates total emissions reduction potential of around 4.6 MtCO2e in 2030, a 38 percent reduction against projected BAU emissions of 12.1 MtCO2e in 2030. - Sectoral mitigation contributions: - Agriculture and land use (soil conservation, composting, animal husbandry) would provide almost half of the 4.6 MtCO2e reduction (2.2 MtCO2e). - Energy measures aim for 1.5 MtCO2e reduction through hydropower, efficient cook stoves, motor vehicle standards, and solar in irrigation and mini grids. - NDC cost estimates: - Total estimated cost 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). - Financing and policy implications: - Additional fiscal space is needed through increased spending efficiencies and spreading planned investments over a longer timeframe. - Greater private sector engagement is required, including through public-private partnerships and joint management of protected areas. *Source: 1rwaea2023003 - 1. The importance of investing in measures to augment the resilience of Rwanda* ### 8. Refinements to public investment management systems can support meeting Rwanda’s ### 8. Refinements to public investment management systems can support meeting Rwanda’s climate commitments ### Key findings on climate and public investment management - Potential areas of action to support Rwanda’s climate commitments: - Assess systematically fiscal risks from climate change. - Mainstream into the public investment management system the appraisal of projects’ climate change and natural disaster vulnerabilities, and appraise their potential contributions to reducing damages and losses from climate change. - Introduce climate change-related rules into public procurement regulations. - Emission reduction potential cited: - Unconditional target of 1.9 MtCO2e. - Additional conditional reduction of 2.7 MtCO2e, which would require new financing and assistance. - Sectoral GHG emission shares (2018, government estimate): - Agriculture: 49 percent. - Energy: 35 percent. - Waste management: 14 percent. ### Developing a green finance market - Key requirements to mobilize financing and develop a green finance market: - Actions by financial regulators and supervisors to implement environmental, social, and governance standards in operations of Rwanda’s financial institutions. - Developing a pipeline of bankable and monitorable green projects. - Introduction of new financial products requiring new technical knowledge (for example, crop and livestock insurance products tailored to meet the needs of smallholders). ### World Bank engagement (active operations, operations under preparation, analysis and TA) - Active operations (examples and codes): - Second Rwanda Urban Development Project (P165017) — includes flood management. - Energy Access and Quality Improvement Project (P172594). - Commercialization and De-Risking for Agricultural Transformation Project (P171462) — focus on urban resilience, energy efficiency, and increased use of irrigation. - Operations under preparation (examples and codes): - Rwanda Urban Mobility Project (P176885) — aims to boost climate resilience in the transport sector. - Volcanoes Community Resilience Project (P178161) — will reduce flood risks and improve land management through protected area expansion and landscape management. - A planned new Development Policy Financing series expected to support policy reforms that boost climate resilience and advance the low-carbon transition. - Analysis and technical assistance: - CCDR provides policy- and investment-related recommendations on climate change. - Support for establishment of the Rwanda Green Investment Facility and mobilizing climate and nature-based financing with a focus on private sector financing. - Technical assistance on climate finance under the Green Growth and Climate Resilient Development Project (P169151). ### Recent macroeconomic performance and shocks (authorities’ assessment) - Overlapping shocks affecting Rwanda: war in Ukraine, tightening global financial conditions, destructive floods in May 2023, consecutive weak agricultural seasons, and structural decline of external concessional financing. - Program performance: - Performance under the Policy Coordination Instrument (PCI) and the Resilience and Sustainability Facility (RSF) described as strong despite shocks. - PCI Quantitative Targets for end-June 2023 (including ceiling on net accumulation of domestic arrears and floor on stock of net foreign assets) were met. - Some emergency expenses related to the flood caused a negligible miss on a debt-creating total balance reform target. - RSF Reform Measures were met; guidelines for climate-related risk management for financial institutions implemented ahead of original timeline. - Output and inflation: - Real GDP growth slowed from 9.2 percent in 2023Q1 to 6.3 percent year-on-year in Q2 2023, reflecting slowdown in manufacturing and services and adverse weather effects on agriculture. - Headline inflation dropped from a peak of 21.7 percent in November 2022 to 11.2 percent in October 2023, owing to tighter monetary policy, slowing food inflation, and lower international commodity prices. - Two consecutive poor agricultural seasons briefly reversed the downward food inflation trend in August and September 2023; pressures were muted in October 2023 as food inflation resumed its downward trend. - By the end of 2023, headline inflation is expected to drop to 9 percent, which is marginally higher than the National Bank of Rwanda’s (NBR) target range of 2–8 percent. - The 3-month average headline inflation by end-June 2023 barely slipped outside the outer bound. ### Fiscal policy, debt management, and financing needs - Authorities’ request: - Request for a 14-month Stand-by Credit Facility (SCF) arrangement to help finance reconstruction from the natural disaster and strengthen reserves. - Fiscal strategy for FY 23/24 and FY 24/25: - Accommodate reconstruction from the floods while reprioritizing spending within the existing expenditure envelope. - Later embark on a tighter fiscal policy stance to preserve fiscal and debt sustainability. - Implement domestic revenue mobilization (DRM) measures under the Medium-Term Revenue Strategy (MTRS) and spending rationalization. - Revenue administration reforms: - Improvements in organizational structure of the Rwanda Revenue Authority. - Further digitization of the tax system and improving tax compliance. - Successor MTRS to emphasize increasing tax revenue by broadening domestic tax base, eliminating tax holidays, streamlining tax expenditures, and curbing tax evasion. - Debt policy: - Authorities accept Staff Debt Sustainability Analysis conclusion that Rwanda maintains a moderate risk of external and overall public debt distress. - Commitment to prioritize concessional resources, including climate change-related financing for adaptation and mitigation. - Target to converge to the 65 percent debt-to-GDP anchor by 2031 backed by a credible medium-term strategy. - Ultimate goal: maintain moderate risk of debt distress with sufficient buffers to absorb shocks. ### Monetary, financial sector, and structural policies - Monetary policy: - NBR committed to contain inflationary pressures; all monetary policy tools to be used to ensure inflation returns to the NBR’s target range in the medium term. - NBR stands ready to adjust policy should second-round inflation effects from natural disaster shocks and reconstruction spending be more pronounced, or exchange rate depreciation result in stronger-than-expected inflation passthrough. - Financial sector soundness: - Banking sector remained profitable, well capitalized, improved credit quality, and reduced NPLs in banks and microfinance institutions. - NBR to step up supervisory activities, strengthen macroprudential analysis, standards, and processes, and increase onsite inspections. - Continued steps to enhance financial inclusion, including through digitalization. - Ongoing AML/CFT reforms, including approval of an AML/CFT strategy to address regulatory gaps. - Structural reforms and social programs: - Commitment to transformative reforms to mitigate pandemic scars, attract private financing for the SDGs, and advance the climate agenda. - Will refrain from providing any subsidies on fuel prices going forward and instead support poor and vulnerable households through targeted measures as needed. - Launched a school feeding program and increased teachers’ salaries. - Continued review of the legal framework for governance of State-Owned Enterprises (SOEs), including National Investment Policy, Privatization Law, and Privatization Policy; key ownership principles reviewed and incorporated in the approved National Investment Policy. - Social economic resilience program under Vision 2020 Umurenge Program: social protection system, direct cash transfers, public works, skill development, productive assets transfers, financial services, and a shock-mitigation and response window with emergency cash transfers. ### Climate agenda and RSF-related reforms - Progress: - Implementation of RSF-related climate measures described as very strong, with some measures completed ahead of time. - Proposed changes and new reform measures: - Request to change availability dates and rephase two reform measures on climate budget tagging and climate-related risk management for financial institutions from the fifth to the fourth review. - Request to rephase one reform measure related to disaster risk reduction and management from the fifth to the third review. - Propose two new reform measures: - Publishing individual risk analysis on SOEs and public-private partnerships (PPPs) that are vulnerable to climate change risks. - Adopting a green taxonomy adapted to Rwanda’s Nationally Determined Contributions (NDCs). - Carbon markets and resource mobilization: - New vision and resource mobilization plan to create institutional framework for directing Rwanda's involvement in the carbon markets. - Framework intended to guide operationalization of technical components: steps required to take part in carbon markets, project cycle, environmental integrity requirements, and reporting protocols. ### Authorities’ conclusions and requests - Authorities report strong performance under the PCI and RSF amid domestic and external headwinds. - They are committed to maintaining macroeconomic stability, addressing pandemic scars, enhancing climate resilience, and sustaining strong and inclusive growth. - Request Executive Directors’ support for completion of second reviews under PCI and RSF, approval of an SCF, and completion of the 2023 Article IV consultation. *Source: 1rwaea2023003 - 8. Refinements to public investment management systems can support meeting Rwanda’s climate commitments* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1rwaea2023003.pdf_