## 1rwaea2025001-print-pdf ## Source details **Canonical URL:** [1rwaea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf.json) --- ### EXECUTIVE SUMMARY — Context and recent developments - Real GDP growth: 8.9 percent in 2024. - Growth drivers: services, construction, and food crop production. - Inflation: stabilized within NBR target range (2-8 percent); annual headline inflation averaged 4.8 percent in 2024. - Financing pressures: significant financing needed for second phase of New Kigali International Airport and RwandAir expansion. - Concessional funding: access becoming more constrained; EU and AFD budget support of US$40 million annually continues; suspension of aid from Belgium and the UK resulted in an annual shortfall of US$5 million; loss of USAID support amounted to US$127 million in FY22/23. - Credit ratings: both Moody’s and Fitch revised Rwanda’s outlook to negative, citing risks of declining concessional financing. - Recent shocks: COVID-19, climate disasters, Marburg virus outbreak (MVD declared over in December 2024); ongoing conflict in Eastern DRC poses escalation risks. ### RECENT MACRO DEVELOPMENTS AND LABOR MARKET - Real GDP: 8.9 percent in 2024. - Expenditure-side drivers: consumption, investment, and robust increase in exports. - Unemployment: - Annual unemployment: 14.9 percent in 2024 (down 2.3 percentage points). - Female unemployment: 17.6 percent. - Youth unemployment: 18.5 percent. - Exchange rate: Rwandan franc depreciated 9.4 percent against the US dollar through end-December 2024 (compared to 18 percent in 2023). ### INFLATION AND MONETARY POLICY - Annual headline inflation: averaged 4.8 percent in 2024 (down from 14.0 percent in 2023). - Headline inflation: 6.5 percent year-on-year in March 2025 (up from 6.3 percent the previous month). - Instantaneous headline inflation: 9.0 percent in March 2025 (from 6.5 percent a year earlier). - Instantaneous core inflation: 7.0 percent in March 2025 (from 7.3 percent a year earlier). - NBR policy rate: unchanged at 6.5 percent at the February 12, 2025 meeting (second consecutive hold). - MPCC 3-month average headline inflation: 5.2 percent (within MPCC inner-bound values 2.0 to 8.0 percent). ### FISCAL POSITION AND RECENT FISCAL DEVELOPMENTS - H1 FY24/25 fiscal deficit: 0.1 percentage points of GDP lower than projected in the fourth review. - MVD-related spending: RWF102.6 billion (0.5 percent of FY24/25 GDP) fully executed. - Post-flood reconstruction spending: RWF126.2 billion (0.6 percent of FY24/25 GDP) in H1 FY24/25. - Tax revenues: slightly exceeded expectations (strong in taxes on goods and services and international trade); income and profit taxes underperformed. - Financing: foreign loans exceeded projections due to earlier-than-expected disbursements; domestic financing rose in anticipation of delays in foreign disbursements. ### FINANCIAL SECTOR - Private sector credit: strong growth in 2024. - Combined loans (banks + MFIs): grew about 13 percent year-over-year; banking sector loan growth about 12 percent. - Banking profitability and capital: sector remained highly profitable; regulatory capital comfortably above minimum requirements. - NPL ratios: - Banking sector NPL: declined from 4.1 percent at end-2023 to 3.1 percent at end-2024. - Microfinance loan stock: increased by 23 percent; MFI NPLs declined from 4.3 percent at end-2023 to 3.5 percent at end-2024. ### EXTERNAL SECTOR - Current account deficit: widened to 12.7 percent of GDP in 2024. - International reserves: 4.7 months of prospective imports as of end-December 2024 (excluding RSF disbursements), meeting reserve adequacy metrics. ### PROGRAM PERFORMANCE UNDER THE PCI - PCI implementation: on track. - All end-December 2024 QTs, continuous, and standard continuous targets: met. - Reform targets (RTs): 4 of 6 met; 2 RTs not met on schedule: - Comprehensive package broadening tax base: end-January 2025 RT — approved by Cabinet on February 10 but recorded as not met. - Full GMRA rollout including signing by all banks: end-December 2024 RT — not met; expected before completion of fifth review. - Staff supports completion of the fifth PCI review and conversion of a continuous QTs on PV of new public and publicly guaranteed debt to a periodic QT with end-June 2025 as test date. ### OUTLOOK AND RISKS (Key projections) - Real GDP growth projections: - 2025: 7.1 percent (revised up from 7 percent at fourth review). - 2026: 7.5 percent. - 2027: 7.4 percent. - Medium-term growth: around 7 percent due to contractionary fiscal consolidation. - Inflation outlook: - Projected to rise to 7 percent in 2025. - VAT on fuels and transportation (effective July 2025) estimated to add 1.2 percentage points to headline inflation. - External sector projections: - Current account deficit: projected to widen to 13.8 percent of GDP in 2025 (airport-related imports). - Project-related FX inflows (FDI and external borrowing) to support external financing and boost near-term international reserves (excluding RSF) towards 4.9 months of prospective imports by 2027. - International reserves (excluding RSF) projected to reach around 4.4 months of imports by 2030 under baseline. - Tariff change impact: recent US tariff changes estimated to reduce Rwanda's GDP growth by -0.03 percent of GDP in 2025. ### KEY POLICY RECOMMENDATIONS (summary) - Strengthen fiscal consolidation via: - Enhanced domestic revenue mobilization. - Rationalization of expenditures. - Mitigation of SOE-related risks. - Maintain vigilance on debt sustainability risks and adopt prudent debt management given increased debt vulnerabilities and priority investment financing needs. - Adopt proactive, data-driven monetary policy to keep inflation within target band; tighten if core inflation rises or passthrough effects persist. - Rebuild fiscal and reserve buffers. - Address external imbalances through real effective exchange rate adjustments. *Source: EXECUTIVE SUMMARY — 1rwaea2025001-print-pdf (May 19, 2025).* --- ### BOX 1 — Macroeconomic Implications of Aid Withdrawal and Declining Grants (overview and quantified impacts) - FY25/26 grants not materializing: USD 110 million. - Belgium bilateral support cancelled: USD 5 million. - Total US support in FY22/23: USD 178 million; USAID portion: USD 127 million. - Share of US assistance historically supporting health sector: 57 percent. - Fiscal simulations: - Loss of grants increases fiscal deficit by 0.1 percent of GDP (government reduces spending and partially fills revenue gap). - USAID withdrawal could widen fiscal deficit by an additional 0.1 percent of GDP if government substitutes resources. - Baseline FY25/26 fiscal deficit: - Without priority investment project: 3.5 percent of GDP. - With priority investment project: 7.4 percent of GDP. - FY24/25 deficit: 5.5 percent of GDP. - Pension reform impacts: - Contribution rate increased to 12 percent of gross salary starting January 1, 2025; planned rise to 20 percent by 2030 in annual 2 percent increments from 2027. - Pension changes raise the wage bill and grants by about 0.5 percent of GDP in FY29/30; increase public wage bill by 0.2 percent of GDP in H2 FY24/25. - Tax policy and revenue: - Tax policy package phased in over FY25/26–FY29/30: revenue gains about 1 percent of GDP in FY29/30. - Additional MTRS-2 measures expected to generate about 0.6 percent of GDP starting in FY26/27. - External effects: - Current account deficit increases by 0.5 percent of GDP from lost grants; USAID withdrawal adds 0.3 percent of GDP deterioration. - Output impacts: - Lost grants: nominal GDP contraction by 0.4 percent of GDP. - USAID withdrawal: output loss 0.2 percent of GDP. - Baseline external commercial borrowing related to priority project: US$1.2 billion (8 percent of GDP). - Staff conservative baseline public debt projection: 86.3 percent of GDP by 2026. - Eurobond and loans assumed in baseline: US$650 million Eurobond later this year and US$550 million in external commercial loans over 2026-29. - Priority project costs and financing: - New Kigali International Airport cost increase: from US$1.5 billion to US$2.6 billion until 2029. - RwandAir expansion cost: US$550 million. - Equity contributions through 2029 required: US$1.12 billion; US$80 million to clear existing RwandAir debts (around 8 percent of GDP). - Changes in concessional borrowing: reduced concessional project borrowing over FY25/26–FY29/30 by US$511 million; increased concessional budget loans by US$300 million yielding net reduction of US$210 million in external borrowing. *Source: Rwandan authorities and IMF staff calculations as presented in Box 1.* --- ### FISCAL RISK MANAGEMENT, SOEs, AND PFM DIGITALIZATION - SOE governance: - Presidential Order approved June 2024 with prerequisites for establishing SOEs and Board oversight rules. - MINECOFIN approved SOE corporate governance code and implementation plan consistent with 2024 OECD Guidelines (end-March 2025 RT). - SOE fiscal risks and capacity: - MINECOFIN Portfolio Oversight Unit expanded; new technical staff hired; IMF TA provided training and tools; in-depth forward-looking assessments of at least five SOEs conducted (end-March 2025 RT). - PFM digitalization: - PFM digitalization and fiscal data strategy developed with IMF TA (end-April 2025 RT), including adoption of Artificial Intelligence and 16 interventions over five years; 25 use cases identified (20 involve predictive AI); 8 priority use cases listed. - Fiscal Transparency Evaluation (FTE): requested in 2025, scheduled for August. - Accrual accounting and consolidated statements: - Valuation of non-financial assets progressing; public debt included in government balance sheet from June 2024. - Consolidated annual financial statement for public sector (including SOEs) to be finalized by end-June 2025 and published after April 2026. ### PFM and contingency measures - Offsetting FY25/26 measures: - Reprioritize goods and services: 0.1 percent of GDP. - Reprioritize domestically-financed investments: 0.1 percent of GDP. - Slow implementation of foreign-financed development projects and limit new contracting: reduce net acquisition of non-financial assets by cumulative 5.9 percent of GDP over FY25/26–FY29/30 relative to fourth review baseline. --- ### MONETARY POLICY, FX MARKET REFORMS, AND FINANCIAL STABILITY - Monetary policy stance (NBR QPM and FPAS): - Current policy rate: 50 basis points above neutral rate but 30 basis points below recommended rate per QPM — implies slightly looser stance vs. inflation outlook. - February 2025 hold at 6.5 percent broadly appropriate; NBR should tighten if core inflation rises or second-round passthrough effects emerge. - FX market reforms: - NBR revised official exchange rate methodology beginning July 2024; align official selling rate with average of buying and selling rates by November 1, 2025 (transition increased volatility). - Commitment to supplementary competitive FX auction for banks by end-September 2025 (fixed amounts, variable rates, bid caps). - Current practice: bilateral USD sales to domestic banks; recommendation to limit interventions to prevent disorderly adjustments and curb excess volatility. - Market infrastructure: - CSD law approved by Cabinet in March 2025. - Full GMRA rollout expected before completion of fifth review (end-December 2024 RT, not met). - Financial sector risks and macroprudential policy: - Continued rapid credit growth, especially in MFIs; recommend enhanced monitoring, align credit exposures with Basel categories, tighten LTV limits and introduce DSTI limits. - Large exposures: SOEs account for significant share of banks’ largest exposures; recommend stress testing and possible additional Pillar 2 capital buffers. - Monetary and financial statistics: - Expanded coverage to include insurance companies, Rwanda Development Bank, and private pension institutions; quarterly publication started (end-March 2025 RT). - NBR safeguards and law reform: - Safeguards assessment April 2024: generally sound internal controls; draft NBR Law amendments to Cabinet end-September 2025 RT. --- ### DEBT OUTLOOK, DSA HIGHLIGHTS, AND FINANCING ASSUMPTIONS - Public debt: - Total public debt (2024): 78.7 percent of GDP. - Under staff conservative baseline (full external commercial financing for priority project): public debt projected to reach 86.3 percent of GDP by 2026. - Program debt anchor of 65 percent of GDP expected to be reached by 2033 (two years later than previously envisaged). - Baseline financing for priority project: - Assumed US$1.2 billion external commercial borrowing (8 percent of GDP): US$650 million Eurobond later this year and US$550 million in commercial loans over 2026-29. - Authorities’ baseline includes US$1.12 billion equity contributions and US$80 million to clear RwandAir debts. - Qatar Investment Authority to provide US$1.4 billion in FDI. - DSA classification: - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Debt-carrying capacity classification: ‘strong’ (composite index score 3.19). - Key DSA indicators (selected): - PV of PPG external debt-to-GDP: 39.2 (2024); projected 43.9 (2025); 46.0 (2026); 47.0 (2027). - PV of PPG external debt-to-exports: 130.5 (2024); 127.3 (2025); 121.4 (2026). - PPG debt service-to-revenue: 9.6 (2024); 14.3 (2025); 15.2 (2026); 16.2 (2027). - Gross external financing need (US$ mn): 1,605 (2024); 1,827 (2025); 1,788 (2026). - Stress tests and vulnerabilities: - PV external debt-to-GDP approaches threshold; stress tests show breaches under shocks (natural disaster, combination, one-time depreciation). - Liquidity pressures with bullet amortizations in 2031 and 2035 raise market/liquidity risk. - Policy priorities from DSA: - Fiscal consolidation, reprioritization of investment projects, seek concessional financing, pursue blended finance and de-risking instruments, manage contingent liabilities and SOE risks. --- ### GREEN FINANCE, CLIMATE, AND IREME INVEST - Ireme Invest: - Disbursed US$3.5 million until December 2024; pipeline value about US$60 million in 2024-25. - Project Preparation Facility expected pipeline US$5.6 million. - Intego (Public Green Investment Facility): identified 10 bankable public investment projects totaling US$34 million; implementation started March 2025 over 3 years. - Green financing challenges: - Implementation capacity and technical readiness constraint scaling; pipeline biased toward mitigation; adaptation projects underrepresented. - Climate strategy and timelines: - Climate and Nature Finance Strategy (CNFS) launched October 2024. - Green taxonomy roll-out, climate budget tagging improvements, and ISSB sustainability disclosure adoption roadmap in process (public consultation ended March 29, 2025; Roadmap launch anticipated June 2025). --- ### PROGRAM MONITORING, TECHNICAL MEMORANDUM, AND REPORTING - PCI monitoring: semi-annual reviews; sixth review scheduled by November 15, 2025 (based on June 30, 2025 test date). - Selected program numeric parameters and targets (examples reported in Table 1a and program tables): - CPI Inflation target (mid-point): 5.0; MPCC inner bounds: 2.0 (lower) to 8.0 (upper). - Ceiling on net accumulation of domestic arrears: 0 (continuous target). - Ceiling on stock of external payment arrears: 0 (continuous target). - RWF/US$ program exchange rate reported as 1,165 across periods (Table 1a memoranda). - TMU highlights: - PV calculation discount rate: 5 percent program discount rate. - Concessionality threshold: PV/face value < 65 percent = concessional (grant element ≥ 35 percent). - Program reference rate: six-month USD LIBOR = 3.34 percent; spreads for other benchmark currencies specified. - Adjustor: up to 5 percent of external debt ceiling in PV terms for changes in financing terms (not for increases in nominal amounts). --- ### RISK ASSESSMENT MATRIX (Annex I) — Key risks and contingency - Downside risks: declining concessional financing; global commodity price volatility; geopolitical fragmentation; weaker tourism demand; trade diversion; global financial market stress; infectious disease outbreaks; climate shocks to agriculture; slower domestic revenue mobilization; delayed fiscal consolidation; cost overruns and delays in priority projects. - Upside risks: ability to attract concessional financing; expedited development spending; stronger-than-expected airport construction stimulus and industrialization gains. - Contingency measures: - Seek grant and concessional financing; if unsuccessful, cut recurrent and capital spending while safeguarding priority investment and social assistance. - Prioritize concessional resources and strengthen debt management capacity, fiscal risk monitoring, and domestic capital markets. --- ### SELECTED KEY STATISTICS (as reported across the document) - Real GDP growth: 8.9 percent (2024); projections: 7.1 percent (2025), 7.5 percent (2026), 7.4 percent (2027). - Headline inflation (period average): 4.8 percent (2024); projected 7.0 percent (2025). - Current account deficit: 12.7 percent of GDP (2024); projected 13.8 percent of GDP (2025). - International reserves (months of imports): 4.7 months (end-December 2024, excluding RSF); target ~4.4 months by 2030 (excluding RSF). - Public debt: 78.7 percent of GDP (2024); projected 86.3 percent of GDP by 2026 under conservative baseline. - Fiscal deficits: - FY24/25: 5.5 percent of GDP. - FY25/26 without priority project: 3.5 percent of GDP. - FY25/26 with priority project: 7.4 percent of GDP. - Baseline external commercial borrowing for priority project: US$1.2 billion (8 percent of GDP). - Eurobond assumed: US$650 million later this year; commercial loans US$550 million over 2026–29. - Grants lost in FY25/26: USD 110 million; Belgium cancelled USD 5 million. - USAID support in FY22/23: USD 127 million (part of USD 178 million US support). - New Kigali International Airport cost: increased from US$1.5 billion to US$2.6 billion until 2029. - RwandAir expansion cost: US$550 million. - Equity contributions through 2029: US$1.12 billion; US$80 million to clear existing RwandAir debts. *Source: IMF staff report content from 1rwaea2025001-print-pdf (May 19, 2025).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent developments - Despite a challenging external environment, Rwanda's economy grew by 8.9 percent in 2024, driven by robust performances in services, construction, and food crop production. - Inflation stabilized within the National Bank of Rwanda’s target range (2-8 percent), underpinned by tight monetary policy and favorable food prices. - Implementing priorities under the Government’s Second National Transformation Strategy (NST-2) requires significant financing, including for the second phase of construction of the New Kigali International Airport and the expansion of RwandAir. - Access to concessional funding is becoming more constrained amid heightened geopolitical risks and shifting donor priorities. EU and AFD budget support of US$40 million annually continues; suspension of aid from Belgium and the UK has resulted in an annual shortfall of US$5 million. Rwanda is also facing the loss of USAID support, which amounted to US$127 million in FY22/23. - Both Moody’s and Fitch have revised Rwanda’s outlook to negative, citing risks of declining concessional financing—particularly for critical sectors such as health. - Recent shocks include the COVID-19 pandemic, climate-related disasters, and the Marburg virus outbreak (MVD), declared over in December 2024. The ongoing conflict in Eastern DRC poses risks of broader regional escalation. ### Recent macroeconomic developments and labor market - Real GDP increased by 8.9 percent in 2024, positioning Rwanda among the fastest-growing economies in sub-Saharan Africa. - Growth was broad-based: agricultural recovery (food crop production), strong expansion in construction, and solid services performance (trade, tourism, transport, telecommunications). - On the expenditure side, growth was supported by consumption, investment, and a robust increase in exports. - Annual unemployment fell to 14.9 percent in 2024—a 2.3 percentage point drop from the previous year; unemployment remained elevated among females (17.6 percent) and youth (18.5 percent). - The Rwandan franc depreciated against the US dollar by 9.4 percent through end-December 2024 (less than the 18 percent depreciation in 2023). ### Inflation and monetary policy - Annual headline inflation averaged 4.8 percent in 2024, down from 14.0 percent in 2023. - Headline inflation was 6.5 percent year-on-year in March 2025, up from 6.3 percent the previous month. - Instantaneous headline inflation increased to 9.0 percent in March 2025 (from 6.5 percent a year earlier); instantaneous core inflation decreased to 7.0 percent (from 7.3 percent a year earlier). - The NBR policy rate was kept unchanged at 6.5 percent at the February 12, 2025 meeting—the second consecutive decision to keep the rate unchanged. ### Fiscal position and recent fiscal developments - The fiscal deficit in H1 FY24/25 was 0.1 percentage points of GDP lower than projected in the fourth review. - MVD-related spending of RWF102.6 billion (0.5 percent of FY24/25 GDP) has been fully executed. - Post-flood reconstruction spending reached RWF126.2 billion (0.6 percent of FY24/25 GDP) in H1 FY24/25. - Tax revenues slightly exceeded expectations (strong performance in taxes on goods and services and international trade); income and profit taxes underperformed. - Foreign loans exceeded projections due to earlier-than-expected disbursements; domestic financing rose in anticipation of delays in foreign disbursements. ### Financial sector - Private sector credit grew strongly in 2024, supported by lending to trade, construction, manufacturing, and mortgages. - Combined loans from banks and microfinance institutions (MFIs) grew by about 13 percent year-over-year; banking sector loan growth about 12 percent. - Banking sector remained highly profitable with regulatory capital comfortably above minimum requirements. - Banking sector NPL ratio declined from 4.1 percent at end-2023 to 3.1 percent at end-2024. - Microfinance loan stock increased by 23 percent; MFI NPLs declined from 4.3 percent at end-2023 to 3.5 percent at end-2024. ### External sector - The current account deficit widened to 12.7 percent of GDP in 2024, driven by imports of food, consumer, and capital goods. - International reserves stood at 4.7 months of prospective imports as of end-December 2024 (excluding RSF disbursements), meeting reserve adequacy metrics. ### Program performance under the PCI - Implementation of the Policy Coordination Instrument (PCI) is on track. - All end-December 2024 quantitative targets (QTs), continuous, and standard continuous targets were met. - The 3-month average headline inflation as defined by the MPCC was 5.2 percent and came within the MPCC inner-bound values (2.0 to 8.0 percent). - Net foreign assets of the NBR were boosted by higher-than-expected disbursements from development partners. - Of six reform targets (RTs) envisaged for this review, four have been met: - In-depth forward-looking financial assessments of at least five SOEs, including mitigation measures (end-March 2025 RT) — met. - SOE corporate governance code and implementation plan consistent with the 2024 OECD Guidelines on Corporate Governance of State-Owned Enterprises (end-March 2025 RT) — met. - PFM digitalization strategy to support data-driven PFM, including by the adoption of Artificial Intelligence (end-April 2025 RT) — met. - Expanding the coverage of Monetary and Financial Statistics (end-March 2025 RT) — met. - Two RTs not met on schedule: - Comprehensive package of measures broadening the tax base by streamlining tax holidays and tax expenditures (end-January 2025 RT) — approved by Cabinet on February 10 but recorded as not met. - Full Global Master Repurchase Agreement (GMRA) rollout, including signing by all banks (end-December 2024 RT) — expected to be enacted before completion of the fifth review. ### Staff position on PCI review - Staff supports the completion of the fifth PCI review, noting strong commitments and implementation capacity by the authorities. - Staff supports the authorities' request to modify the continuous end-June 2025 target on the ceiling for the present value of new public and publicly guaranteed debt. - Staff supports converting this continuous quantitative target to a periodic quantitative target with end-June 2025 as the test date to facilitate timely reporting for the last PCI review. ### Outlook and risks - Real GDP growth projections: - 2025: 7.1 percent (revised up from 7 percent at the fourth review). - 2026: 7.5 percent. - 2027: 7.4 percent. - Medium-term growth expected to be around 7 percent due to contractionary fiscal consolidation effects. - The priority investment project is expected to boost growth in 2026-27 but growth assumptions remain conservative (do not factor in medium-term upsides from improved connectivity or MICE sector gains). - Impact of recent changes to US tariffs on Rwanda's GDP growth is estimated at -0.03 percent of GDP in 2025. - Inflation outlook: - Projected to rise to 7 percent in 2025, due to lagged depreciation effects and pass-through of approved tax policy measures on fuel and transportation (estimated to add 1.2 percentage points to headline inflation, effective July 2025). - Despite the rise, inflation is expected to remain within the NBR target range. - External sector projections: - Current account deficit projected to widen to 13.8 percent of GDP in 2025, primarily due to imports related to a large infrastructure project. - Project-related FX inflows, including FDI and external borrowing, will support external financing needs and help boost near-term international reserves (excluding RSF) towards 4.9 months of prospective imports by 2027. - Overall balance of payments expected to benefit from continued fiscal consolidation and increased FDI, though offset by higher external debt service. - International reserves (excluding RSF) projected to reach around 4.4 months of imports by 2030 under the current baseline. ### Key policy recommendations - Fiscal consolidation strategy should be enhanced through: - Strengthened domestic revenue mobilization. - Rationalization of expenditures. - Mitigation of risks associated with state-owned enterprises (SOEs). - Continued vigilance over debt sustainability risks and prudent debt management is essential given increased debt vulnerabilities and substantial financing requirements for priority investment projects. - A proactive, data-driven monetary policy is essential to maintain inflation within the target band, with adjustments made as risks evolve. - Continued efforts to rebuild fiscal and reserve buffers are needed. - External imbalances should be addressed through adjustments in the real effective exchange rate. *Source: EXECUTIVE SUMMARY — 1rwaea2025001-print-pdf (May 19, 2025).* ### Box 1. Rwanda: Macroeconomic Implications of Aid Withdrawal and Declining Grants ### Box 1. Rwanda: Macroeconomic Implications of Aid Withdrawal and Declining Grants ### Overview - Rwanda is beginning to experience a decline in external assistance, with both grants and donor-funded programs showing signs of withdrawal. - In FY25/26, USD 110 million of grants that were initially projected will not materialize, while an additional USD 5 million in bilateral support from Belgium was cancelled. - Total US support amounted to USD 178 million in FY22/23, of which USAID accounts for USD 127 million. Approximately 57 percent of this assistance has historically supported the health sector. - USAID funding constitutes off-budget assistance, supporting sectoral programs and service delivery through implementing partners, with a notable portion of spending occurring outside Rwanda to cover aid delivery operational costs. - The anticipated reduction in external support is expected to weigh on Rwanda’s fiscal position, with partial impacts on the external position and knock-on effects on real GDP. External and output impacts are reflected in the baseline projections; fiscal effects are treated as a downside risk. ### Fiscal impacts - Simulations indicate the loss of grants would increase the fiscal deficit by 0.1 percent of GDP as the government reduces spending and only partially fills the revenue gap. - The withdrawal of USAID funding is expected to be partially offset by government resources redirected to cover essential aid; this substitution could widen the fiscal deficit by an additional 0.1 percent of GDP. - The baseline FY25/26 fiscal outlook: - Without the priority investment project, the FY25/26 fiscal deficit is projected at 3.5 percent of GDP. - With the inclusion of the priority investment project, the FY25/26 fiscal deficit is expected to rise to 7.4 percent of GDP. - The FY24/25 deficit was 5.5 percent of GDP. - Policy measures and reforms affecting the fiscal trajectory: - Pension reform: contribution rate increased to 12 percent of gross salary starting January 1, 2025, split equally between employer and employee, with a planned rise to 20 percent by 2030 in annual 2 percent increments from 2027; pension changes raise the wage bill and grants by about 0.5 percent of GDP in FY29/30 and increase the public wage bill by 0.2 percent of GDP in H2 FY24/25. - Tax policy package: phased in over FY25/26 to FY29/30, bringing revenue gains to about 1 percent of GDP in FY29/30; additional domestic revenue measures under MTRS-2 expected to generate about 0.6 percent of GDP starting in FY26/27. - Costs related to the priority project: include interest (New Kigali International Airport and RwandAir investments and an issuance fee for a presumed Eurobond), subsidies (RwandAir loan repayment and working capital injections), and equity and investment fund shares (capital injections to New Kigali International Airport). ### External impacts - Partial simulations assuming no other changes show: - The current account deficit would increase by 0.5 percent of GDP due to the loss of grants, despite a partial offset from reduced imports because of lower grant-financed spending. - The USAID withdrawal would lead to a further deterioration of the current account by 0.3 percent of GDP, also partially mitigated by declining imports. - Baseline assumptions and financing dynamics: - Baseline assumptions include frontloaded external commercial borrowing to meet project timelines for New Kigali International Airport and RwandAir. - Baseline assumes US$1.2 billion (8 percent of GDP) in external commercial borrowing related to priority investment project obligations. - With staff’s conservative baseline of full external commercial financing, overall public debt is projected to reach 86.3 percent of GDP by 2026 and the program debt anchor of 65 percent of GDP is expected to be reached in 2033. ### Output impacts - Nominal GDP impacts from aid reductions: - Grants lost: nominal GDP is expected to contract by 0.4 percent of GDP, driven by decreased public expenditure and partly cushioned by lower import demand. - USAID withdrawal: output loss estimated at 0.2 percent of GDP, primarily due to reduced private consumption, partly offset by import decline and government aid substitution. - Combined impact: reduced grants and the USAID withdrawal will exacerbate fiscal and external imbalances and reinforce the urgency for fiscal consolidation. Priority projects are expected to offset some GDP losses. ### Policy implications and risks - The balance of risks to the outlook has further tilted to the downside. Upside risks include the authorities' ability to attract external concessional financing and expedite development spending; downside risks include global commodity price volatility, geopolitical fragmentation, a sharp decline in trading partner growth, weakening external tourism demand, decline in broader aid flows, trade diversion, adverse developments in global financial markets, domestic infectious disease outbreaks, climate shocks to agriculture, slower progress on domestic revenue mobilization, delayed fiscal consolidation, and priority project-related cost overruns and delays. - Policy recommendations and priorities: - Strengthen fiscal consolidation through enhanced domestic revenue mobilization, expenditure rationalization, and mitigation of SOE-related risks. - Implement contingency planning focused on spending reprioritization to safeguard essential expenditures—particularly investment and social assistance—while avoiding budget overruns and containing debt risks (measures could include curbing new hires, further cutting non-essential recurrent spending, and discontinuing underperforming domestically financed projects). - Maintain a proactive, data-driven monetary policy to keep inflation within the target band and rebuild fiscal and reserve buffers. - Increase exchange rate flexibility to help absorb external shocks and facilitate necessary adjustments. - Monitor and mitigate fiscal risks from pension reform and the Rwanda Social Security Board’s investment strategy, ensuring alignment with prudential considerations. - Closely monitor priority investment project costs and financing terms; pursue options to reduce the cost of borrowing including a mix of domestic, external commercial, and semi-concessional financing with potential IFI involvement. - Continue reforms to improve transparency and efficiency of public financial management, investment practices, and fiscal risk management. ### Key statistics and projections (as reported) - USD 110 million: projected grants in FY25/26 that will not materialize. - USD 5 million: bilateral support from Belgium cancelled. - USD 178 million: total US support in FY22/23. - USD 127 million: USAID portion of US support in FY22/23. - 57 percent: share of US assistance historically supporting the health sector. - 0.1 percent of GDP: simulated increase in the fiscal deficit from lost grants. - 0.1 percent of GDP: additional potential fiscal deficit widening from government substitution for USAID. - 0.5 percent of GDP: increase in the current account deficit from loss of grants. - 0.3 percent of GDP: additional current account deterioration from USAID withdrawal. - 0.4 percent of GDP: contraction in nominal GDP attributed to lost grants. - 0.2 percent of GDP: output loss attributed to USAID withdrawal. - FY24/25 fiscal deficit: 5.5 percent of GDP. - FY25/26 fiscal deficit (without priority project): 3.5 percent of GDP. - FY25/26 fiscal deficit (with priority project): 7.4 percent of GDP. - Pension contribution rate: increased to 12 percent of gross salary starting January 1, 2025; planned rise to 20 percent by 2030 in annual 2 percent increments from 2027. - Revenue gains from tax package: about 1 percent of GDP in FY29/30. - Additional domestic revenue measures under MTRS-2: about 0.6 percent of GDP starting in FY26/27. - US$1.2 billion (8 percent of GDP): baseline external commercial borrowing related to priority investment project obligations. - Public debt projection: 86.3 percent of GDP by 2026 under conservative baseline. - Eurobond issuance assumed in baseline: US$650 million later this year and US$550 million in external commercial loans over 2026-29 (staff’s conservative full external commercial financing assumption). - New Kigali International Airport cost increase: from US$1.5 billion to US$2.6 billion until 2029. - RwandAir expansion cost: US$550 million. - Equity contributions required through 2029: US$1.12 billion; US$80 million to clear existing RwandAir debts (around 8 percent of GDP). - Reduced concessional project borrowing over FY25/26-FY29/30: US$511 million. - Increased concessional budget loans: US$300 million, yielding a net reduction of US$210 million in external borrowing. *Source: Rwandan authorities and IMF staff calculations as presented in Box 1. Rwanda: Macroeconomic Implications of Aid Withdrawal and Declining Grants.* ### 14. Efforts to strengthen fiscal risk management, fiscal transparency, and public financial ### 14. Efforts to strengthen fiscal risk management, fiscal transparency, and public financial ### SOE legal framework and governance - Implementation of the new legal framework for SOEs is ongoing. - In June 2024, the Cabinet approved a Presidential Order (PO) outlining prerequisites for establishing SOEs, management rules, and Board oversight functions. - With IFC support, MINECOFIN has approved the SOE corporate governance code and its implementation plan, consistent with the 2024 OECD Guidelines on Corporate Governance of State-Owned Enterprises to ensure SOE operational independence, external audits, and the management of environmental and social risk (end-March 2025 RT). - Authorities are establishing a framework for selecting qualified Board members and enhancing the governance framework to include mixed ownership and performance monitoring. ### Managing and mitigating SOE fiscal risks - New technical staff were hired at MINECOFIN’s Portfolio Oversight Unit to strengthen capacity for financial risk analysis. - With IMF TA support, training on health check and stress test tools was conducted for the new staff, facilitating in-depth forward-looking financial assessments of five SOEs and identification of credible mitigation measures (end-March 2025 RT). ### Fiscal data digitalization and PFM digital strategy - Rwanda is positioned to introduce a data-driven digital PFM transformation. - With IMF TA, authorities developed a PFM digitalization and fiscal data strategy (end-April 2025 RT) using artificial intelligence for data-driven digital transformation. - The strategy outlines actions to support data-driven fiscal policies by improving data quality, ensuring fiscal transparency, and utilizing fiscal data housed in IFMIS. ### Fiscal Transparency Evaluation (FTE) - Authorities formally requested an FTE in 2025, scheduled for August. - The assessment is expected to identify further reforms to strengthen fiscal transparency and fiscal management. ### Monetary policy stance and guidance - Based on the NBR’s QPM model: - The current policy rate is 50 basis points higher than the neutral rate but 30 basis points below the recommended rate. - This indicates a slightly looser stance than what may be warranted by the inflation outlook, prior to accounting for the passthrough of VAT on fuels and transportation services. - The February 2025 decision to hold the rate has been broadly appropriate. - The NBR should be prepared to tighten policy if core inflation rises or if persistent second-round effects from passthrough of approved tax policy measures emerge. - Significant fiscal loosening for the priority infrastructure project may lead to increased inflationary pressures, necessitating vigilance and further tightening. ### Strengthening interest rate-based framework and market infrastructure - With IMF TA, forecast and modelling capabilities were improved, recently incorporating climate risks. - Short-term rates broadly follow the policy rate; banking system frictions hinder passthrough to lending rates. - Greater exchange rate flexibility is critical for price and external stability. - With IFC assistance, gaps in insolvency, payment system, and banking laws were identified, creating a roadmap for implementing the GMRA. - Draft Central Securities Depository (CSD) law: - Approved by the Directors of the Capital Market Authority in August 2024 and by Cabinet in March 2025. - Full GMRA rollout, including signing by all banks (end December 2024 RT, not met), is expected to be enacted before completion of the fifth review. - The GMRA is intended to provide a mechanism for liquidity management and contribute to monetary policy transmission. ### Exchange rate policy and external adjustment - Real effective exchange rate depreciation in 2024 fell short of program expectations despite a 9.4 percent depreciation of the Rwandan franc against the US dollar in 2024. - Given sluggish external adjustment, projected near term current account deterioration due to the priority development project, and limited effectiveness of monetary policy transmission: - The program relies on a continued average nominal depreciation of the exchange rate in 2025, facilitated by greater exchange rate flexibility and price discovery. - Reserve coverage improved, but balance of risks warrants prudency with NBR foreign currency interventions to mitigate external pressures. ### FX market liquidity, interventions, and reforms - Foreign exchange interbank market liquidity remains limited and shallow. - Authorities’ diagnostic assessment (with IMF TA) recommended pillars to enhance the FX intervention framework: - Revise the Official Exchange Rate Calculation: - NBR revised methodology beginning July 2024, with expectation of aligning the official selling rate with the average of buying and selling rates by November 1, 2025. - This transition has led to increased volatility in the exchange rate. - Implement Competitive FX Auctions: - NBR committed to conduct a supplementary, smaller-scale competitive auction for banks to source foreign exchange (end-September 2025 RT). - Auction features: fixed amounts, variable rates, and bid amount caps to prevent market cornering. - Objective: foster transparent price discovery, address macroeconomic imbalances and the current account deficit, and facilitate transition to a market-determined exchange rate. - Current NBR practice: selling USD to all domestic banks through bilateral transactions; this does not align with a market-determined exchange rate framework. - Recommendation: integrate competitive auctions into NBR’s FX intervention strategy, limit FX interventions to preventing disorderly adjustments and curbing excess volatility, and review auction design parameters based on initial experience. ### Credit growth, microfinance risks, and macroprudential policy - Continued rapid credit growth, especially in the microfinance sector, raises concerns about a potential buildup of excess leverage. - Recommendations: - NBR should step up monitoring of household and small business credit, including granular data on underwriting standards. - Align financial institutions’ credit exposures with standard Basel credit categories (corporates, retail products, residential mortgages, etc.) to improve risk monitoring and stress testing. - Use more proactive macroprudential tools based on enhanced monitoring, including: - Tightening loan-to -value (LTV) limits. - Introducing debt-service-to -income (DSTI) limits. ### Large exposures, bank-sovereign nexus, and capital buffers - Banks carry significant large exposures in their credit portfolios; SOEs account for a significant share of banks’ largest exposures, creating a considerable bank-sovereign nexus. - NBR has enhanced monitoring of banks’ large exposures through borrower-level financial metrics (cash flows, indebtedness, interest expenses). - Further actions recommended: - Stress testing of cash flows and financial metrics to strengthen monitoring. - Consider additional capital buffers, including those required under Pillar 2, to strengthen banking system resilience. ### Monetary and financial statistics and transparency - Rwanda committed to broadening coverage of monetary and financial statistics and enhancing transparency. - To achieve comprehensive coverage per the IMF's 2016 Monetary and Financial Statistics Manual and Compilation Guide: - Balance sheet data on Other Financial Corporations (OFC) were prepared in collaboration with IMF statistics department. - NBR expanded Monetary and Financial Statistics coverage to include, as part of OFC Survey, insurance companies, Rwanda Development Bank, and private pension institutions; and started publishing these on a quarterly basis (end-March 2025 RT). ### NBR safeguards assessment and law reform - An updated safeguards assessment of the NBR was completed in April 2024; it found generally sound internal controls, external audit, and financial reporting practices. - Authorities are reforming the NBR Law to align with leading central bank practices on mandate, financial and personal autonomy, transparency, and accountability. - In line with safeguards assessment recommendations, authorities plan to submit draft amendments to Cabinet in consultation with IMF staff (end September 2025 RT). - NBR is strengthening its internal audit function as recommended. ### Structural reforms, climate finance, and AML/CFT - NST-2 aims to strengthen socioeconomic resilience and key infrastructure projects, including the new airport, to support diversification, connectivity, and job creation consistent with Vision targets for 2035 and 2050. - RSF program completion acknowledged; continued efforts needed to ensure RSF-related institutional improvements are durable and integrated into decision making. - Climate and green public financial management (PFM) reforms: - Need for enhanced implementation of climate budget tagging (CBT), incorporation of climate considerations in public investment selection and appraisal, disaster risk reduction framework, and adoption of sustainability disclosure standards. - CBT framework could be improved by increasing granularity of the weighting scheme; green taxonomy needs full roll-out to all sectors. - Alignment of CBT and Ireme Invest taxonomy with the green taxonomy should be enhanced. - Action plan to adopt ISSB sustainability disclosure standards is being finalized. - Climate and Nature Finance Strategy (CNFS) launched in October 2024 is under implementation to unlock private finance and align flows with NDC targets. - Green financing pipeline challenges: - Funds disbursed by Ireme Invest: US$3.5 million compared to US$260 million in pledges. - Pipeline predominantly incorporates mitigation projects; full implementation of green taxonomy (including adaptation) would broaden the pipeline. - AML/CFT framework: - July 2024 Mutual Evaluation Report by Eastern and Southern Africa Anti Money Laundering Group highlighted need for significant improvements, particularly in beneficial ownership (BO) transparency reforms. - Reforms should include harmonizing BO definition in the Public Procurement law and ensuring timely access to BO information by competent authorities. - A post-evaluation progress report is being prepared. ### Program modalities, financing, and debt outlook - Program conditionality under the PCI remains adequate, except for one QT proposed for modification to reflect the updated macroeconomic framework (MEFP Tables 1–3). - Implementation will be monitored semi-annually through RTs, QTs, continuous and standard continuous targets, and a Monetary Policy Consultation Clause (MPCC), with the end-June 2025 test date remaining as formulated. - Proposed change: reset the end-June 2025 ceiling on the PV of new public and publicly guaranteed debt to accommodate government borrowing secured on concessional terms in FY24/25 and convert this continuous quantitative target to a periodic quantitative target with end-June 2025 test date. - Capacity to Repay: - Rwanda’s outstanding credit peaked at 383.8 percent of quota (as of (December 31, 2024) as RSF and SCF arrangements were fully disbursed). - Peak for credit outstanding is high: 33.4 percent of gross international reserves, or 5.7 percent GDP. - Part of the credit outstanding is very long-term due to RSF financing. - Debt service to the Fund remains modest at 3.0 percent of revenues excluding grants in 2028 and 2029. - Priority infrastructure project will significantly heighten debt vulnerabilities and constrain policy space, but external and overall risk of debt distress remain assessed to be moderate (see DSA). - Financing assurances and risks: - Program remains fully financed with firm commitments for the remainder of the program. - Financing assurances provided mostly as concessional grants (World Bank, Global Fund, bilateral partners) and concessional loans (World Bank, AfDB, other multilateral and bilateral partners). - Authorities need to monitor risks to select bilateral commitments, including risks from military escalation of regional conflict and availability of foreign aid. - Increased uncertainties and risks to program implementation are mitigated by strong authorities’ ownership of the program. ### Staff appraisal: recent macro performance and outlook - Through end-December 2024: - Economy expanded by 8.9 percent, supported by services, construction, and food crop production. - Inflation stabilized within the central bank’s target range. - Current account deficit widened due to elevated import demand. - Rwandan franc depreciated by 9.4 percent against the US dollar in 2024. - International reserves covered 5.4 months of imports. - Macroeconomic environment shaped by: - Large priority project for second phase of New Kigali International Airport construction and expansion of RwandAir introducing significant fiscal and debt pressures. - Pension reform straining fiscal outlook. - Tax reforms from May intended to bolster revenues and partially offset pressures. - Deepening geopolitical fragmentation and shrinking aid flows, including accelerated declines in concessional financing, creating a more challenging external financing environment. - Public debt trajectory: - Authorities reduced previously planned external concessional borrowing for development projects by US$511 million over FY25/26-FY29/30 (about 3.5 percent of GDP). - Public debt projected to peak in the next two fiscal years and remain elevated well beyond the medium term, with gross financing needs increasingly shifting to market-based sources. - Program debt anchor of 65 percent of GDP is now expected to be reached by 2033—two years later than previously envisaged under the PCI. - Staff welcomes authorities’ transparent delineation of drivers of the widened fiscal deficit: - FY25/26 deficit of 7.4 percent of GDP including priority investment project, 3.5 percent of GDP excluding. *Source: IMF staff report content from the provided document.* ### 33. The narrowing of policy space implies heightened vulnerability to shocks and policy ### The narrowing of policy space implies heightened vulnerability to shocks and policy slippages ### Fiscal risks, debt management, and policy commitment - Even modest deviations from the planned adjustment path could push baseline debt burden indicators closer to high-risk thresholds. - The authorities' commitment to tax policy reform including under the follow-up medium-term revenue strategy and continued consolidation from FY26/27 onward will be essential. - A prudent debt management strategy should: - Actively explore options to lower the financing costs of priority infrastructure projects, such as blending concessional and commercial resources. - Leverage cost-mitigating strategies with the involvement of IFIs to help mitigate risks and bolster confidence. - Fiscal risks from assumptions on declining RwandAir subsidies and accelerated pension reform underscore the need for: - Close monitoring and reassessment of fiscal projections. - Technical support to ensure the sustainability and prudence of Rwanda’s Social Security Board’s parameters and investment strategy. - Clear communication and timely implementation of identified measures will be critical to maintain investor confidence. ### Exchange rate, monetary policy, and reserves - Exchange rate flexibility remains key to absorbing external shocks and preserving international reserves. - Continued efforts to strengthen the foreign exchange intervention framework will be important to facilitate price discovery and improve market functioning. - Monetary policy should remain prudent and data-driven, with careful consideration of inflationary pressures stemming from tax reforms and the significant fiscal loosening for the development project as well as the need to support macroeconomic stability. - The central bank’s readiness to respond to emerging inflation pressures is welcome. ### Financial sector risks and inclusion - Financial sector risks are rising in tandem with strong credit growth. - Advances in financial inclusion are commendable, but rapid expansion—especially among microfinance institutions—warrants close monitoring. - Potential asset quality deterioration and borrower overleveraging should be addressed through: - Granular risk monitoring. - If necessary, macroprudential measures. ### Structural reforms, climate finance, and statistical capacity - All but one of the PCI reform targets for the completion of this review have been implemented, including: - The comprehensive tax package. - SOE governance code. - SOE stress testing. - Monetary statistics expansion. - A PFM digitalization strategy. - The full rollout of the Global Master Repurchase Agreement is expected to be enacted before the completion of the current review. - On climate, Rwanda continues to make commendable progress in leveraging RSF resources and embedding climate considerations into fiscal planning. - The development of a credible climate finance pipeline remains an area for further attention. - Authorities should maintain existing commitments and continue efforts to identify viable financing sources to meet emerging needs. - Renewed efforts to build statistical capacity and re-establish high standards of fiscal data reporting will be essential, particularly as new complex reforms and financing strategies are introduced. *Canonical source: https://www.imf.org/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf* ### 36. Staff supports the completion of the fifth review of the PCI. The authorities have shown ### 1rwaea2025001-print-pdf - 36. Staff supports the completion of the fifth review of the PCI. The authorities have shown ### Staff recommendation on the PCI review - Staff supports the completion of the fifth review of the PCI. - Staff notes the authorities have shown "strong commitment to reforms, proven ability to implement difficult measures, and a solid track record of prudent policies." - Staff supports the authorities' request under the PCI to modify the end-June 2025 target on the ceiling for the present value of new public and publicly guaranteed debt to reflect the updated macroframework and authorities’ commitment to reforms. - Staff supports the authorities’ request to convert this continuous quantitative target to periodic quantitative target with end-June 2025 as the test date to facilitate timely reporting for the last PCI review. ### Recent economic developments (Figures and narrative) - Economic activities remain strong in 2024Q3, driven by "strong performance in services and trade" and the "rebounding of agriculture." - High regional demand for manufactured exports and increased coffee prices led to an uptick in exports in 2024Q4. - As of January 2025, inflation has increased due to the base effect while "remaining within the NBR’s inflation target range." - Recent Growth Trends (charts): q/q moving average and y/y series shown from Dec-15 to Dec-24. - Composite Indicators of Economic Activity, Contribution to GDP Growth, and Inflation (Headline, Food, Core, Energy) series are presented through Feb-25 with an "Inflation target" band. ### Fiscal developments (Figure 2 overview) - The fiscal deficit is expected to narrow in 2024/25. - Tax revenues are expected to start reflecting the implementation of a "new tax package." - Expenditures, especially capital spending, are expected to moderate. - Net incurrence of liabilities is influenced by trends in "foreign capital and current loans." - Fiscal charts present: Total Expenditure (Percentage of GDP), Net Incurrence of Liabilities (Percentage of GDP), Overall Deficit (Percentage of GDP), Total Revenue and Grants (Percentage of GDP). ### Monetary and financial sector developments (Figure 3 overview) - "The NBR’s monetary stance remains unchanged since May 2024." - The banking sector "continues to be profitable and regulatory capital is well above minimum requirements." - There is growing demand for repos from NBR with ample liquidity in the market. - Loans under Watch category have continued to decline. - NPL levels remained broadly stable recently, following the COVID-related spike during 2020-2021. - Large exposures of banks remain high. - Policy and short-term rates series, Tier 1 Capital Ratio and Return on Assets, liquidity management (Reverse Repo/Repo), Risk Status of Loan Stock, Non-performing Loans, and Large Exposures charts shown through Dec-24. ### External developments (Figure 4 overview) - The trade deficit adjusted somewhat, reflecting strong exports and moderation in imports. - The REER continued to depreciate, driven by continued, albeit less pronounced, nominal exchange rate depreciation. - International reserves increased following earlier disbursements in official financing support. - Charts display Growth of Exports and Imports Volumes (USD Millions, 3-Mnt Rolling Avg, Excl. Gold & Re-Exports) through Jan-25; EAC Real Effective Exchange Rates (Index, March 2013=100); RwF/US$ and depreciation annualized (%); International Reserves (millions of US$; Months of imports). ### Selected program indicators (Figure 5 overview) - Time series across program reviews for: - Total Public Debt (Percentage of GDP) covering "PCI-RSF 1st Rev." through "PCI 5th Rev." - Overall Fiscal Balance (Percentage of GDP) across review vintages. - Total Revenue and Grants (Percentage of GDP). - Total Expenditure (Percentage of GDP). ### Key projections and indicators (Table 1 highlights) - Output and prices: - Real GDP: 8.9 7.0 7.1 7.0 7.5 7.2 7.4 7.3 7.0 7.3 7.0 (series labeled Act./4th Review/Proj. through 2030). - GDP deflator: 3.8 4.9 5.7 5.0 5.1 5.0 5.0 5.0 5.0 5.0 5.0. - CPI (period average): 4.8 5.0 7.0 5.0 4.7 5.0 5.0 5.0 5.0 5.0 5.0. - CPI (end period): 6.8 4.7 6.3 5.0 4.1 5.0 5.0 5.0 5.0 5.0 5.0. - Money and credit: - Broad money (M3) growth: 20.6 13.8 10.8 9.2 7.6 13.9 16.2 12.7 12.3 12.6 11.7 11.7. - Credit to non-government sector growth: 14.3 11.9 17.6 10.5 10.8 12.0 19.4 10.5 11.4 12.1 18.7 14.0. - Budgetary central government (FY basis) key ratios (percent of GDP): - Revenue: 21.5 21.3 21.4 22.5 21.4 23.3 22.3 23.0 22.8 23.3 22.9 23.1. - Expense: 17.9 17.5 17.7 16.8 17.8 16.7 17.1 16.5 17.3 16.3 17.0 17.3. - Net lending (+)/borrowing (-) (NLB): -6.3 -4.9 -4.7 -2.9 -4.0 -2.7 -3.0 -2.7 -3.1 -2.8 -3.0 -3.1. - Total public debt incl. guarantees: 78.7 80.1 84.7 79.0 86.3 77.2 86.3 75.0 84.6 71.9 81.1 76.2. - External public debt incl. guarantees: 63.1 67.5 73.0 70.2 78.2 70.4 80.6 70.0 79.7 68.6 76.4 73.2. - Total public debt excluding guarantees and PV series provided. - External sector: - Exports (goods and services): 30.0 33.5 34.4 36.5 37.9 39.0 39.9 40.8 42.8 42.0 44.6 44.5. - Imports (goods and services): -45.8 -48.7 -50.1 -50.9 -54.9 -52.3 -54.2 -53.0 -53.2 -52.4 -53.9 -52.3. - Current account balance (incl grants): -12.7 -12.1 -13.8 -11.2 -15.9 -10.5 -13.4 -9.8 -9.9 -8.3 -8.8 -7.6. - Gross official reserves in millions of US$: 2,405 2,158 2,578 2,284 2,599 2,376 2,649 2,494 2,658 2,536 2,549 2,561 (and months of imports series). ### Fiscal tables and monetary data (selected) - Table 2a and 2b provide detailed Budgetary Central Government flows in Rwandan francs and percent of GDP for FY22/23–29/30, including: - Revenue and tax breakdowns, Grants, Expense components (Compensation, Use of goods and services, Interest, Subsidies, Grants to local government), Net acquisition of nonfinancial assets, Net lending/borrowing, Net incurrence of liabilities (domestic and foreign), Disbursements and reimbursements. - Table 3: Monetary Survey (Billions of Rwandan francs) with Net Foreign Assets, Net Domestic Assets, Reserve money, Domestic credit, Deposits, Broad money and growth rates through 2030. - Table 4: Financial Soundness Indicators, Mar 2021–Dec 2024, covering Capital Adequacy, Asset Quality, Profitability and Earnings, Liquidity, Market Sensitivity (percent-series). ### Balance of payments and financing (Tables 5–7 highlights) - Table 5a/5b: Balance of Payments, 2023–30 (Millions of U.S. Dollars and percent of GDP) with: - Current account balance and components (Trade balance, Exports, Imports, Services net, Income, Current transfers). - Capital and financial account, Direct investment, Public sector capital and long-term borrowing, Net errors and omissions, Overall balance, Financing, Reserve assets, Net credit from the IMF (including SCF and RSF impacts). - Memorandum items include Current account percent of GDP, Trade balance percent of GDP, Foreign assets of monetary authorities (US$ and months of imports), Gross official reserves (US$ and months of imports). - Table 6: Gross External Financing Needs and Sources (Millions of U.S. Dollars) with: - Gross external financing needs series and breakdown into current account deficit, public debt amortization, repayments to IMF. - External financing sources: Capital transfers, Direct investment, Public sector borrowing, Other inflows, Reserve asset movements, Net errors. - Table 7: Indicators of Capacity to Repay the Fund, 2024–44, with IMF debt service (SDR millions), principal and charges, IMF credit outstanding (SDR and US$), and ratios (percent of GDP, exports, government revenue, gross international reserves, PPG external debt, IMF quota). Notable numeric series include: - IMF debt service principal by year (e.g., 24.0 28.0 34.0 39.5 69.1 ...). - IMF credit outstanding in millions of SDRs and U.S. dollars across the 2024–44 horizon. *Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Context and Program Intent - Rwanda’s economy shows "remarkable strength and resilience" while facing recurrent and overlapping shocks. - Public debt reached 78.7 percent of GDP in 2024, driven by spending to support the development agenda and to mitigate shocks including the pandemic, the cost of living crisis, the May 2023 floods, and the Marburg disease. - The 14-month SCF arrangement was successfully completed in December 2024 (also noted as completed in February 2025 in the document) and helped replenish FX reserves to 5.4 month of import coverage by end-2024. - The government will start implementing the second phase of the New Kigali International Airport project and the expansion of RwandAir in 2025, in partnership with the Qatar Investment Authority. - The Policy Coordination Instrument (PCI) remains the main policy framework to support policy objectives. - Requests to the IMF: - Completion of the fifth review under the PCI. - Modification of the end-June 2025 quantitative target ceiling on the present value of new public and publicly guaranteed external debt to better reflect expected external concessional financing. - Conversion of this continuous quantitative target to a periodic quantitative target with end-June 2025 as the test date. ### Recent Developments - Growth and labor market: - Real GDP increased by 8.9 percent in 2024. - Annual unemployment rate decreased to 14.9 percent in 2024, a decrease of 2.3 percentage points from the previous year. - Unemployment remained higher among females at 17.6 percent and youth at 18.5 percent. - Inflation and monetary policy: - Headline inflation averaged 4.8 percent in 2024, down from 14.0 percent in 2023. - Headline inflation was 6.5 percent year-on-year in March 2025; core inflation was 5.8 percent. - Policy interest rate maintained at 6.5 percent since August 2024. - Fiscal performance (H1 FY24/25): - Fiscal deficit in H1 FY24/25 was 0.1 percentage points of GDP lower than projected in the fourth review. - Tax revenues exceeded expectations driven by taxes on goods and services and international trade; income and profit taxes underperformed. - Increased spending included accelerated VAT refunds and higher capital investments. - Financial sector: - Combined loans of banks and MFIs grew by 23.5 percent in 2024. - Banking sector NPL ratio declined from 4.1 percent to 3.1 percent; MFIs’ NPLs declined from 4.3 percent at end-2023 to 3.5 percent in 2024. - External position: - Current account deficit widened to 12.7 percent of GDP in 2024. - Rwandan franc depreciated by 9.4 percent through end-December 2024. - International reserves were 4.7 months of prospective imports as of end-December 2024 (excluding RSF disbursements). ### Performance under the Policy Coordination Instrument (PCI) - Quantitative Targets (QTs): - All end-December 2024 quantitative targets, continuous targets, and standard continuous targets were met. - 3-month average headline inflation of 5.2 percent was within the inner-bound values (5±3 percent) of the Monetary Policy Consultation Band for end-December 2024. - Net foreign assets of the NBR were boosted by higher-than-expected disbursements from development partners. - Reform Targets (RTs) achieved or in progress: - Cabinet approved a comprehensive tax package (end-January 2025 RT, implemented on February 10th). - GMRA rollout expected to be enacted before completion of the fifth review (end December 2024 RT). - In-depth forward-looking financial assessment of five SOEs conducted (end March 2025 RT). - MINECOFIN approved the SOE corporate governance code and implementation plan consistent with the 2024 OECD Guidelines (end-March 2025 RT). - PFM digitalization strategy approved, including adoption of Artificial Intelligence (end April 2025 RT). - Expanded coverage of Monetary and Financial Statistics to include insurance companies, Rwanda Development Bank, and private pension institutions and started publishing quarterly (end March 2025 RT). ### Outlook - Growth projections: - Growth projected to decelerate to 7.1 percent in 2025. - Growth expected to rebound to 7.5 percent in 2026 and 7.4 percent in 2027. - From 2028, GDP growth expected to moderate to 7 percent in line with growth potential. - Inflation forecast: - Average inflation estimated to increase to 7.0 percent in 2025, remaining within the NBR’s 5±3 percent target band. - Projection conditional on exchange rate pass-through, favorable food price outlook, and absence of heightened commodity price volatility. - External sector and reserves: - Current account deficit projected to widen up to 15.9 percent of GDP by 2026 as airport-related imports accelerate in 2026-27. - Higher interest payments from commercial borrowing will add to current account pressures. - International reserves excluding RSF projected to reach around 4.4 months of imports by 2030. - Risks: - Downside risks: global commodity price volatility; geopolitical fragmentation; decline in trading partners’ growth; weaker tourism demand; aid flow declines; extreme weather; global financial market stress; infectious disease outbreaks; regional conflicts; climate shocks to rain-fed agriculture; slower domestic revenue mobilization; delayed fiscal consolidation; prolonged external adjustment; declining concessional financing. - Upside risks: stronger-than-expected stimulus from airport construction; better outcomes from industrialization aligned with NST-2. ### Fiscal Policies and Structural Reforms - Revenue objectives: - Commitment to raise revenues over the medium term and achieve a tax-to-GDP ratio of 18.2 percent by FY29/30 through tax base broadening, expenditure streamlining, and improved compliance and enforcement. - Approved tax measures (Cabinet approval on February 10; implemented May, 2025 for some measures): - Compensatory tax package amounting to 0.4 percent of GDP, including measures such as VAT on mobile phones and selected telecommunication equipment, increases in the fuel levy and registration fees for imported vehicles, gambling taxes, excise tax increases on beer, tobacco, and telecommunication services, import duty on cosmetics, and reinstating the VAT on hybrid vehicles. Provisions for these measures took effect in May, 2025. - Comprehensive tax revenue package amounting to 0.5 percent of GDP to broaden the tax base by streamlining tax holidays and expenditures (end-January 2025 RT). Measures include VAT on fuels and transportation services, an environmental levy, higher capital gains tax, a tourism tax on accommodations, a motor vehicle user charge, VAT on select financial services, digital services tax, sunset clauses on VAT exemptions for zero-emission vehicles and energy equipment, and repeal of corporate income tax holidays and VAT exemptions on business inputs. Implementation staged over FY25/26 to FY29/30. - Revenue administration and digitalization: - Measures to strengthen revenue administration: Electronic Billing Machine (EBM) reward system (10 percent reward on the VAT for each EBM invoice requested), controls to stop customs over-valuation, introduction of custom scanners, integration of hospitality invoice systems with Rwanda Revenue Authority (RRA) tax system. - Continued implementation of MTRS-1 reforms including: New Operating Model (NOM) launched January 1, 2023; comprehensive Compliance Improvement Plans (CIPs) published online from 2022/23; MyRRA online platform (launched December 2023); adoption of Common External Tariff (CET) version 2022. *Source: 1rwaea2025001-print-pdf - Annex I. Risk Assessment Matrix* ### introduction of dynamic risk management to include the use of modern technologies in ### introduction of dynamic risk management to include the use of modern technologies in ### Revenue mobilization and Medium-Term Revenue Strategy (MTRS) - Conduct a full evaluation of the MTRS-1 implementation prior to its expiration and complete MTRS-2 by end-2026. - MTRS-2 objective: raise the tax-to-GDP ratio by a further 0.6 percent through tax policy and revenue administration measures. - RRA measures: introduction of dynamic risk management to include the use of modern technologies in assessing risk; publication of Ministerial Orders on voluntary disclosure and VAT rebates to support implementation of the new Tax Procedure and VAT laws. - Existing monitoring and enforcement framework will continue to be relied upon while considering opportunities to strengthen it. ### Recent policy changes and fiscal pressures - Pension reform effective January 1, 2025: - Contribution rate doubled to 12 percent, shared equally between employer and employee. - Contribution rate will rise to 20 percent by 2030 in annual increments of 2 percent starting in 2027. - Contribution base expanded from base salary to gross salary. - Pension benefits raised for the first time since 2018. - Direct cost to the budget estimated at 0.2 percent of GDP in FY24/25 and 0.4 percent of GDP in FY25/26; cost expected to rise to around 0.5 percent of GDP once the contribution rate reaches 20 percent. - Public wage bill: excluding the pension reform impact, kept at 2.8 percent of GDP over the medium term. - New Kigali International Airport and RwandAir expansion (starting 2025): - Government of Rwanda financing estimated at US$1.2 billion (8 percent of GDP) over five years, with US$1.12 billion in equity contributions and US$80 million to clear existing debts of RwandAir. - Qatar Investment Authority to provide another US$1.4 billion in FDI. - Financing structured as a mix of commercial, semi-concessional, and domestic instruments to minimize pressure on debt stock. - Borrowing for equity injection costs associated with the priority investment project amount to about 2.9 percent of GDP. - US$562 million financing of the New Kigali International Airport / RwandAir priority project in the FY26/27-FY28/29 period: commitment to explore more concessional financing options as alternatives to commercial borrowing. ### Offsetting measures and reprioritization - FY25/26 offsetting measures: - Reprioritize spending on goods and services (0.1 percent of GDP) and domestically-financed investments (0.1 percent of GDP). - Slow down implementation of existing foreign-financed development projects and limit new contracting, reducing total net acquisition of non-financial assets by a cumulative 5.9 percent of GDP over the FY25/26-FY29/30 period relative to the fourth review baseline. ### Fiscal stance, deficits, and medium-term path - Without the priority investment project: - FY25/26 fiscal deficit projected at 3.5 percent of GDP. - Total revenues expected to decline by 1.3 percent of GDP relative to the fourth review, primarily due to a significant drop in expected grants. - Lower total expenditures of around 1.1 percent of GDP relative to the fourth review due to increasing pension spending, and lower goods and services and capital spending. - Fiscal deficit would have declined from 5.5 percent of GDP in FY24/25 to 3.5 percent in FY25/26 (compared to the previously expected 3.3 percent of GDP). - With the priority investment project included: - FY25/26 fiscal deficit expected to rise to 7.4 percent of GDP. - On the expenditure side, costs about 0.9 percent of GDP higher than in the fourth review. - Medium-term budget framework: - Envisages a gradual reduction of the fiscal deficit from 7.4 percent of GDP in FY25/26 to 3.2 in FY29/30. ### Debt anchor, consolidation, and contingency - Debt anchor convergence: - Convergence to 65 percent of GDP debt anchor achieved by 2033, two years later than originally envisaged. - Higher debt service to revenue ratio over the medium-term. - Rwanda expected to remain at moderate risk of debt distress with buffers to absorb shocks. - Contingency plan: - In case of unexpected shocks, seek grant and concessional financing; if unsuccessful, cut spending in recurrent (goods and services and transfers to local governments) and capital spending by the appropriate amount. - Debt management strategy: - Prioritize concessional resources, including climate change related financing. - Strengthen debt management capacity, fiscal risk monitoring, debt reporting, and domestic capital markets. - Prioritize highly concessionally financed projects over domestically or commercially financed projects to contain debt service burden and solvency risks. ### Fiscal structural reforms: Organic Budget Law and PFM improvements - Organic Budget Law (OBL) implementation: - Ministerial Order required for full implementation cleared by the Legal Council and awaiting Cabinet approval following review by the National Law Reform Commission. - OBL improves budget and MTEF, institutionalizes fiscal risk management practices and structures, and facilitates adoption of best practices in fiscal reporting. - Reporting periods for all public sector entities now aligned to the fiscal year from the calendar year; data being received with some lag. - Public Financial Management (PFM) strengthening: - MTEF: - Adopted MTEF user manuals published on MINECOFIN’s website. - Integrate budget costing framework into IFMIS and improve FY25/26 planning cycle. - Continue aligning NST-2 objectives, SSPs and the MTEF; vetting of NST-2 and SSPs costing finalized; assessing affordability gaps vis-à-vis MTEF expenditure ceilings. - Accrual accounting migration: - Valuation and recognition of non-financial government assets and liabilities progressing. - Valuation completed for government owned land, public road infrastructure, transport equipment, and other machinery. - From June 2024, public debt included in the government balance sheet. - Consolidated financial statements containing values of non-financial public assets and liabilities will be published after April 2025 following an audit. - Production of a consolidated annual financial statement for the public sector, including SOEs, and contingent liabilities to be finalized by end-June 2025 and expected to be published after April 2026. - PPPs will be published in the annual financial statements by end-June 2027. - IFMIS rollout: - Central and local governments, and hospitals incorporated; rollout continued to primary and secondary schools. - Secondary schools integrated via SDMS (Schools Data Management System). - IFMIS rollout to primary schools expected to be finalized by end-2025. - Fiscal data digitalization: - PFM digitalization strategy developed and approved to support data-driven PFM, including by the adoption of Artificial Intelligence (end-April 2025 RT). - Strategy includes 16 interventions sequenced over five years. - Identified 25 use cases where fiscal data can enhance policy and operational decision-making; 20 use cases involve predictive analysis using AI. - Eight use cases prioritized for implementation: (i) account consolidation, (ii) cash forecasting and management, (iii) harmonization of grants data, (iv) accrual IPSAS, (v) accounting misclassification, (vi) establishing a risk register for internal audit, (vii) budget baseline calculation, and (viii) bank reconciliation. - Improvements needed in regulatory framework, digital skills, institutions, IT infrastructure, and IFMIS. ### State-Owned Enterprises (SOEs): governance, triage, and fiscal risks - SOE governance legal framework: - Presidential Order (PO) gazetted on 28 August 2024; operationalization ongoing. - MINECOFIN approved SOE corporate governance code and its implementation plan consistent with the 2024 OECD Guidelines on Corporate Governance of State-Owned Enterprises (end-March 2025 RT). - Framework for selecting Board members being established with IFC and AfDB support. - Plan to enhance coverage of SOE governance legal framework to include mixed ownership, holding companies, and key elements of sound SOE governance. - Triage and privatization: - Out of 34 state-owned companies, three fully privatized (Prime Cement, Bella Flowers, and Cogebanque), one more pending Cabinet approval for full privatization, and thirty retained under state management. - Managing and mitigating SOE fiscal risks: - In 2024, government subsidies to REG, WASAC and RwandAir amounted to 1.2 percent of GDP. - Guaranteed loans in RwandAir, Bugesera Airport Company, REG, WASAC, and ULC were about 1.7 percent of GDP. - Commitment to SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter. - Stress tests completed: Bella Flowers and King Faisal hospital by end-2023; REG and WASAC by end-March 2024; Rwanda Medical Supply Ltd. (RMS) and AfriPrecast by end-June 2024; Kivu Marina Bay and Horizon Construction by end-September 2024; MMC and King Faisal by end-December 2024. - In-depth forward-looking financial assessments of at least five SOEs, including identification of credible mitigation measures (end-March 2025 RT) covering REG, WASAC, Muhabura Multichoice company, AfriPrecast, and King Faisal Hospital. - Plan to analyze fiscal risks related to RwandAir. - MINECOFIN’s Portfolio Oversight Unit scaled up by 4 technical staff and plans to hire further 3 specialists. ### Fiscal transparency, public investment management, and beneficial ownership - Fiscal transparency: - Requested Fiscal Transparency Evaluation (FTE) follow up assessment planned for August 2025. - Continue expansion of fiscal reports coverage in GFS 2014. - Since April 2023, publishing quarterly budget execution reports under GFS 2014 for the general government 60 days after the end of each quarter. - Will resume efforts to consider transitioning from the e-GDDS to the Special Data Dissemination Standards (SDDS) and update the action plan in line with IMF TA discussions planned for later this year. - Public Investment Management Assessment (PIMA) and practices: - Published the 2022 PIMA in August 2023 and continue implementing recommendations. - Published a pipeline of appraised major projects (over RWF 15 billion). - Commit to making project appraisal documents public, improving reporting of contingent liabilities from public corporations, PPPs, and districts, and publishing multi-year project costs using data in IFMIS. - Beneficial ownership (BO) transparency: - Companies began submitting BO information in April 2023; further efforts needed to accelerate collection. - New companies cannot be registered unless BO information is provided; failure to provide BO information for existing companies will result in sanctions. - Cross-checking company information with tax and revenue authorities and removing dormant companies from the register; on-site inspections to verify submissions. - Will amend definition of BO in the Public Procurement law with provisions of the AML/CFT law to harmonize understanding and ensure BO is a natural person. - Work on implementing priority actions from the July 2024 Mutual Evaluation Report by ESAAMLG, including improving ML/TF risk understanding, undertaking sectoral risk assessments for VA/VASPs, legal persons and non-profit organizations, and improving risk-based supervision. ### Monetary, exchange rate, and financial sector policies - Objectives: - Strengthen implementation of forward-looking monetary policy framework and reforms to promote development, stability, and inclusion of financial markets. - Two main strategies: (i) increase reliance on data, analysis, and forecasts for monetary policy formulation and communication; (ii) strengthen monetary policy and exchange rate operations while further developing money, domestic debt, and foreign exchange markets. *Source: 1rwaea2025001-print-pdf - introduction of dynamic risk management to include the use of modern technologies in* ### 25. Containing inflationary pressures remains a priority for our monetary policy. The ### Containing inflationary pressures remains a priority for our monetary policy. ### Monetary policy stance and inflation outlook - 3-month moving average reached 5.2 percent in December 2024, falling within the MPCC inner bound of 5±3 percent. - At the NBR’s monetary policy meeting on February 12, 2025, the key interest rate was maintained at 6.5 percent. - Policy rationale: inflation is expected to remain within the target range of around 5 percent; commitment to monitor and adjust policy if core inflation rises or if persistent second-round effects from pass-through of approved tax policy measures appear. - Identified upward inflationary risks: geopolitical tensions and adverse weather conditions affecting food prices. ### Forecasting, policy analysis, and communications - Continued strengthening and reliance on the Forecasting Policy and Analysis System (FPAS) as the key input to guide monetary policy stance and steer inflation towards the NBR’s inflation target. - Ongoing enhancements to nowcasting and near-term forecasting tools, including incorporation of weather risks. - Consumer price expectations survey developed; first survey conducted early 2025 and monthly surveys ongoing. ### Market development, FX policy, and liquidity management - Money, bond, and foreign-exchange market development prioritized to strengthen monetary policy transmission. - With IFC assistance, legal gaps in insolvency, payment system and banking laws identified; roadmap for Global Master Repurchase Agreement (GMRA) formulated and endorsed by stakeholders. - Central Securities Depository (CSD) law approved by Cabinet on March 26, 2025; full GMRA rollout expected to be enacted before completion of the fifth review (end-December 2024 RT). - FX policy: - Commitment to a flexible exchange rate and proactive liquidity management; exchange rate considered first line of defense against external shocks. - FX pressures moderated in 2024 and expected to continue easing throughout the medium term as policy adjustment takes place and net FX inflows increase due to the New Kigali International Airport project. - Reserve coverage is expected to exceed the minimum adequate level of 4 months of imports in 2025, excluding RSF disbursements. - NBR adopted revisions to official exchange rate calculation methodology; gradual transition commenced in July 2024; plan to complete the transition by end-July 2025. - Commitment to introduce competitive FX auctions: a supplementary, smaller-scale competitive auction planned (end-September 2025 RT) with bid caps, fixed preannounced amounts, and variable rates; assessment to follow on augmenting bilateral FXI framework. - Ongoing strengthening of liquidity management and FX intervention framework, including regular, formal, and transparent consultation with FX market participants (based on IMF TA recommendations). ### NBR governance, safeguards, and statistics - Commitment to strengthen NBR safeguards and accountability: submit draft amendments to the NBR Law to Cabinet to strengthen mandate, financial and personal autonomy, and transparency and accountability (end-September 2025 RT). - Expansion of monetary and financial statistics (MFS) coverage: - NBR publishing sectoral balance sheets for Central Bank (1SR) and Other Depository Corporations (2SR); compiling Sectoral Balance Sheet for Other Financial Corporations (4SR). - Expanded coverage to include insurance companies, Rwanda Development Bank, and private pension institutions; commits to publishing quarterly (end-March 2025 RT) on the OpenData website. ### Financial sector policies and stability - Supervisory focus: onsite examinations targeting credit risks, large exposures, adequate loan classification and provisioning; continued offsite surveillance; credit surveys to inform policy. - Stress testing and internal assessments: - NBR conducts macro stress tests quarterly. - Banks submitted third annual ICAAP and ILAAP in May 2024; ICAAP covers risk appetite and projected capital positions for 2024/25; ILAAP covers contingency plans on liquidity. - Sector performance and risks: - Private credit displayed strong growth in 2024; banking sector profitable and regulatory capital above minimum requirements as of end-2024. - Microfinance sector expanded rapidly in 2024; NPLs ratio in banking sector declined in 2024 driven by loan growth and write-offs; NPLs in MFIs also declined driven by substantial increase in loan stock. - Commitments to strengthen risk monitoring and macroprudential capacity: - Monitor granular risk metrics, intensive supervision, quarterly stress tests, and quarterly Financial Stability Committee meetings. - Enhance risk monitoring and stress testing capacity with more granular data and longer-horizon stress test models. - Intensify monitoring of large exposures, apply Pillar II assessments and related capital add-ons, enhanced stress testing with borrower-level cash flow analysis; surveys on corporate indebtedness and sectoral assessment to complement work. - Will tighten regulatory limits on large exposures if associated risks increase. ### Financial inclusion and digital finance - Financial inclusion progress: - NBR’s financial inclusion data dashboard operational using national ID as unique identifier. - As of end-2024, Rwanda has achieved 85 percent formal financial inclusion among its adult population with active accounts in banks, PLCs, SACCOs, mobile money providers or insurance providers. - Only 26 percent of adults actively engage in savings. - Digital financial services: - Mobile payments more than quadrupled since pre-COVID levels. - Interbank settlement service expanded to 24/7 and to MFIs; multilateral interoperability operational across mobile money providers, banks, and MFIs. - Consumer protection and market conduct: - Complaints handling system (INTUMWA Chatbot) and comparison website Gereranya operational. - Female financial inclusion: - Guidelines published in November 2023 to move the financial system from gender aware to gender transformative; four guiding pillars for enhancing services to women. ### Structural policies and social resilience - Social safety nets and service delivery: - Dynamic social registry (Imibereho) rolled out in February 2024 with 3,291,268 million households registered. - Imibereho produced provisional targeting lists for VUP and CBHI; about 146,000 households deemed eligible for CBHI subsidy. - Data analysis revealed an 80% mismatch for the VUP Direct Support component; PMT targeting methodology reviewed and recalibrated using EICV7. - Imibereho interoperability reaches more than ten other administrative systems; focus on shock-adaptability and climate-smart public works and emergency cash transfers. - Economic diversification and regional integration: - Prioritizing Kigali Logistic Platform and New Kigali International Airport to implement trade-logistics strategy and attract private investment. - Efforts to reduce tariff and non-tariff barriers and leverage AfCFTA preferential market access; upskilling workforce emphasized. - Health security and pandemic preparedness: - Construction of first African mRNA vaccine manufacturing facility progressing; clinical trials set to start soon; BioNTech plans mass production in 2025 aiming to meet 60 percent of Africa’s vaccine demand by 2040. - Response to September 2024 MVD outbreak: MINECOFIN spent resources equivalent to 0.5 percent of GDP in FY24/25; Rwanda recorded a 22.7 percent fatality rate for the outbreak. ### Development strategy - Second National Strategy for Transformation (NST-2) high-level objectives approved by Cabinet in August 2024; five-year plan focused on job creation, export growth, education quality, public service delivery, and reduction of stunting and malnutrition. ### Building resilience to climate change and climate finance - RSF commitments completed six months ahead of initial timeline; focus on durable institutional integration of RSF-related improvements. - Climate and disaster resilience actions and timelines: - Enhance climate budget tagging framework and work towards harmonization with Rwanda green taxonomy by May 2026. - Disaster Risk Financing (DRF) diagnosis final draft report pending steering committee validation; draft Ministerial order on Emergency procurement with MINECOFIN for final approval. - Sector-based mitigation plans expected to be submitted to MINECOFIN by September 2025. - Guidelines for effective risk governance across sectors to be completed by June 2025. - Green taxonomy implementation plan led by MINECOFIN with RFL as co-lead; expected completion by July 2025. - Tier 1 banks submitted risk self-assessment of climate-related financial risks to the NBR by end-2024; banks identifying data needs to incorporate climate risk into governance and strategy. - Sustainability disclosure standards Adoption Roadmap public consultation ended on 29 March 2025; launch of the Roadmap anticipated in June 2025 (ICPAR lead, NBR co-lead). - Climate mitigation measures: - Increase in fuel levy and higher registration fees for high-emission vehicles starting April 2025. - Zero VAT rating on all e-vehicles and parts maintained; VAT reintroduced on hybrid vehicles starting F25/26. - Age-based excise duty on imported hybrid vehicles: 5 per cent for vehicles under three years old, 10 percent for those between four and seven years, and 15 percent for those eight years and older. - Climate finance and investments: - Near-term focus to scale up Green Investment Facility (“Ireme Invest”) via blending non-concessional and concessional resources and de-risking. - Government of Rwanda committed to contribute US$40 million to support Ireme Invest. - COP28 program commitments (landscape restoration, climate-smart agriculture, sustainable urbanization) to be rolled out using programmatic approach. - Cabinet approved a carbon market framework in September 2023 to access international carbon markets. - MINECOFIN established a dedicated Climate Finance Department to lead resource mobilization and oversight. - Complementary reforms (green taxonomy and Climate and Nature Finance Strategy launched October 2024) under implementation to unlock private finance and align flows with NDC targets. *Source: IMF staff report content (1rwaea2025001-print-pdf).* ### 39. We will continue developing bankable projects for green financing. The Ireme Invest ### 1rwaea2025001-print-pdf - 39. We will continue developing bankable projects for green financing. The Ireme Invest ### Green financing pipeline and implementation - Ireme Invest Credit Facility has started lending operations. - Total value of its green projects pipeline estimated at about US$60 million over the 2024-25 period. - Total disbursement remained at US$ 3.5 million until December 2024. - Scaling up of the pipeline is challenging because the Rwanda Development Bank and businesses need time to strengthen their understanding of the technical requirements for green investments. - Bottlenecks are particularly strong in sectors where climate adaptation projects are most prevalent, such as climate smart agriculture and waste and circular economy. - Ireme Invest has established a Project Preparation Facility managed by the Rwanda Green Fund, with an expected pipeline of US$ 5.6 million. - Rwanda’s Public Green Investment Facility (“Intego”) has identified 10 bankable public investment projects at the total value of US$ 34 million. - Implementation of Intego projects started in March 2025 and will continue over a 3-year period. ### Program monitoring under the PCI (Policy Coordination Instrument) - The PCI is subject to semi-annual reviews. - Progress will be monitored through quantitative targets, including: - a monetary policy consultation clause, - continuous and standard continuous targets, - reform targets. - Targets are detailed in Tables 1a–3, with definitions in the attached Technical Memorandum of Understanding. - The sixth review under the PCI is scheduled to be completed by November 15, 2025, based on June 30, 2025 test date. ### Selected PCI quantitative targets and program figures (as reported) - Ceiling on the debt-creating overall deficit, including grants: numbers shown in Table 1a (multiple period values reported). - Floor on stock of Net Foreign Assets: numbers shown in Table 1a (multiple period values reported). - Ceiling on net accumulation of domestic arrears: 0 (continuous target). - Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million): values reported in Table 1a (multiple period values). - Ceiling on stock of external payment arrears (US$ million): 0 (continuous target). - Monetary policy consultation band (inflation bounds and target): - Inflation, upper bound, percent: 9.0 - Inflation, upper inner-bound, percent: 8.0 - CPI Inflation target: 5.0; reported actuals 5.1 and 5.2 (Met) - Inflation, lower inner-bound, percent: 2.0 - Inflation, lower bound, percent: 1.0 - Memorandum items (selected): - Total priority spending: 1,700; other period values reported (e.g., 1,710, 850, 855, 1,750). - Floor on domestic revenue collection: 2,855; other period values reported (e.g., 2,844, 1,606, 1,648, 3,363). - Stock of new external debt contracted or guaranteed by nonfinancial public enterprises (US$ million): 23; other period values reported (e.g., 231, 17, 67). - Total budget support (US$ million): 747; other period values reported (e.g., 821, 604, 654, 786). - Budget support grants (US$ million): 161; other period values reported (e.g., 218, 67, 103, 155). - Budget support loans (US$ million): 586; other period values reported (e.g., 603, 536, 551, 631). - Foreign financed net acquisition of non financial assets financed by the drawdown of accumulated government deposits: 55981640640542215635631,0761,076 (values shown in Table 1a). - RSF Disbursements (US$ million): 77; other period values reported (e.g., 77, 96, 96, 00). - RWF/US$ program exchange rate: 1,165 (reported across periods). - Sources: Rwandan authorities and IMF staff estimates and projections. ### Reform targets under the PCI (selected entries, Table 2) - Fiscal pillar: - Cabinet will approve a comprehensive package of measures predominantly relying on broadening the tax base by streamlining tax holidays and tax expenditures. - Target date: end-January 2025 - Status: Not met, implemented on February 10, 2025 - Objective: Improve DRM - Conduct in-depth forward-looking financial assessments of at least five SOEs, including identification of credible mitigation measures to address any identified key vulnerabilities. - Target date: end-March 2025 - Status: Met - Objective: Contain fiscal risks - MINECOFIN will approve the SOE corporate governance code and its implementation plan, consistent with the 2024 OECD Guidelines on Corporate Governance of State-Owned Enterprises. - Target date: end-March 2025 - Status: Met - Objective: Contain fiscal risks - Develop and approve a PFM digitalization strategy to support data-driven PFM, including by the adoption of Artificial Intelligence. - Target date: end-April 2025 - Status: Met - Objective: Improve PFM - Monetary and Financial pillar: - Enact the full GMRA rollout, including the signing of the GMRA by all banks. - Target date: end-December 2024 - Status: Not met - Objective: Strengthen monetary policy operations - Expand the coverage of Monetary and Financial Statistics to include insurance companies, Rwanda Development Bank, and private pension institutions; and start publishing on quarterly basis. - Target date: end-March 2025 - Status: Met - Objective: Broaden coverage of the monetary and financial statistics and improve transparency - Submit to Cabinet draft amendments to the NBR Law to strengthen, in consultation with IMF staff, provisions for mandate, financial and personal autonomy, and transparency and accountability in line with safeguards assessment recommendations. - Target date: end-September 2025 - Objective: Strengthen central bank independence - Conduct a supplementary, smaller-scale competitive auction to offer banks an additional mechanism for sourcing foreign exchange. - Target date: end-September 2025 - Objective: Improve functioning of the FX market ### Technical Memorandum of Understanding (selected definitions, exchange rates, and adjustors) - Attachment I dated Kigali, Rwanda, May 15, 2025 defines quantitative targets and data reporting requirements. - Program exchange rates (end-June 2023, IMF International Financial Statistics): - Rwanda Franc (per US$): 1,164.6 - Euro: 1.087 - Japanese Yen (per US$): 144.9 - SDR: 1.330 - Ceiling on the debt-creating overall fiscal deficit: - Applies to the budgetary central government, excluding Peace-Keeping Operations and including grants. - Ceiling for December 31, 2024 and June 30, 2025 are cumulatively measured from July 1, 2024. - Definition follows GFSM 2014; qualifying exclusions include debt assumption of called loan guarantees already included in the IMF and World Bank DSA and expenses in UN peace-keeping operations. - Qualified MVD expenditures related to managing the Marburg virus outbreak are divided into current and capital categories; current and capital expenditure examples are specified. - Adjustors to the debt-creating overall fiscal deficit: - Adjusted upward by: any shortfall between actual and programmed budgetary grants (evaluated at program exchange rate). - Adjusted upward by: 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 case of significant increases in fertilizer import price. - Adjusted upward to a maximum of RWF 137 billion representing foreign financed net acquisition of non-financial assets financed with a drawdown of accumulated government deposits from previously disbursed capital grants and loans. - Adjusted downward/upward by the amount of any shortfall/excess between actual and programmed qualified spending directly related to the cost of Marburg Virus Disease pandemic rapid response and not financed by earmarked budget grants/in kind contributions; upward adjustment up to a maximum of RWF 39 billion. - Floor on Net Foreign Assets (NFA) of the National Bank of Rwanda (NBR): - Floor applies for December 31, 2024 and June 30, 2025. - Definition consistent with e-GDDS: external assets readily available to or controlled by the NBR net of its external liabilities; pledged/encumbered reserve assets and certain holdings excluded. - Adjustors: floor on NFA adjusted downward by any shortfall between actual and programmed budgetary loans (excluding RSF disbursements) and grants; adjusted downward by unexpected public expenditures on cereal imports in case of a food emergency and/or on fertilizer imports in case of significant fertilizer import price increases. - Ceiling on the stock of external payment arrears: - Continuous ceiling on 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: overdue external debt service obligations (principal and interest); exclusions described for agreed clearance frameworks or rescheduling agreements. - Ceiling on net accumulation of domestic expenditure arrears: - Ceiling applies to the net accumulation of domestic expenditure arrears of the budgetary central government. - Domestic expenditure arrears defined as unpaid claims overdue by more than 90 days; calculation described relative to fiscal year stock at June 30. - Ceiling on the present value (PV) of new external debt contracted or guaranteed by the government: - Definition of debt follows paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements; forms of debt include loans, suppliers’ credits, leases with PV at inception. - External debt is defined as debt contracted or serviced in a currency other than the Rwandan Franc. - Ceiling applies to PV of all new external debt (concessional or non-concessional) contracted or guaranteed by the central government, including commitments contracted or guaranteed for which no value has been received. - The ceiling for December 31, 2024 is cumulative from January 1, 2024; the ceiling for June 30, 2025 is cumulative from January 1, 2025. - Exemptions: normal import-related commercial debts maturing in less than one year; rescheduling agreements; external borrowing solely for refinancing existing public-sector external debt that improves repayment profile; IMF disbursements. *Source: Excerpt from 1rwaea2025001-print-pdf (IMF staff and Rwandan authorities content).* ### 14. For program monitoring purposes, a debt is considered contracted when all conditions ### 14. For program monitoring purposes, a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda. ### Debt contracting and valuation for program monitoring - A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda. - For program purposes, the value in U.S. dollars of new external debt is calculated using the program exchange rates. ### Present value (PV) calculation and concessionality - The PV of new external debt is calculated by discounting all future debt service payments (principal and interest) based on a program discount rate of 5 percent and taking account of all loan conditions, including the maturity, grace period, payment schedule, front-end fees and management fees. - The PV is calculated using the IMF model for this type of calculation based on the amount of the loan. - A debt is considered concessional if on the date on which it is contracted the ratio of its present value to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent). - In the case of loans for which the grant element is zero or less than zero, the PV is set at an amount equal to the face value. ### Treatment of variable interest rate debt and program reference rates - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV of the debt is calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. - The program reference rate for the six-month USD LIBOR is 3.34 percent. - Spreads over six-month USD LIBOR specified: - Six-month Euro LIBOR: -150 basis points - Six-month JPY LIBOR: -350 basis points - Six-month GBP LIBOR: -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 the variable rate is linked to a benchmark interest rate other than the six-month USD LIBOR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added. - The program reference rate and spreads will remain fixed for the duration of the program. - Given the anticipated global transition away from LIBOR, this TMU can be updated to reflect the relevant 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 the complete phase out, once operationally feasible. ### External debt ceiling adjustor and reporting requirement - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies to this ceiling, in case deviations from the QT on the PV of new external debt are prompted by a change in the financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees) of a debt or debts. - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed. - Reporting requirement: The authorities will inform IMF staff of any planned external borrowing and the conditions on such borrowing before the loans are either contracted or guaranteed by the government. ### Monetary Policy Consultation Clause (MPCC) - MPCC headline inflation is defined as the year-on-year rate of change in the monthly Consumer Price Index (CPI), averaged for the past 3-months, as measured by National Institute of Statistics of Rwanda (NISR). - If the observed headline inflation falls outside the ±3 percentage point range around the mid-point of the target band value for end-December 2024, and end-June 2025 as specified in Table 1a in the PS, the authorities will conduct discussions with the Fund staff. - If the observed headline inflation falls outside the ±4 percentage point range around mid-point of the target band value for end-December 2024, and end-June 2025 test dates as specified in Table 1a in the PS, the authorities will complete a consultation with the Executive Board which would focus on: - (i) the stance of monetary policy and whether the Fund-supported program remains on track; - (ii) the reasons for program deviation, taking into account compensating factors; and - (iii) proposed remedial actions if deemed necessary. ### Memorandum items and data reporting requirements (frequency and scope) - Timeliness: - Weekly data will be provided within seven days of the end of each week. - Monthly data within five weeks of the end of each month. - Quarterly data within eight weeks. - Priority expenditure: - Transmitted on a quarterly basis. - Defined as the sum of those recurrent expenditures, domestically financed capital expenditures, and policy lending identified as priority in line with Rwanda’s National Strategy for Transformation (NST-1). - Monitored through the Integrated Financial Management System (IFMS) at the program level at the end of each quarter. - Domestic revenues: - Detailed data transmitted monthly. - Domestic revenue defined according to GFSM 2014 taxes and other revenues, per the budgetary central government statement of operations table, but including: - (a) local government taxes (comprised of business licenses, property tax, and rental income tax); and - (b) local government fees; - Excluding receipts from Peace Keeping Operations. - Contracting and guaranteeing of new non-concessional external borrowing with non-residents: - Data transmitted on test dates. - Excludes external borrowing by Bank of Kigali and Rwanda Development Bank (RDB), which are assumed not to seek or be granted a government guarantee. - Applies to private debt for which official guarantees have been extended, including future swaps involving foreign currency loans guaranteed by the public sector. - Excludes external borrowing solely for refinancing existing public-sector debt that helps improve the profile of public sector debt. - Excludes on-lending agreements between Government of Rwanda and public-sector enterprises. - Authorities will inform IMF staff in writing prior to making any changes in economic and financial policies that could affect the outcome of the financial program (including customs and tax laws, wage policy, and financial support to public and private enterprises). - Authorities will furnish a description of program performance for the QTs as well as reform targets within 8 weeks of a test date. - Submission channel: information should be mailed electronically to the Fund (email to the Resident Representative and the Mission Chief). ### Reporting table highlights (frequency codes) - Frequency codes used: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I). - Example series and their reporting frequency (as given): - Exchange Rates: D W D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: W W M - Reserve/Base Money: W W M - Broad Money: M M M - Central Bank Balance Sheet: W W M - Consolidated Balance Sheet of the Banking System: M M M - Interest Rates: M M M - Revenue, Expenditure, Balance and Composition of Financing — Budgetary Central Government: Q Q Q - Comprehensive list of tax and other revenues: M Q Q - Planned external borrowing and the conditions: SA SA SA - Stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and NBR: SA SA SA ### Debt Sustainability Analysis (DSA) summary and key findings - The updated Bank/Fund debt sustainability analysis (DSA) for Rwanda indicates: - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Limited space to absorb shocks - Application of judgment: No - Debt-carrying capacity classification: ‘strong’ - Rwanda’s financing strategy assumptions and baseline changes: - Continued support from official development partners over the medium term, with highly concessional loans under IDA20 and IDA21. - Increasing share of domestic financing in the long term. - Baseline includes an additional US$800 million in external commercial financing compared to the previous DSA, related to a large priority project and raising baseline PV external debt-to-GDP closer to its threshold in the near-term. - DSA implications and vulnerabilities: - Debt indicators classify debt sustainability risks as moderate with limited space to absorb shocks. - Near-term standard stress test breaches of the benchmark for PV public debt-to-GDP and the threshold for PV external debt-to-GDP highlight vulnerability to external and climate shocks. - Baseline external debt service-to-revenue rises over the medium-term, with stress tests breaches and spikes due to Eurobond payments highlighting mounting liquidity pressures and vulnerability to external financing conditions. - Baseline relies on continued consolidation, underpinned by implementation of the authorities’ medium-term revenue strategy. - Heightened uncertainty around key external risks to concessional financing over the medium-term, underperformance risks to domestic resource mobilization, and sustained exchange rate pressures could intensify debt sustainability risks. - Policy recommendations from the DSA: - Progress on fiscal consolidation. - Reprioritize investment projects to mitigate external financing needs. - Support the external adjustment with real effective exchange rate adjustment. ### Background and historical debt dynamics (selected figures) - Coverage: The DSA covers the central government, guarantees, and state-owned enterprises. - Contingent liabilities shock parameter: 6.5 percent of GDP (accounts for potential fiscal costs associated with a theoretical banking crisis, and fiscal risks of existing public-private partnerships (PPPs)). - Public and publicly-guaranteed (PPG) external debt-to-GDP ratio changes: - Increased by 48.9 percentage points over the last decade (driven by loans to meet NST development needs and COVID-19 fallout). - COVID-19 related increase: an additional 15.6 percentage points in 2020. - PPG debt rose again in 2023 and 2024 to 78.7 percent of GDP. - Composition: - About 80 percent of Rwanda’s total PPG debt is owed to external creditors, three-quarters of which is to multilateral creditors. - Rwanda issued a USD 620mn Eurobond in 2021 with a 10-year maturity (second issuance since a USD 400mn 10-year bond matured in 2023). - Over 2021-22, the government facilitated SOE’s buyout of USD 104mn in external debt with domestic debt financed with domestic bank loans. - Rwanda’s debt carrying capacity indicator score: 3.19 (implies classification of strong debt carrying capacity, same as previous DSA). *Source: Excerpts from Rwanda: Fifth Review Under the Policy Coordination Instrument and Request for the Modification of End-June 2025 Quantitative Target—Debt Sustainability Analysis (IMF/World Bank joint DSA text).* ### 4. The depth and capacity of the domestic market has grown in recent years, though higher ### 4. The depth and capacity of the domestic market has grown in recent years, though higher ### Domestic market developments and Treasury issuance - Authorities’ primary financing strategy: maximize external concessional financing before turning to non-concessional or domestic financing. - Domestic PPG debt jumped by nearly 7 percent of GDP between 2019 and 2022; has since declined as external financing recovered and is expected to continue declining over the medium-term under baseline external financing assumption and fiscal consolidation efforts (see ¶5). - Main domestic creditors: banks and a pension fund providing financing through loans and Treasuries. - Domestic bond market growth: from about RWF 60bn to RWF 300bn annually in recent years, reflecting heightened financing needs from 2024–2026. - Treasury issuance trend: past issuances predominantly short-term T-bills; government shifted towards T-bonds, extending maturities to 20-year bonds. Government implemented a bond “re-opening” strategy beginning in 2019 to develop a market yield curve and increase average maturities. - BRD Sustainability Linked Bonds (SLBs): first SLB in 2023 for RwF 30bn (0.18 percent of GDP); second SLB in October 2024 for RwF 33.5bn (0.20 percent of GDP). Both SLB’s have a seven-year maturity with an annual coupon rate of around 12.9 percent. - Market interest rates (as of March 2025 / end-2024): - Average T-bill rates: 7.7 percent (as of March 2025). - 7-year T-bonds: 11.9 percent (as of March 2025). - Longer term 15–20 year T-bonds: 13.3 percent (end-2024). - Despite strong demand from banks, Treasury issuances have declined following increased external financing over 2023–24 and fiscal consolidation efforts, and are expected to remain slow over the medium-term. ### Debt composition and creditor breakdown (selected figures from authorities’ reporting) - Total public and publicly guaranteed (PPG) debt (end period): 10,687.8 (In US$ mn); Percent total debt: 100.0; Percent GDP: 78.7 - External debt: 8,564.9 (In US$ mn); Percent total debt: 80.1; Percent GDP: 63.1 - Domestic debt: 2,122.9 (In US$ mn); Percent total debt: 19.9; Percent GDP: 15.6 - Multilateral creditors (selected): - Total multilateral: 6,424.8 (In US$ mn); Percent total debt: 60.1; Percent GDP: 47.3 - IMF: 939.8 (In US$ mn); Percent total debt: 8.8; Percent GDP: 6.9 - World Bank: 3,739.2 (In US$ mn); Percent total debt: 35.0; Percent GDP: 27.5 - ADB/AfDB/IADB: 1,237.1 (In US$ mn); Percent total debt: 11.6; Percent GDP: 9.1 - Bilateral creditors: - Total bilateral: 1,089.0 (In US$ mn); Percent total debt: 10.2; Percent GDP: 8.0 - Paris Club: 491.8 (In US$ mn); Percent total debt: 4.6; Percent GDP: 3.6 - Non-Paris Club: 518.9 (In US$ mn); Percent total debt: 4.9; Percent GDP: 3.8 - EXIM-CHINA: 361.5 (In US$ mn); Percent total debt: 3.4; Percent GDP: 2.7 - Bonds (external): 620.0 (In US$ mn); Percent total debt: 5.8; Percent GDP: 4.6 - Commercial creditors: 66.8 (In US$ mn); Percent total debt: 0.6; Percent GDP: 0.5 - Other international creditors: 364.2 (In US$ mn); Percent total debt: 3.4; Percent GDP: 2.7 - Domestic instruments (held by residents): - T-Bills: 428.6 (In US$ mn); Percent total debt: 4.0; Percent GDP: 3.2 - Bonds: 1,221.1 (In US$ mn); Percent total debt: 11.4; Percent GDP: 9.0 - Loans: 473.2 (In US$ mn); Percent total debt: 4.4; Percent GDP: 3.5 - Nominal GDP (US$ million): 14,251 (2024); 14,771 (2025); 15,472 (2030) [table entries] (Note: data reported by authorities based on calculations in national currency; deviates from U.S. dollar-based calculations due to exchange rate differences.) ### Macroeconomic and fiscal assumptions underlying the baseline scenario - Reconstruction costs from May 2023 floods: estimated at around 3 percent of GDP over the following five years; authorities reported post-flood reconstruction spending of approximately 1.2 percent of GDP through end-2024. - 2024 outturn for growth: 8.9 percent (better than previous DSA expectation of 8.3 percent). - Growth projections: - 2025: 7.1 percent (softening due to contractionary effects of projected fiscal consolidation). - 2026: 7.5 percent (temporary boost from New Kigali International Airport construction). - 2027: 7.4 percent (project-related boost before deceleration as project closes). - Medium term: private consumption and investment are main drivers; long-term supply-side support from dynamic services, gradual industrialization, and agriculture. - Inflation: headline inflation declined to 5.0 percent in 2024, reflecting easing food inflation. - Fiscal projections and targets: - General government fiscal deficit for FY2024/25 projected at 5.5 percent of GDP. - Calendar year fiscal deficit for 2025 projected at 9.9 percent of GDP (due to front-loaded financing for New Kigali International Airport/RwandAir projects in H1 of FY25/26). - Fiscal deficit for FY2025/26 projected to rise to 7.4 percent of GDP. - Medium-term framework envisages reduction of fiscal deficit from 7.4 to 3.2 percent of GDP over FY2025/26–FY2029/30. - Pension contributions set to reach 20 percent by 2030. - Nominal debt anchor: 65 percent of GDP by 2033. - Fiscal consolidation measures envisaged: - Broadening the tax base by streamlining tax holidays and tax expenditures. - Measures include VAT on fuels and transportation services, an environmental levy, higher capital gains tax, a tourism tax on accommodations, VAT on select financial services, and repeal of corporate income tax holidays. - Contingency measures: spending reprioritization while safeguarding investment and social assistance, curbing new hires, further reducing non-essential recurrent spending, and halting underperforming domestically financed projects. ### External sector and financing assumptions - Current account: - 2024 current account deficit: 12.7 percent of GDP (smaller than the 13.1 percent projected in previous DSA). - Starting in 2025, current account expected to widen due to higher imports related to New Kigali International Airport construction and capital injection into RwandAir. - External financing assumptions for priority projects: - New Kigali International Airport costs increased from US$1.5 billion to US$2.6 billion through 2029. - RwandAir expansion costs: additional US$550 million over the same period. - Government shares and obligations: total of US$1.12 billion in equity contributions and US$80 million to clear existing debts (around 8 percent of GDP in total), of which around US$400 million was assumed in the previous DSA, leaving US$800 million as new financing to the baseline. - Authorities’ baseline financing mix (staff’s conservative baseline): US$550 million in commercial loans from regional banks and a US$650 million Eurobond, with around US$1.4 billion in FDI inflows fulfilling QIA’s commitments over the same period. - Authorities identified around US$511 million in other external project loans over the next five years that could be delayed or cancelled, lowering projections for capital inflows and other project-related imports. - Staff’s baseline assumption for airport/airline financing: full external commercial financing to assess potential scale of impact on debt vulnerabilities; conservative financing mix noted above. ### Debt outlook, risks, and mitigation measures - Under staff’s conservative baseline with full external commercial financing: - Overall public debt rises to 86.3 percent of GDP by 2026. - Debt servicing costs increase in coming years. - Program debt anchor of 65 percent of GDP expected to be reached in 2033—two years later than envisaged under the PCI arrangement. - Risks to the debt path: financing terms, actual project implementation costs, strength of fiscal reform momentum. - Authorities’ mitigating measures: - Reprioritize other development projects (reducing planned concessional borrowing by US$511 million over FY25/26-FY29/30: US$293 million delayed ongoing projects; US$132 million cancelled existing projects not commenced; US$86 million other potential projects). - Advance revenue measures (including under forthcoming MTRS-2). - Pursue cost-mitigation options through IFI involvement. - Increase in concessional budget loans by US$300 million reduces net reduction in external borrowing, resulting in a total net reduction of US$210 million in external borrowing. - Net fiscal impact: while reprioritization reduces some borrowing needs, the low cost of concessional loans has a lower offsetting impact on future debt service obligations from planned commercial borrowing. ### Box 1 (summary): Financing Costs for New Kigali International Airport and RwandAir - Total expected airport costs: increased from US$1.5 billion to US$2.6 billion until 2029. - RwandAir expansion: additional US$550 million. - Government partnership with QIA: 40 percent share in airport and 51 percent share in airline. - Baseline external commercial financing assumed: US$650 million Eurobond issuance later this year and US$550 million in external commercial loans over 2026–29; previous baseline had included US$400 million in external commercial loans over 2025–29, implying an additional US$800 million to the revised baseline. - FDI inflows: over US$1.4 billion by QIA to cover remaining shares over next five years. - Offset measures: reprioritization reduced concessional borrowing by US$511 million over five years; concurrent increase in concessional budget loans by US$300 million yields a net reduction of US$210 million in external borrowing. *Source: IMF staff report (Rwanda), Chapter 4, as provided in the content unit.* ### 8. Baseline financing assumptions reflect Rwanda’s financing strategy, which assumes ### 8. Baseline financing assumptions reflect Rwanda’s financing strategy, which assumes ### Baseline financing assumptions and headline figures - Continued support from official development partners over the medium-term and increased commercial borrowing to finance priority investment projects. - Excluding financing needs related to the expansion of New Kigali International Airport and RwandAir, gross financing needs are expected to continue declining over the medium-term. - Adding total financing needs of around US$1.2 billion for the airport and airline projects will add around US$800 million to previously assumed financing projections (US$400 million was included in the previous DSA) and at higher costs over the next five years. - Staff’s baseline conservatively assumes full external commercial financing for the US$1.2 billion, with a financing mix that includes a US$650 million Eurobond issuance later this year and US$550 million in commercial loans over 2026-29. ### External official financing - Baseline projections assume disbursements from the African Development Bank and several other multilateral and official bilateral partners, in addition to World Bank and IMF financing (prior to completion of the disbursing SCF and RSF arrangements in 2024). - Under IDA20 terms, financing is projected to shift from 50-50 grant-loan under IDA19 to 100 percent loans; IDA financing signed after 2024 is assumed to be 100 percent credit on regular IDA terms. - IDA20 50-year loans have a grant element of about 74 percent; 50-50 grant-loan financing under IDA19 has a grant element of about 77 percent. With a 3 percentage points difference, 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. - Rwanda is beginning to experience a decline in external assistance: in FY25/26, USD 110 million of required grants initially projected will not materialize, and an additional USD 5 million bilateral support from Belgium was cancelled. - Total US support amounted to USD 178 million in FY22/23, of which USAID accounts for USD 127 million; approximately 57 percent of this assistance has historically supported the health sector. USAID funding is off-budget support delivered through implementing partners. ### External market financing - The share of market-based external financing is projected to increase starting 2030, although slowly under the baseline. - Staff assumes the USD 620 million Eurobond is projected to roll-over in 2031. - To finance the US$1.2 billion airport and RwandAir costs, staff’s baseline assumes full external commercial financing: a US$650 million Eurobond issuance later this year and US$550 million in commercial loans over 2026-29. - The previous DSA included US$400 million in projected external commercial loan disbursements over five years for this project; the current DSA includes an additional US$800 million based on updated project assumptions. - Authorities are pursuing a mix of domestic, external commercial, and semi-concessional IFI financing to mitigate increases in the overall debt burden. ### Domestic financing - With declining financing needs under the baseline led by fiscal consolidation and negotiated new external resources, the share of domestic financing is projected to decline through 2030 to its pre-pandemic average and pick up thereafter. - Domestic debt service continues to fall in the near-term and remain stable over the medium-term at similar levels of peer countries. - Gross issuances will continue to decline and net issuances are projected to be negative in the medium-term. - Declining supply of Treasuries may slow the deepening of the domestic financial system; without information on SOE borrowing plans, domestic financing needs under the baseline are modestly underestimated. - Key downside risks: fiscal exposures to large development projects (including potential cost overruns related to New Kigali International Airport) and concentrated banking sector exposures to rapidly growing mortgage- and construction-related activities. ### Realism tools and planned fiscal adjustment - A 3-year fiscal consolidation in the primary balance is expected to peak at 6.5 percentage points of GDP from 2025 to 2028, placing it in the top quartile of past adjustments for a sample of LICs. - The pace of adjustment reflects the sizeable impact of the airport construction project on capital expenditures, with peak activity over 2025-27 before nearing completion starting 2028. - Excluding the airport project, the pace of fiscal adjustment remains reasonably ambitious and depends on: implementation of recently approved revenue measures, continued progress on domestic revenue mobilization under the PCI, and spending rationalization from the PCI (approved 2022) and SCF (approved 2023). - Recent pension reforms add to expenditures and reinforce the need to adhere to planned revenue measures. - Underperformance in domestic revenue mobilization could be offset by further spending rationalization, though with downside risks to growth and debt dynamics. ### Debt dynamics, vulnerabilities, and market/liquidity risks - PPG debt dynamics have been strongly affected by realized fiscal risks: higher-than-anticipated primary deficits and unanticipated developments of debt outside the budgetary central government drove a higher-than-expected debt accumulation of over 20 percentage points of GDP in the past five years. - Debt-carrying capacity remains assessed as “strong”; composite index (CI) stands at 3.19, above the cut-off value of 3.05. - External debt indicators under the baseline remain below yet near some thresholds, with breaches under stress tests. - Under the baseline with full external market financing for priority project-related needs, the PV of external debt-to-GDP ratio approaches its threshold: it is projected to be just 4 percentage points below its threshold by 2027. - Near- and medium-term breaches of the PV of external debt-to-GDP threshold occur under all standard stress test scenarios and the market financing and natural disaster stress scenarios. - PV of external debt-to-exports remains below indicative thresholds under baseline and shock scenarios. - Liquidity indicators have risen: baseline debt service-to-revenue rises in the medium-term and breaches under one-time exchange rate depreciation and combination stress test scenarios. - One-time spikes in debt service in 2031 reflect repayment of the outstanding Eurobond at maturity; another spike in 2035 relates to assumed commercial borrowing in the current baseline. - Market financing risk indicators indicate elevated gross financing needs heighten risks to market financing conditions. - Policy implication: reprioritization of investment projects, fiscal consolidation, and a prudent debt management strategy are critical to mitigate repayment and market-financing risks, especially given bullet amortizations in 2031 and 2035. ### Alternative scenario and stress tests - A customized alternative scenario illustrates risks from: declining availability of concessional financing, slow progress on domestic revenue mobilization, and sustained pressure on the exchange rate affecting the nominal debt anchor of 65 percent of GDP. - In the alternative scenario, the wider fiscal deficit is financed with more expensive external borrowing and less grant support, leading to higher imports, pressure on reserves, and sustained exchange rate depreciation. - Under this scenario, external debt service-to-revenue reaches its threshold by 2029 and remains above it thereafter, with larger deviations at bullet amortizations in 2031 and 2035. ### Long-term macroeconomic assumptions (Box 2 highlights) - Long-term growth projections: 6.5–7 percent, driven by investment, human capital, total factor productivity (TFP), and demographics. - Baseline assumptions: TFP growth in the long run of 1.8 percent. - Investment assumed to continue at 28 percent of GDP for the whole projection period. - Population growth projected to slow from around 2.3 percent currently to about 1.4 percent over the next 30 years, slowing GDP growth by around half a percentage point in the medium term but boosting GDP per capita slightly. - Exports: substantial potential from AfCFTA, minerals and metals, textiles and clothing, and services (government goods and services, construction, travel and transport). Natural advantage in tourism and MICE strategy noted. *Source: IMF staff analysis and projections contained in the referenced DSA chapter.* ### 15. The PV of external debt-to-GDP ratio increases steadily under the historical scenario since ### 1rwaea2025001-print-pdf - 15. The PV of external debt-to-GDP ratio increases steadily under the historical scenario since ### Historical scenario and drivers - The historical scenario assumes large external shock and imbalance reflecting averages of several large shocks and imbalances observed in the past (Table 3 and Figure 1). - Primary drivers cited: - Large current account deficit calibrated using historical averages. - Negative USD GDP deflator calibrated using historical averages. - The historical averages covered a period including several large shocks (commodity prices and drought) and large external imbalances corrected over 2015–17. - Policy implication: "Policy adjustment to ensure a steady narrowing of the current account deficit, as envisaged under the baseline scenario (Text Table 3), is key to strengthen robustness of the debt dynamics." ### Public debt trajectory and composition - Gross financing needs have shifted to market-based sources largely on account of the airport and airline projects (Box 1). - Mitigating factors: investment reprioritization, fiscal consolidation efforts, and favorable debt dynamics have partially mitigated the higher debt trajectory. - However, sharp increase in non-concessional external borrowing pushes overall public debt higher. - Key projections and thresholds: - Public debt level projected at 86.3 percent of GDP by 2026 under the baseline scenario. - Program debt anchor under the PCI of 65 percent of GDP is reached in 2033, supported by a large, but growth-friendly fiscal consolidation and strong economic activity (Table 2). - The PV of PPG debt is projected to remain above the East African Community debt convergence criterion of 50 percent until 2029. ### Projections, benchmarks, and scenario outcomes - Under baseline and alternative scenarios: - The PV of PPG debt stays below the indicative benchmark of 70 percent of GDP contingent on projected growth trajectory and ambitious medium-term fiscal consolidation. - The PV of PPG debt would breach the 70 percent benchmark under GDP growth and natural disaster shock scenarios in the near-term (Tables 2 and 4; Figure 2). - Baseline PV of PPG debt path: - Peaks at 60 percent in 2025. - Declines to a 40.1 percent in 2035. - Natural disaster shock (most severe scenario): - PV of PPG debt breaches the 70 percent benchmark over 2026-30. - Peaks at 81 percent before baseline debt dynamics place it on a declining path. - Role of climate-related reforms: - Authorities’ climate-related reform measures, including under the RSF, and priorities in climate-related investment should help reduce variability to climate shocks and strengthen resilience (see illustrative climate scenario reference below). ### Climate-related risks - Channels of vulnerability (World Bank’s (2022) Country Climate and Development Report (CCDR) for Rwanda): - Increased variability of crop yields. - Reduced labor productivity. - Effects on tourism through changing patterns of rainfall and extreme heat. - Increased incidents of illnesses. - More frequent and damaging extreme flooding events. - Potential fiscal and macro implications: - Reduction in long-term growth affecting debt sustainability indicators in the long run. - Increased risks of damage to infrastructure and other built-up capital requiring strong fiscal response. - Mitigation potential: - As illustrated in the DSA attached to IMF Country Report No. 2024/341, Rwanda could substantially improve its resilience to climate-related shocks and safeguard debt sustainability with higher adaptation investment in line with Rwanda’s NDCs, full RSF implementation, and policy adjustments. ### Assessment of debt sustainability and risks - Overall assessment: Rwanda’s debt is assessed to be sustainable with a moderate risk of external and public debt distress, in line with the previous DSA assessment but with more limited room to absorb shocks without breaching high-risk thresholds. - Risk signals and vulnerabilities: - Mechanical external and overall risk signals suggest moderate risk of debt distress with limited space to absorb shocks. - Liquidity and solvency baseline debt indicators under the current baseline have deteriorated, with notable near-term risks as the PV of external debt-to-GDP approaches its indicative threshold. - Medium-term liquidity risks have risen as debt service-to-revenue is vulnerable to policy slippages and the materialization of downside risks as illustrated in the alternative scenario. - Even modest deviations from the planned adjustment path could push baseline debt burden indicators closer to high-risk thresholds, affecting concessional financing and market financing costs. - Policy priorities to safeguard sustainability: - Sustained, credible commitment to strong policies to safeguard debt sustainability and macroeconomic stability. - Authorities’ fiscal consolidation efforts, particularly through revenue mobilization efforts. - Plans to reprioritize planned investment projects. - Support external adjustment with real effective exchange rate adjustment. - Continued monitoring of the limit on the stock of new external PPG debt under the PCI. *Source: 1rwaea2025001-print-pdf - 15. The PV of external debt-to-GDP ratio increases steadily under the historical scenario since* ### 20. The authorities broadly agree with the results of the DSA and the overall assessment of a ### 20. The authorities broadly agree with the results of the DSA and the overall assessment of a ### Authorities’ assessment and commitments - Authorities broadly agree with the DSA results and the overall assessment of a moderate risk of external and overall debt distress. - Committed policy stance: - Preserve the moderate risk of external and overall debt distress assessment. - Continue fiscal consolidation measures: improve revenues mobilization, prudent spending rationalization, and fiscal risk mitigation. - Reach target to bring debt to the anchor of 65 percent of GDP by 2033. - Debt management strategy: focus on maximizing opportunities for concessional financing in line with the medium-term debt strategy. - Consider issuance of a Eurobond in 2025 as one of the options, but treat it as the worst-case scenario. - Actively explore different de-risking instruments and blend finance options to achieve a favorable mix of cost – risk tradeoff. - Remain committed to safeguarding debt sustainability and building sustainability and climate resilience in support of climate adaptation and mitigation measures. ### Baseline external debt outlook (2024–45) — key figures (in percent of GDP, unless otherwise indicated) - External debt (nominal): - 2024: 85.9 - 2025: 92.6 - 2026: 96.5 - 2027: 98.6 - 2028: 98.5 - 2029: 96.0 - 2030: 92.5 - 2035: 77.1 - 2045: 64.2 - Public and publicly guaranteed (PPG) external debt: - 2024: 63.1 - 2025: 68.4 - 2026: 71.9 - 2027: 73.3 - 2028: 72.5 - 2029: 69.3 - 2030: 65.1 - 2035: 45.1 - 2045: 46.1 - Change in external debt (percent of GDP): 9.5 (2024); 6.8 (2025); 3.8 (2026); 2.1 (2027); -0.1 (2028); -2.5 (2029); -3.5 (2030); -3.8 (2035); -2.1 (2045) - Identified net debt-creating flows: 9.2 (2024); 2.7 (2025); 1.1 (2026); -0.6 (2027); -2.0 (2028); -2.7 (2029); -2.7 (2030); 1.4 (2035); -1.5 (2045) - Non-interest current account deficit: 11.0 (2024); 12.0 (2025); 13.6 (2026); 11.0 (2027); 7.3 (2028); 6.3 (2029); 5.5 (2030); 9.5 (2035); 6.0 (2045) - Deficit in balance of goods and services: 15.8 (2024); 15.6 (2025); 17.0 (2026); 14.3 (2027); 10.5 (2028); 9.3 (2029); 7.8 (2030); 9.6 (2035); 4.3 (2045) - Exports: 30.0 (2024); 34.4 (2025); 37.9 (2026); 39.9 (2027); 42.8 (2028); 44.6 (2029); 44.5 (2030); 36.6 (2035); 31.7 (2045) - Imports: 45.8 (2024); 50.1 (2025); 54.9 (2026); 54.2 (2027); 53.2 (2028); 53.9 (2029); 52.3 (2030); 46.1 (2035); 36.0 (2045) - Net current transfers (negative = inflow): -5.5 (2024); -4.4 (2025); -4.4 (2026); -4.3 (2027); -4.2 (2028); -4.1 (2029); -3.7 (2030); -3.2 (2035); -2.2 (2045) - of which: official: -4.6 (2024); -2.9 (2025); -2.8 (2026); -2.6 (2027); -2.5 (2028); -2.4 (2029); -2.1 (2030); -0.8 (2035); -0.1 (2045) - Net FDI (negative = inflow): -4.0 (2024); -5.3 (2025); -8.2 (2026); -7.2 (2027); -5.3 (2028); -5.0 (2029); -4.1 (2030); -4.6 (2035); -4.9 (2045) - Endogenous debt dynamics: 2.1 (2024); -4.1 (2025); -4.4 (2026); -4.4 (2027); -4.0 (2028); -3.9 (2029); -4.0 (2030); -3.4 (2035); -2.6 (2045) - Contribution from nominal interest rate: 1.6 (2024); 1.8 (2025); 2.2 (2026); 2.4 (2027); 2.6 (2028); 2.5 (2029); 2.2 (2030); 1.7 (2035); 1.2 (2045) - Contribution from real GDP growth: -6.8 (2024); -5.9 (2025); -6.6 (2026); -6.8 (2027); -6.5 (2028); -6.4 (2029); -6.2 (2030); -5.1 (2035); -3.8 (2045) - Residual: 0.4 (2024); 4.1 (2025); 2.7 (2026); 2.7 (2027); 1.9 (2028); 0.2 (2029); -0.9 (2030); -5.2 (2035); -0.6 (2045) - Sustainability indicators: - PV of PPG external debt-to-GDP ratio: 39.2 (2024); 43.9 (2025); 46.0 (2026); 47.0 (2027); 46.1 (2028); 43.8 (2029); 41.0 (2030); 28.3 (2035); 16.3 (2045) - PV of PPG external debt-to-exports ratio: 130.5 (2024); 127.3 (2025); 121.4 (2026); 117.6 (2027); 107.7 (2028); 98.3 (2029); 92.1 (2030); 77.3 (2035); 51.4 (2045) - PPG debt service-to-exports ratio: 5.8 (2024); 7.7 (2025); 7.7 (2026); 8.1 (2027); 8.7 (2028); 8.7 (2029); 8.0 (2030); 12.3 (2035); 5.0 (2045) - PPG debt service-to-revenue ratio: 9.6 (2024); 14.3 (2025); 15.2 (2026); 16.2 (2027); 18.3 (2028); 18.7 (2029); 17.1 (2030); 20.2 (2035); 7.5 (2045) - Gross external financing need (Billion of U.S. dollars): 1.6 (2024); 1.8 (2025); 1.8 (2026); 1.6 (2027); 1.5 (2028); 1.4 (2029); 1.5 (2030); 3.9 (2035); 4.6 (2045) ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): 8.9 (2024); 7.1 (2025); 7.5 (2026); 7.4 (2027); 7.0 (2028); 7.0 (2029); 7.0 (2030); 6.9 (2035); 6.5 (2045); 7.0 (final projection year); 7.1 (final listed) - GDP deflator in US dollar terms (change in percent): -8.7 (2024); -3.2 (2025); -2.5 (2026); -1.9 (2027); -1.2 (2028); -0.1 (2029); 1.3 (2030); 2.0 (2035); 2.0 (2045); -1.0; 0.2 (additional listed) - Effective interest rate (percent): 2.1 (2024); 2.2 (2025); 2.5 (2026); 2.6 (2027); 2.8 (2028); 2.7 (2029); 2.5 (2030); 2.3 (2035); 2.0 (2045); 2.7; 2.4 (additional listed) - Growth of exports of G&S (US dollar terms, in percent): 21.9 (2024); 18.9 (2025); 15.3 (2026); 11.0 (2027); 13.3 (2028); 11.4 (2029); 8.0 (2030); 6.1 (2035); 8.1 (2045); 13.3; 9.3 (additional listed) - Growth of imports of G&S (US dollar terms, in percent): 13.1 (2024); 13.2 (2025); 14.9 (2026); 4.0 (2027); 3.9 (2028); 8.2 (2029); 5.2 (2030); 6.9 (2035); -1.2 (2045); 9.7; 7.4 (additional listed) - Grant element of new public sector borrowing (in percent): 25.8 (2025); 39.4 (2026); 37.9 (2027); 43.7 (2028); 43.4 (2029); 49.7 (2030); 38.0 (2035); 32.1 (2045); 37.6 (additional listed) - Government revenues (excluding grants, in percent of GDP): 18.0 (2024); 18.5 (2025); 19.3 (2026); 20.0 (2027); 20.4 (2028); 20.6 (2029); 20.8 (2030); 22.3 (2035); 20.9 (2045); 18.3; 20.8 (additional listed) - Aid flows (in Billion of US dollars): 0.6 (2024); 0.9 (2025); 1.1 (2026); 1.0 (2027); 1.0 (2028); 0.8 (2029); 0.8 (2030); 0.6 (2035); 0.9 (2045) - Grant-equivalent financing (in percent of GDP): 4.9 (2025); 5.7 (2026); 5.1 (2027); 4.8 (2028); 4.0 (2029); 3.7 (2030); 1.5 (2035); 1.0 (2045); 3.3 (additional listed) - Grant-equivalent financing (in percent of external financing): 42.1 (2025); 54.2 (2026); 55.4 (2027); 62.6 (2028); 65.3 (2029); 67.5 (2030); 50.0 (2035); 41.9 (2045); 52.5 (additional listed) ### Memorandum and public sector DSA highlights (selected) - PV of external debt (memorandum): 62.0 (2024); 68.1 (2025); 70.6 (2026); 72.3 (2027); 72.0 (2028); 66.8 (2029); 68.3 (2030); 60.3 (2035); 51.9 (2045) - In percent of exports: 206.4 (2024); 197.7 (2025); 186.2 (2026); 181.1 (2027); 168.4 (2028); 158.4 (2029); 153.7 (2030); 164.9 (2035); 163.5 (2045) - Total external debt service-to-exports ratio: 14.8 (2024); 16.6 (2025); 15.5 (2026); 15.2 (2027); 15.1 (2028); 14.6 (2029); 14.4 (2030); 21.1 (2035); 16.9 (2045) - PV of PPG external debt (in Billion of U.S. dollars): 5.6 (2024); 6.5 (2025); 7.1 (2026); 7.7 (2027); 7.9 (2028); 8.1 (2029); 8.2 (2030); 8.7 (2035); 11.6 (2045) - Public sector debt (baseline scenario, percent of GDP): - 2024: 78.7 - 2025: 84.5 - 2026: 86.3 - 2027: 86.3 - 2028: 84.5 - 2029: 81.3 - 2030: 76.2 - 2035: 59.6 - 2045: 48.2 - Change in public sector debt: 6.4 (2024); 5.8 (2025); 1.8 (2026); 0.0 (2027); -1.8 (2028); -3.2 (2029); -5.0 (2030); -2.5 (2035); -0.1 (2045) - Identified debt-creating flows (public): 2.7 (2024); 2.7 (2025); -0.8 (2026); -2.0 (2027); -3.2 (2028); -3.5 (2029); -4.3 (2030); -2.4 (2035); -0.1 (2045) - Primary deficit (percent of GDP): 5.1 (2024); 7.3 (2025); 3.5 (2026); 2.4 (2027); 0.8 (2028); 0.6 (2029); -0.3 (2030); 0.8 (2035); 1.3 (2045) - Revenue and grants (percent of GDP): 22.2 (2024); 21.1 (2025); 21.8 (2026); 22.6 (2027); 23.0 (2028); 23.0 (2029); 22.8 (2030); 22.9 (2035); 21.3 (2045) - of which: grants: 4.2 (2024); 2.6 (2025); 2.5 (2026); 2.6 (2027); 2.6 (2028); 2.4 (2029); 1.9 (2030); 0.6 (2035); 0.3 (2045) - PV of public debt-to-GDP ratio: 56.7 (2024); 61.7 (2025); 62.1 (2026); 61.5 (2027); 59.4 (2028); 56.8 (2029); 52.7 (2030); 43.2 (2035); 39.2 (2045) - Gross financing need: 13.7 (2024); 15.0 (2025); 12.3 (2026); 11.4 (2027); 9.9 (2028); 9.8 (2029); 9.1 (2030); 12.0 (2035); 11.8 (2045) ### Risk scenarios, stress tests, and sensitivity analysis (high-level) - Stress-testing approach: - Tailored and standardized stress tests identify the most extreme shocks through comparisons up to 2035. - Borrowing assumptions for additional financing needs generated by shocks are assumed to be covered by PPG external MLT debt in the external DSA; default terms of marginal debt are based on baseline 10-year projections. - Illustrative stress-test outcomes (selected): - Figure notes highlight most extreme shocks: - Debt Service-to-Revenue Ratio most extreme shock: One-time depreciation. - PV of Debt-to-Exports Ratio most extreme shock: Exports shock. - PV of Debt-to-GDP Ratio most extreme shock: Combination. - Debt Service-to-Exports Ratio most extreme shock: Exports. - Public debt indicators under alternative scenarios show higher vulnerability under natural disaster, combined contingent liabilities, and adverse growth or export shocks. - Sensitivity analysis (external PPG indicators, selected values in percent): - Baseline PV of debt-to-GDP (2025–35 sample): 44 (2025), 46 (2026), 47 (2027), 46 (2028), 44 (2029), 41 (2030), 38 (2031), 36 (2032), 34 (2033), 32 (2034), 28 (2035) - Alternative scenarios and bound tests show potential breaches of thresholds under adverse combinations (tables indicate bold values for breaches). - Public debt sensitivity (selected baseline and alternative outcomes, percent): - Baseline PV of Debt-to-GDP (2025): 62; (2026): 62; (2027): 61; (2028): 59; (2029): 57; (2030): 53; (2031): 50; (2032): 48; (2033): 46; (2034): 44; (2035): 43 - Tailored shocks (e.g., Natural disaster) can raise ratios markedly (examples: PV of Debt-to-GDP under natural disaster: 62 (2025), 81 (2026), 79 (2027), 76 (2028), 72 (2029), 69 (2030), 66 (2031), 63 (2032), 62 (2033), 62 (2034), 62 (2035)) ### Policy implications and mitigation priorities (implicitly drawn from authorities’ commitments and DSA) - Maintain and accelerate fiscal consolidation to avoid higher debt accumulation and meet the 65 percent of GDP anchor by 2033. - Prioritize revenue mobilization and prudent spending rationalization. - Strengthen fiscal risk mitigation and contingent liability management to reduce vulnerability to shocks. - Seek concessional and grant-equivalent financing to improve grant element of new borrowing and grant-equivalent financing shares. - Use de-risking instruments and blended finance to optimize cost–risk tradeoffs and protect access to concessional finance. - Incorporate climate adaptation and mitigation priorities into debt sustainability planning, aligning borrowing strategy with sustainability and resilience objectives. *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1rwaea2025001-print-pdf - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Recent economic developments and outlook - Real GDP increased by 8.9 percent in 2024. - Growth drivers: robust services activities and food crop production; strong expansion in the industrial sector, particularly construction; buoyant activities in trade, tourism, transport, and telecommunications. - Balance of risks tilted to the downside: waning external financing amid planned large scale public investment projects and ongoing regional conflicts. - Multiple past shocks noted: COVID-19 pandemic, climate-related disasters, Marburg virus outbreak (MVD). - Authorities expect continued robust growth supported by reforms. ### Inflation and external position - Headline inflation averaged 4.8 percent in 2024 (down from 14 percent in 2023). - Headline inflation was 6.3 percent year-on-year in April 2025. - Core inflation decreased to 4.4 percent from 5.8 percent. - Current account deficit widened to 12.7 percent of GDP in 2024, driven by strong imports of food, other consumer, and capital goods. ### Program performance under the PCI - All end-December 2024 Quantitative Targets (QTs), and continuous and standard targets under the PCI were met. - All PCI Reform Targets (RTs) were met, except one which was observed with a delay. - A comprehensive package of measures to broaden the tax base had a test-date of end-January 2025 and was implemented on February 10, 2025. - Authorities seek Executive Directors’ support for completion of the fifth review under the PCI arrangement and modification of an end-June 2025 Quantitative Target. ### Fiscal and debt management policies - Fiscal consolidation program focused on safeguarding fiscal and external sustainability via strong domestic revenue mobilization and spending rationalization. - New tax package being implemented expected to put tax-to-GDP ratio on an upward trajectory. - Medium-Term Revenue Strategy (MTRS) measures in train include broadening VAT coverage and streamlining tax holidays and expenditures. - Spending rationalization efforts include reprioritization of investment projects and mitigation of fiscal risks from SOEs. - Noted spending pressures from pension system reforms and ambitious priority investment projects (e.g., second phase of the new Kigali Airport; expansion of RwandAir). - Debt remains sustainable with moderate risk of external and overall public debt distress; country subjected to significant debt service pressures. - Debt-to-GDP ratio projected to be around 85 percent for 2026. - Tax measures published in the Official Gazette of May 2025; authorities committed to full and timely implementation. ### Monetary, exchange rate, and financial sector policies - NBR’s inflation target range: 2-8 percent. - Monetary authorities committed to containing headline inflation within target range; policy rate kept unchanged recently but remains data driven and attentive to global/domestic developments. - Transitioned to interest rate-based policy framework; progressing on strengthening implementation. - IMF technical assistance supported modelling and forecasting and incorporation of climate risks. - Steps to improve interbank market and address liquidity challenges: implementation of the Centralized Securities Depository System (CSD) and global master repurchase agreement (GMRA). - Exchange rate: commitment to a flexible exchange rate regime, revising official exchange rate calculation, and gradual introduction of competitive FX auctions. - Banking sector metrics: profitable with regulatory capital well above statutory levels; loans under watch and NPLs on a declining trend; attentive to risk of large exposures. - NBR Law under review to align mandate, autonomy, transparency and accountability with central banking best practices; strengthening of NBR internal audit function is needed and in progress. - Monetary and financial statistics coverage broadened to include OFC Survey, insurance companies, Rwanda Development Bank, and private pension institutions; publication on a quarterly basis commenced. ### Structural reforms, transparency, and climate policies - Implementation of the second National Strategy for Transformation (NST-2) aimed at job creation, export growth, education quality, public service delivery, and elimination of malnutrition. - Social safety nets and health and education delivery scaled up; dynamic social registry with nationwide coverage has enrolled over 3 million households. - Major projects supporting regional integration: Kigali Logistics Platform and the new Kigali International Airport. - Authorities working with development partners to re-calibrate tariff regime and address non-tariff barriers to bolster trade and attract foreign investment. - Climate agenda: completed RSF-supported program commitments 6 months ahead of schedule; implementing disaster risk reduction management action plan and the green taxonomy. - Efforts to enhance climate tagging, adopt sustainability disclosure standards, and develop bankable projects for green financing. ### AML/CFT and governance - Authorities focused on compliance with FATF standards following the July 2024 Mutual Evaluation Report by the Eastern and Southern Africa Anti Money Laundering Group. - Planned actions: update beneficial ownership (BO) information of companies, amend AML/CFT law, improve ML/TF risk understanding, undertake sectoral risk assessments for virtual assets/virtual asset service providers (VA/VASPs), and improve risk-based supervision. ### Selected public debt and creditor-profile figures (2024 baseline and long-run projection highlights) - Total public debt, US$ mn: 10,689 (2024) rising across projections to 33,723 (2045). - External debt, US$ mn: 8,567 (2024) rising to 17,899 (2036) and beyond in projections. - Multilateral creditors (total), US$ mn: 6,499 (2024) rising to 12,668 (2045). - IMF exposure, US$ mn (series highlight): 807 (2024); later entries include small values (e.g., 403, 345, 315, 310, 292, 261, 229, 198, 166, 134, 103, 71, 40, 13, 00). - World Bank exposure, US$ mn (series highlight): 3,739 (2024) rising across projections to 6,701 (2045). - AfDB exposure, US$ mn: 1,237 (2024) rising to 3,200 (2045). - Domestic debt, US$ mn: 2,123 (2024) rising to 15,824 (2035) and 31,121 (2042) then 33,723 (2045). ### Conclusion and authorities’ request - Authorities remain committed to PCI-supported program objectives despite external headwinds. - They emphasize robust recovery, reforms ownership, and macroeconomic stability as foundations for inclusive growth and resilience. - Authorities seek Executive Directors’ support for completion of the fifth review under the PCI arrangement. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1rwaea2025001-print-pdf.pdf_