## _cr04270 ## Source details **Canonical URL:** [_cr04270](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf.json) --- ### Debt sustainability — Key findings and projections - Preliminary estimate for 2003: NPV of debt-to-exports ratio rose to about 300 percent at end-2003 after enhanced HIPC Initiative relief. - Decision point projection (baseline) for 2003: NPV of 193 percent. - Updated projections: - NPV projected to peak at 376 percent in 2005. - NPV projected to reach 237 percent in 2019. - Factors explaining deterioration: - Lower discount rate and exchange rate movements raised the measured NPV of the debt stock by about US$70 million relative to the decision point document. - Exports substantially lower than projected: actual exports of goods and services estimated at US$126 million in 2003 versus expected US$186 million in 2003 in the decision point projections. - Recent borrowing: - Total borrowing amounted to US$84 million in 2002 and US$40 million in 2003. - Borrowing almost exclusively highly concessional from the World Bank and the African Development Bank. - Simulation: - “An additional 12 percent growth of exports over a three-year period starting in 2005 would, other things equal, allow the NPV of debt-to-exports ratio to reach 208 percent by 2010.” ### Drivers, risks, and immediate policy implications on debt - Drivers and concerns: - Export underperformance is the principal contributor to worsening NPV-to-exports ratios. - Valuation and discounting changes account for about US$70 million increase in measured NPV. - Project-specific/short-term liabilities: an import-related government-guaranteed short-term loan (hotel financing) slated for liquidation by May 31, 2004. - Concessionality shortfall: energy rehabilitation loan with grant element of 47 percent vs. program floor of 50 percent; financing to be adjusted by end-June 2004. - Policy recommendations: - Limit new external borrowing strictly given elevated NPV of debt-to-exports ratio at end-2003. - Maintain discipline on concessionality of new borrowing; correct non-concessionality shortfalls as planned. - Increase domestic saving and mobilize external grants on a sustained basis; otherwise restrain government spending. - Rapidly implement the export promotion strategy to restore export growth and improve debt-to-exports metrics. - Liquidate short-term import-related government-guaranteed commercial loans as scheduled (e.g., by May 31, 2004). ### Macroeconomic framework for 2004 — Objectives and targets - Growth and inflation: - Framework supports resumption of real economic growth of 6 percent. - Targeted reduction of inflation to 5 percent by year’s end (relaxes initial PRGF trajectory of 3 percent). - Reserves and import cover: - Import cover of gross official reserves targeted to fall to 4.6 months in the short term, with increase to 5.5 months targeted by end-2006. - Fiscal policy (selected targets and projections): - Domestic fiscal deficit (excluding delayed demobilization outlays and net lending for guarantees) targeted at 5.6 percent of GDP in 2004. - Overall deficit targeted to be in balance. - Including demobilization and net lending: - Domestic fiscal deficit would amount to 7.8 percent of GDP. - Overall fiscal deficit (after grants) would be 2.2 percent of GDP. - Domestic revenue projected at 13.5 percent of GDP in 2004. - Committed external budgetary grants (excluding HIPC relief) projected at US$103 million (6.0 percent of GDP) in 2004; authorities seeking to raise a further US$25 million (1.4 percent of GDP). - Total expenditure and net lending programmed to increase to 28.3 percent of GDP in 2004. - Deficit to be fully covered by external grants and external program borrowing (US$45 million). - Monetary policy (selected): - Broad money growth target: 11 percent. - Room for banking system credit to private sector to increase by 11 percent. - Managed float maintained; central bank intervention limited to predetermined weekly foreign exchange auctions. - External sector: - External current account deficit (after grants) projected to narrow by 1.5 percentage points to 6.9 percent of GDP in 2004. - Merchandise imports projected to increase by 16 percent in U.S. dollar terms. - Balance of payments support projected at US$174 million; HIPC Interim Assistance and bilateral debt relief projected at US$41 million. - Structural priorities: - Sale of tea factories; strengthened investment code; export promotion action plan; prompt sale of government stake in hotel project. - Enact organic budget law, income tax law, customs and public procurement laws. - Financial sector reforms: privatization of Commercial Bank of Rwanda targeted by end-July 2004; NBR to reach action plans with banks by end-June 2004. ### 2003 performance and carryover issues - Real economy and inflation: - Real GDP growth fell below target in 2003 due to poor rains; inflation rose to 7.7 percent at end-2003 vs. target of 3 percent. - Fiscal performance: - Domestic revenue = 13.5 percent of GDP. - Domestic spending exceeded program target by 1.2 percent of GDP. - Domestic fiscal deficit = RF 50 billion (5.5 percent of GDP) in 2003, exceeding ceiling by RF 26.7 billion. - Overall deficit before grants = 10.5 percent of GDP; after grants = 2.5 percent of GDP. - Performance criterion on net reduction of domestic arrears missed by 1.7 percent of GDP. - Monetary and reserves: - Broad money grew by 12.2 percent in 2003—4.2 percentage points above target. - Reserve money exceeded end-2003 performance criterion by 9.6 percent. - Net foreign assets of NBR declined to RF 57.8 billion at end-2003 (shortfall RF 27.8 billion evaluated at RF 511.9=US$1). - NBR net foreign assets fell to US$113 million at end-December 2003, a decline of US$30 million relative to end-2002. - External sector: - Merchandise exports fell from US$67 million in 2002 to US$63 million in 2003. - External debt at end-2003: US$1.4 billion (85 percent of GDP). - Concessionality shortfall: OPEC Fund and BADEA energy loan grant element 47 percent (floor 50 percent); agreements reached to increase grant element. ### Program for 2004 — Measures, financing and contingency - Social priorities and spending: - 10 percent rise in number of educators; fees eliminated for primary education; substantially increased funding for health programs. - Government domestic spending budgeted at 21.3 percent of GDP in 2004. - Government priority spending budgeted to rise to 45 percent of domestic expenditure. - Fiscal balances and financing: - Domestic fiscal deficit set to rise to 7.8 percent of GDP under 2004 budget. - Budget provides settlement of 0.9 percent of GDP in unpaid government bills outstanding at end-2003; outlays equivalent to 0.7 percent of GDP on pre-2002 domestic arrears. - Total budgeted government borrowing requirement for domestic operations about 10.3 percent of GDP. - Currently identified external budgetary grants equivalent to 8 percent of GDP fall short of financing requirements. - Rephasing of 1.4 percent of GDP to second half of 2004 contingent on additional external grant financing and monetary policy remaining on track. - Contingency and implementation: - Part of nonpriority spending rephased to second half of 2004 to facilitate fiscal restraint if additional grant financing not forthcoming. - Authorities may postpone or reduce spending if additional external grant financing is uncertain. ### Structural reforms, governance and safeguards - Public financial management: - New organic budget law drafted; submission to parliament targeted by end-June 2004 (missed earlier target). - Financial instructions, income tax law, customs and public procurement laws targeted for enactment to modernize administration. - Treasury single account work to begin; computerized accounting system to be extended to provinces. - Auditor General’s office to produce annual audit reports starting in 2004. - Safeguards and NBR actions: - NBR developed action plan following Fund safeguards assessment in early 2003. - Implemented recommendations include regular annual external audits and limitation of 2004 distributable profit to realized gains. - Internal Audit Department operationalized; Internal Audit Charter approved. - Anti-money laundering legislation progress slow; initial draft unsatisfactory; NBR requested Fund technical assistance. - Financial sector supervision: - Due diligence inspections completed early 2004; privatization of Commercial Bank of Rwanda targeted by end-July 2004. - Enhanced supervisory regime continued for two banks; on-site audits planned for five banks. - Joint Fund-World Bank financial sector assessment scheduled for Q4 2004. ### External assistance, trade balance and donor role - External assistance and trade balance: - Increased external assistance in near term will be accompanied by deterioration in the trade balance; medium-term reversal expected as supply constraints are addressed. - Projected increases in commodity export prices and good weather expected to help merchandise exports in 2004. - Authorities need to implement export promotion strategy effectively. - Donor financing needs: - Full implementation of social programs and investment to sustain high growth will entail elevated fiscal deficits over medium-term; donor community need to focus on providing external grant assistance. - Projected donor disbursements and debt reschedulings expected to fully finance the 2004 program: balance-of-payments support projected at US$174 million; HIPC Interim Assistance and bilateral debt relief projected at US$41 million. ### Program monitoring, conditionality and waivers - Reviews and waivers: - Staff recommended waivers for missed performance criteria at end-June 2003 and end-December 2003 (domestic fiscal balance; net accumulation of domestic arrears; new nonconcessional external debt; net credit to government; reserve money; net foreign assets of NBR). - Waivers for missed structural performance criteria on submission of a revised investment code, issuance of financial instructions, and incorporation of tax incentives into tax law were recommended. - Fourth review to assess performance against end-June 2004 quantitative and structural criteria; subsequent reviews scheduled through end-2005. - Technical Memorandum of Understanding (TMU) highlights (selected): - Program exchange rate set at RF 580.3=US$1. - Floor on net foreign assets of NBR with specified adjustors for external budgetary support shortfalls (US$20 million/US$25 million thresholds and max adjustor US$30 million). - Ceiling on contracting or guaranteeing new nonconcessional external debt; concessionality defined as grant element of 50 percent or more with specified discount rate methodology. - Reporting frequencies: weekly NBR data within seven days; monthly fiscal and monetary data within three weeks/four weeks as specified. - Prior actions for May 31, 2004 included cabinet approval of procurement code, NBR written procedures to ensure data consistency, and restoration of net open foreign exchange position regulation. ### Data, statistics and technical assistance - Statistical weaknesses: - National accounts, price statistics, government finance, and balance of payments statistics suffer significant quality weaknesses. - CPI outdated (based on HIES 1982 base); new CPI being tested and to be published in June 2004. - Reconciliation of fiscal and monetary data constrained by large number of government accounts. - Limited information on monthly and quarterly capital account transactions. - Planned improvements: - Introduction of a single treasury account at NBR envisaged for 2005. - New independent Statistics Office being established with donor assistance. - AFRITAC East and STA technical assistance planned for statistical improvements. - Technical assistance record (selected): - Multiple missions and long-term experts from FAD, MAE, STA, AFRITAC East across 1999–2004 on tax policy, treasury management, banking supervision, monetary policy, and statistics. - Resident Representative: Mr. Abdikarim Farah in Kigali since January 2001. ### Selected quantitative indicators and tables (selected rows preserved exactly as in source) - Key external and debt indicators (selected entries preserved verbatim): - Merchandise exports (U.S. dollars): 4.2-16.9-28.112.16.6-6.310.68.017.011.6 - Merchandise imports (U.S. dollars): -0.80.5-1.33.28.54.02.816.07.16.2 - External debt (end of period) 7/: 78.473.280.966.886.185.182.286.685.778.5 - Net present value of external debt (in percent of exports of goods and services) 8/: 236.2190.3263.0203.5222.2299.9242.1354.5376.4368.6 - Gross reserves (months of imports): 6.05.96.36.27.45.06.94.65.25.5 - Net present value (NPV) of debt (US$ million, memorandum): 330.6385.2415.8468.5531.3580.2 - Nominal GDP (RF billions, memorandum): 754.3825.2825.0906.4893.4905.3971.91,004.91,100.51,201.3 *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf* ### 1. Debt Sustainability.................................................................................. ### 1. Debt Sustainability.................................................................................. ### Key findings on debt sustainability - Preliminary estimate for 2003: net present value (NPV) of debt-to-exports ratio rose to about 300 percent at end-2003 after enhanced HIPC Initiative relief. - Decision point projection (baseline) had forecast an NPV of 193 percent in 2003. - Updated projections: - NPV projected to peak at 376 percent in 2005. - NPV projected to reach 237 percent in 2019. - Two principal factors explaining deterioration: - A lower discount rate and exchange rate movements raised the NPV of the debt stock by about US$70 million relative to the decision point document. - Exports were substantially lower than projected: actual exports of goods and services estimated at US$126 million in 2003 versus an expected US$186 million in 2003 in the decision point projections; revised projections for 2009 are similarly well below earlier expectations. - Recent borrowing: - Total borrowing amounted to US$84 million in 2002 and US$40 million in 2003. - Borrowing was almost exclusively on highly concessional terms from the World Bank and the African Development Bank. ### Drivers and specific concerns - Export performance: - Exports fell short of decision point expectations, contributing strongly to the worsening NPV-to-exports ratio. - Valuation and discounting: - The change in discount rate and exchange rate movements increased the measured NPV by about US$70 million. - Project-specific and short-term liabilities: - An import-related government-guaranteed short-term loan on commercial terms (part of hotel financing) is slated for liquidation by May 31, 2004. - Concessionality issue (related program note): - A missed performance criterion on new non-concessional external debt resulted from an energy rehabilitation loan with a grant element of 47 percent, compared with the program floor of 50 percent; financing for this project will be brought to the required concessionality level by end-June 2004. ### Projections and scenario simulation - Decision point baseline (reported in staff documents): - Projected NPV path: 193 percent in 2003 → 149 percent in 2008 → 134 percent by 2019. - Updated projection (preliminary and revised): - 2003: 300 percent (actual preliminary estimate). - Peak: 376 percent in 2005. - Long-run: 237 percent in 2019. - Simulation result on export growth: - “An additional 12 percent growth of exports over a three-year period starting in 2005 would, other things equal, allow the NPV of debt-to-exports ratio to reach 208 percent by 2010.” ### Policy implications and recommendations - Fiscal and financing stance: - Authorities have kept new borrowing within the range established in the decision point document (US$84 million in 2002; US$40 million in 2003) and have relied on highly concessional creditor terms where possible. - Unless domestic saving and external grant financing are increased on a sustained basis, government spending may need to be restrained. - Priority strategies: - Move ahead rapidly with implementation of the export promotion strategy to restore export growth and improve the debt-to-exports metrics. - Maintain discipline on the concessionality of new borrowing; correct non-concessionality shortfalls (as planned by end-June 2004 for the noted energy loan). - Liquidate short-term import-related government-guaranteed commercial loans as scheduled (e.g., liquidation by May 31, 2004). - Structural and supportive actions: - Continue efforts to increase domestic saving and mobilize external grants. - Use donor coordination and increased budgetary assistance prudently to support social spending while preserving debt sustainability. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf* ### 18. The macroeconomic framework for 2004 supports the resumption of real ### _cr04270 - 18. The macroeconomic framework for 2004 supports the resumption of real ### Overview - The macroeconomic framework for 2004 supports the resumption of real economic growth of 6 percent. - Targeted reduction of inflation to 5 percent by year’s end; this relaxes the initial PRGF trajectory that envisaged reduction to 3 percent. - Import cover of gross official reserves targeted to fall to 4.6 months in the short term, with an increase to 5.5 months targeted by end-2006 due to Rwanda’s susceptibility to external shocks. ### Fiscal Policy - Domestic fiscal deficit (excluding delayed demobilization outlays and net lending to meet calls on outstanding loan guarantees) targeted at 5.6 percent of GDP in 2004, similar to 2003. - Overall deficit targeted to be in balance. - Including demobilization operations delayed from 2003 and net lending to meet calls on outstanding government guarantees: - Domestic fiscal deficit would amount to 7.8 percent of GDP. - Overall fiscal deficit (after grants) would be 2.2 percent of GDP. - Domestic revenue projected to remain stable at 13.5 percent of GDP in 2004. - Committed external budgetary grants (excluding relief under the HIPC Initiative) projected at US$103 million (6.0 percent of GDP) in 2004. - Authorities are seeking to raise a further US$25 million (1.4 percent of GDP) to cover operations planned for the second half of the year. - Total expenditure and net lending programmed to increase to 28.3 percent of GDP in 2004, with substantial funding increases for education, health, and road sectors and stepped-up financing for growth-enhancing activities under the PRSP. - Part of nonpriority spending was rephased to the second half of 2004 to facilitate fiscal restraint if additional grant financing is not forthcoming. - The deficit will be fully covered by external grants and external program borrowing (US$45 million) under a previously approved World Bank program credit and an African Development Bank credit. ### Monetary Policy - Monetary program seeks to limit inflation to 5 percent at end-2004. - Target for broad money growth set at 11 percent, taking into account projected growth of the monetized sector. - Program provides room for increasing banking system credit to the private sector by 11 percent, in line with GDP growth. - Authorities will maintain a managed float of the foreign exchange system. - Central bank intervention limited to supplying a predetermined amount of foreign exchange in weekly auctions and smoothing market disturbances unrelated to underlying fundamentals. ### Financial Sector Strengthening - Due diligence inspections completed early in 2004; privatization of the Commercial Bank of Rwanda targeted by end-July 2004. - Central bank to reach agreements with banks by end-June 2004 on action plans to bring all commercial banks back into regular compliance. - Banking supervision to be reinforced: enhanced supervisory regime continued for two banks; on-site audits planned for five banks. - A joint Fund-World Bank financial sector assessment scheduled for the fourth quarter of 2004. ### External Sector Policies - External current account deficit (after grants) projected to narrow by 1.5 percentage points of GDP, to 6.9 percent in 2004. - Early efforts to strengthen export performance (targeted activities in coffee and tea) projected to yield solid returns during 2004, starting from a limited base. - Merchandise imports projected to increase by 16 percent in U.S. dollar terms, mainly reflecting outlays for the growing development budget and intermediate goods, including fertilizer. - Projected donor disbursements and debt reschedulings would fully finance the 2004 program. - Balance of payments support projected at US$174 million, mainly from the World Bank, the UK, the EU, and some smaller bilateral donors. - HIPC Interim Assistance and bilateral debt relief projected at US$41 million. - Fund staff noted uncertainty about accelerated export growth and urged authorities to take necessary actions, in cooperation with supporting partners, to assure the strategy’s success. ### Structural Reforms - 2004 structural program focuses on improving economic productivity, strengthening the legal framework and public finances, and continuing financial sector reforms; it addresses priority structural elements of the PRSP economic agenda. - Specific measures expected to strengthen external sector performance: sale of tea factories, introduction of a strengthened investment code, implementation of the export promotion action plan, and prompt sale of the government’s stake in the recently completed hotel project. - Enactment targeted for: organic budget law, income tax law, customs and public procurement laws to create a modern, efficient and transparent financial administration. - Public administration reform agenda includes strengthening budgeting, internal accounting and decentralization; extension of the government’s computerized accounting system to the provincial level; work to begin on a treasury single account and improvements to the budget document. - Structural conditionality (Box 2): - Three prior actions for completion of the second and third reviews; one structural performance criterion and three structural benchmarks for the fourth review. - Prior actions cover public procurement legislation, strengthening of NBR statistics, and NBR regulations on net open foreign exchange position of commercial banks. - A structural performance criterion for June 2004 involves submission of a revised 2004 budget to parliament modified in line with the 2004 program. - Benchmarks include monthly reconciliation statements of government accounts, inclusion of consolidated government accounts in the 2005 budget, approval of the export promotion plan, external audit of the 2003 NBR accounts, and NBR enforcement of dates for banks to comply with prudential regulations. - Status of prior conditionality: - Two performance criteria for the second review were met; one of the benchmarks was observed. - Completion of written procedures for consistency between IMF and commercial bank submissions to be completed by end-May, 2004 as a prior action. - AFRITAC East technical assistance scheduled to lead to monthly reporting of district financial operations by end-December 2004. - New organic budget law drafted with Fund assistance slated for parliamentary submission by end-June 2004 (missed end-September 2003 target). - Third review: benchmark for operationalizing internal audit procedures within the NBR observed; revised income tax law slated for submission to parliament by end-June 2004; revised investment code in preparation. ### Governance and Safeguards - Significant efforts toward establishing open and transparent public financial administration; reforms underway to address Auditor General’s report issues, strengthen public procurement procedures, and recruit/train accountants and financial controllers in line ministries. - Cabinet slated to approve a strengthened public tender code by end-May 2004. - Following adoption of pending legislation, the Auditor General’s office will produce annual audit reports of public entities as part of the annual audit starting in 2004. - NBR safeguards: - NBR developed an action plan to strengthen autonomy, external and internal audit mechanisms, legal structure, financial reporting and internal controls following a Fund safeguards assessment in early 2003. - Some key recommendations implemented: regular annual external audit process established with audited financial statements to be published within six months of the financial year. - NBR agreed to limit the 2004 distributable profit to realized gains. - Internal Audit Department being operationalized; Internal Audit Charter approved; audit risk assessment of all NBR operations completed. - Anti-money laundering legislation development and enforcement progressing slowly; initial draft deemed unsatisfactory and NBR requested Fund technical assistance. ### Statistical Issues - Rwanda’s macroeconomic data adequate for program monitoring purposes; participant in the Fund’s General Data Dissemination System since end-October 2003. - Significant weaknesses remain: - Reconciliation of fiscal and monetary data constrained by large number of government accounts. - Current consumer price index outdated. - Quality and timeliness of output data inadequate. - Limited information on monthly and quarterly capital account transactions. - Improvements planned: - Introduction of a single treasury account at the NBR envisaged for 2005. - New consumer price index being tested and to be published in June 2004. - Coverage and quality of balance of payments data being improved with Fund technical assistance. - New independent Statistics Office being established with financial assistance from development partners. ### Program Monitoring - The fourth review will assess performance with respect to the quantitative performance criteria for end-June 2004. - It will also assess performance with respect to the structural performance criteria for end-June 2004 and three structural benchmarks through end-September 2004. - The attached technical memorandum of understanding (Appendix I, Attachment II) details program design, adjustment mechanisms and terminology. ### Staff Appraisal - Increased external assistance inflows in 2004 provide opportunity to accelerate progress on PRSP agenda and Millennium Development Goals; efficient use of resources could establish basis for continued or increased aid commitments. - The more expansionary fiscal stance for 2004, supported by increased external assistance, entails challenges: external debt sustainability, increased relative prices for nontradables, and medium and long-run fiscal sustainability must be addressed. - Program implementation in 2003 was disappointing; 2004 implementation aided by improved political situation, more stable regional environment, new executive administration and legislature, expanded resource envelope, and good rainfall in the second agricultural season. - Success of Rwanda’s poverty reduction strategy hinges on enhancing productivity to promote strong growth in formal sector activity, increasing nondebt financial inflows and domestic saving. - Over the medium-term, strengthening the domestic resource base will benefit from prospective revision of tax and investment laws and tax administration regulations; authorities must ensure integrity of the revenue base. - Budgeted increase in government spending for 2004 balances funding for social programs (including free primary schooling and extended health services) against operations such as road development and export promotion to address supply constraints. - Rephasing part of nonpriority expenditure to second half of 2004 is appropriate to assure effective use of resources; authorities should be prepared to postpone or reduce spending if additional external grant financing is uncertain. - Authorities should prioritize development of strong frameworks (supported by EU, World Bank and other partners) for remaining economic sectors, including agriculture, energy, and exports, and decisive implementation of actions to strengthen financial administration of provincial and local government units amid decentralization. - Limiting liquidity growth given substantial increase in government spending poses an extraordinary challenge; central bank must ensure efficient operation of foreign exchange auction and quick compliance of commercial banks with regulatory framework, including reserve requirements. - The financial sector assessment planned later in 2004 is expected to provide additional recommendations for strengthening Rwanda’s financial sector and the effectiveness of monetary policy. *Source: _cr04270 - 18. The macroeconomic framework for 2004 supports the resumption of real* ### 41. The increased external assistance supporting Rwanda’s efforts to reduce poverty ### 41. The increased external assistance supporting Rwanda’s efforts to reduce poverty ### External assistance, trade balance, and exports - The increased external assistance supporting Rwanda’s efforts to reduce poverty will, in the near term, be accompanied by a deterioration in the trade balance. - Over the medium-term, under Rwanda’s poverty reduction strategy, this deterioration is expected to gradually reverse, as supply side constraints are addressed and export performance improves. - Projected increases in commodity export prices and good weather will contribute to ending the slide in merchandise exports during 2004. - Policy need: the authorities need to begin implementing effectively their export promotion strategy. ### External debt sustainability and financing implications - Serious concerns remain regarding Rwanda’s external debt sustainability. - Given Rwanda’s elevated NPV of debt-to-exports ratio at end-2003, new external borrowing should be strictly limited. - The full implementation of the programs to address Rwanda’s social needs, along with the investment required to sustain high growth rates, will entail elevated fiscal deficits over the medium-term. - Given this, the donor community will need to focus on providing external grant assistance to support the achievement of Rwanda’s poverty reduction and growth objectives. ### Public resource management weaknesses - Although some progress has been made in implementing recommendations by the Auditor General in 2002, the findings of the audits point to significant weaknesses in public resource management. - Specific weaknesses: - Continued weaknesses of line ministries in the documentation of their use of allocations, in part related to dearth of qualified accountants, needs to be promptly addressed. - The government’s plans to address problems in the operation of the public procurement process are of critical importance and should be implemented expeditiously and decisively. ### 2004 program assessment and outlook - Despite the slippages in macroeconomic performance that took place in 2003, Rwanda has set in place a sound institutional and policy foundation for its economy. - The 2004 program builds on this framework. - The targeted reduction in inflation and GDP growth are described as realistic and appropriate. - Looking forward, strong policy implementation will be critical, in order to secure continued donor assistance and promote private sector investment. - Available data, through end-April 2004, indicate that a good start has been made towards these objectives. ### Staff recommendations and waiver requests - Based on the above, the staff recommends that the requested waivers be granted and that the second and third reviews under the PRGF arrangement be completed. - Specific waivers recommended: - Waivers for the nonobservance of the performance criteria at end-June 2003 on: - the domestic fiscal balance, - the net accumulation of domestic arrears, and - new nonconcessional external debt. - Waivers for the nonobservance of the performance criteria at end-December 2003 on: - the domestic fiscal balance, - net accumulation of domestic arrears, - net credit to government by the banking system, - reserve money, - net foreign assets of the National Bank of Rwanda (NBR), and - new nonconcessional external debt. - Waivers for the nonobservance of the structural performance criteria on: - the submission of a revised investment code, - the issuance of financial instructions, and - the incorporation of tax incentives into the structure of the tax law. *IMF staff summary of Section 41–45 (document through end-April 2004).* ### 46. Satisfactory assurances of HIPC assistance were provided by creditors at the ### _cr04270 - 46. Satisfactory assurances of HIPC assistance were provided by creditors at the ### HIPC assurances and IMF program requests - "Satisfactory assurances of HIPC assistance were provided by creditors at the time of the decision point. These assurances remain in place." - Staff recommendation: extension of provision of additional interim HIPC Initiative assistance for the period June 9, 2004 to June 8, 2005. - Government request (Appendix I, Kigali, May 20, 2004): - Waiver requests for missed performance criteria (end-June 2003, end-December 2003) and structural performance criteria as detailed in the letter. - Request for a third disbursement under the PRGF arrangement in an amount equivalent to SDR 1.142 million. - Request for additional interim HIPC Initiative assistance in an amount of SDR 4.482 million for the period June 9, 2004 to June 8, 2005. ### Key macroeconomic indicators (selected rows from Table 1) - Output and prices (annual percentage changes, unless otherwise indicated): - Real GDP growth: 6.77.39.46.13.20.96.06.06.06.0 - GDP deflator: 0.21.90.03.54.98.72.75.04.04.0 - Consumer prices (period average): 3.42.02.03.04.77.43.06.94.04.0 - Consumer prices (end of period): -0.23.06.23.03.07.73.05.04.04.0 - External sector (annual percentage changes, unless otherwise indicated): - Export, f.o.b (in U.S. dollars): 4.2-16.9-28.112.16.6-6.310.68.017.011.6 - Imports, f.o.b (in U.S. dollars): -0.80.5-1.33.28.54.02.816.07.16.2 - Export volume: 36.8-13.8-17.16.51.2-13.24.12.612.310.7 - Import volume: 2.3-0.4-6.32.93.40.63.811.87.55.8 - Terms of trade (deterioration -): -21.5-4.5-17.65.10.44.47.21.44.60.5 - Government finance (percent of GDP, unless otherwise indicated): - Revenue: 25.516.916.914.018.521.410.710.89.99.6 - Total expenditure and net lending: 20.015.511.39.615.123.8-3.730.80.85.2 - Current expenditure: 20.416.615.27.320.731.5-8.39.91.41.9 - Primary fiscal balance 4/: -0.1-0.2-1.60.70.8-0.31.4-2.6-2.6-1.7 - Domestic fiscal balance 5/: -2.7-3.3-4.2-2.8-4.4-5.5-1.1-7.8-5.2-4.0 - Overall balance (payment order) After grants: -1.3-1.1-1.9-0.60.9-2.50.7-2.2-0.7-1.0 - Overall balance (payment order) Before grants: -9.5-9.9-9.1-9.4-11.3-10.5-8.2-14.8-12.5-11.5 - External sector (in percent of GDP, unless otherwise indicated): - External current account balance Including official transfers 6/: -5.9-11.3-6.7-11.5-11.3-8.4-12.3-6.9-8.2-9.4 - External current account balance Excluding official transfers: -15.9-17.0-16.6-15.7-18.7-19.8-17.4-21.4-20.8-20.1 - External debt (end of period) 7/: 78.473.280.966.886.185.182.286.685.778.5 - Net present value of external debt (in percent of exports of goods and services) 8/: 236.2190.3263.0203.5222.2299.9242.1354.5376.4368.6 - Scheduled debt-service ratio after HIPC Initiative debt relief (in percent of exports of goods and services): 9.315.413.89.19.110.310.09.612.710.5 - Gross reserves (in months of imports of goods and services): 6.05.96.36.27.45.06.94.65.25.5 - Memorandum: - Nominal GDP (in billions of Rwanda francs): 754.3825.2825.0906.4893.4905.3971.91,004.91,100.51,201.3 ### Central government operations (selected figures from Table 2) - Revenue and grants (in billions of Rwanda francs; selected snapshots shown in table): - Total revenue series (examples across columns): 86.2 101.2 57.6 59.9 88.4 90.3 119.4 122.3 31.3 67.4 100.2 132.2 135.6 149.0 163.3 - Grants (including HIPC Initiative as shown): 62.0 59.1 43.6 33.3 71.0 44.1 109.1 73.1 29.1 58.3 90.4 86.5 126.9 129.9 127.1 - Of which: HIPC Initiative assistance (quarterly entries): 10.6 12.2 5.1 5.8 9.0 9.3 11.6 11.5 2.8 7.2 10.9 15.8 15.9 19.3 0.0 - Total expenditure and net lending (in billions of Rwanda francs; selected snapshots): 158.1 175.9 112.0 100.6 166.1 160.9 220.5 217.8 58.6 135.6 206.9 212.4 284.7 287.0 302.0 - Current expenditure (selected): 107.4 123.7 75.5 73.4 112.3 118.5 149.3 162.7 39.4 81.8 127.2 136.9 178.8 181.3 184.8 - Wages and salaries (selected): 38.9 40.6 21.0 21.8 31.6 32.8 42.1 44.0 12.0 24.0 36.0 43.8 48.0 51.3 54.5 - Capital expenditure (selected): 50.0 40.7 35.3 26.2 52.1 38.9 69.0 51.1 17.9 37.5 61.9 74.5 87.2 104.7 116.2 - Financing (selected): - Foreign financing (net) series (in billions): 40.9 30.5 9.4 8.0 12.0 9.7 43.7 22.0 4.0 18.8 35.4 18.0 45.0 52.6 39.5 - Domestic financing (selected): 1.7 0.4 5.7 10.0 -1.8 12.0 -29.8 5.2 5.3 4.0 -4.4 -17.4 -2.6 -37.6 -20.9 - Fiscal outcomes (memorandum items, in percent of GDP; selected): - Revenue and grants: 19.6 19.4 11.4 10.3 17.8 14.8 25.6 21.6 6.0 12.5 19.0 22.5 26.1 25.3 24.2 - Total expenditure and net lending: 21.0 21.3 12.5 11.1 18.6 17.8 24.7 24.1 5.8 13.5 20.6 21.9 28.3 26.1 25.1 - Domestic fiscal balance (selected row shows many paired values): -2.7-4.2 -2.7-2.0 -3.6-4.1 -4.4-5.5 -1.0-3.2-5.4-1.1-7.8-5.2-4.0 - Overall deficit (payment order) After grants: -1.3-1.9-1.2-0.8-0.8-2.9-0.9-2.5 0.2 -1.0 -1.6 0.7 -2.2 -0.7 -1.0 ### Monetary survey (selected figures from Table 3) - Reserve money (levels and components; in billions of Rwanda francs): - Reserve money (examples across periods): 40.244.946.545.346.544.150.146.950.450.453.054.055.956.3 - Currency in circulation (examples): 25.828.026.427.129.426.932.129.034.134.134.635.136.937.6 - Commercial bank reserves (examples): 10.713.215.514.512.914.714.914.213.413.415.415.916.015.8 - Broad money (examples): 130.2142.0143.4150.4144.7148.9155.5155.4162.7167.1171.6177.1178.9185.4 - Net foreign assets (monetary survey, examples): 81.092.8103.5100.8100.2105.784.0134.591.8104.2102.599.9104.3104.2 - Net domestic assets and domestic credit (selected annual change entries preserved as in table): - Net domestic assets: 49.349.240.049.944.643.471.520.970.962.969.177.274.681.3 - Domestic credit (examples): 95.190.088.695.796.688.7120.567.5118.6118.6122.6130.7128.1134.7 - Memorandum (selected): - Currency / broad money ratio: 19.819.818.418.720.317.920.619.321.020.420.219.820.620.3 - Reserve money annual growth: 6.611.95.812.612.513.926.07.112.212.214.016.211.511.6 - Nominal GDP (in RF billion) (selection): .....................893.4905.3905.3.........1,004.9 ### External sector, balance of payments and external financing (selected from Tables 4-6) - Balance of payments & current account (Table 4, in millions of U.S. dollars): - Current account balance (including official transfers) series (examples): -100.3-200.4-116.7-216.4-193.4-141.2-117.7-148.2-180.7 - Current account balance (excluding official transfers): -270.5-301.4-287.0-298.8-320.2-333.7-367.3-377.7-387.0 - Trade balance, services, income, and transfers shown in Table 4 (selected rows preserved): - Exports, f.o.b.: 93.577.567.387.071.863.068.079.688.9 - Of which: coffee: 19.422.614.628.916.815.016.725.231.5 - Of which: tea: 22.723.622.024.824.622.524.627.030.4 - Imports, f.o.b.: 237.9256.5234.7264.7253.6244.0283.0303.1321.7 - Trade balance: -144.4-179.0-167.4-177.7-181.8-181.0-214.9-223.4-232.9 - External financing and debt (selected from Tables 5 and 6): - External financing requirements and available financing detailed in Table 5 (selected lines preserved): - External financing requirements (examples): -371.5-302.3-311.6-416.6-426.5-387.7 - Disbursements - Existing (examples): 324.1296.5274.3235.0210.1220.0 - Grants (project and nonproject) (examples): 233.6211.9233.6188.1168.5173.7 - Total external debt outstanding (Table 6, in millions of U.S. dollars; end of period): 1,336.1 1,401.0 1,432.8 1,485.5 1,556.21,510.0 - Multilateral (examples): 1,185.2 1,249.0 1,273.6 1,338.2 1,414.91,373.1 - Of which: IDA: 767.4833.9847.3917.4989.7973.8 - IMF: 84.384.991.987.579.565.1 - Bilateral (examples): 150.4151.5158.6146.8140.7136.3 - HIPC Initiative assistance (Table 6): 23.925.623.327.536.043.3 - Multilateral portion: 23.925.623.027.232.038.8 - Bilateral portion: 0.00.00.30.34.04.5 - Debt service after HIPC Initiative assistance (in millions; selected): 14.718.212.913.220.218.4 - Net present value (NPV) of debt (in US$ million; memorandum): 330.6385.2415.8468.5531.3580.2 - NPV of debt-to-exports ratio 7/ 8/: 236.2263.0299.9354.5376.4368.6 ### Policy stance and government commitments (from Appendix I and MEFP reference) - Government reaffirms commitment to: - Implement strong policies to raise agricultural productivity and export base to achieve external sustainability and poverty reduction in line with Vision 2020 and the PRSP. - Strengthen regional peace and security in the Great Lakes area. - Government undertakes to provide IMF with required information and to continue consultations with the Fund on economic and financial policies. - Attachments referenced: Memorandum of Economic and Financial Policies; Technical Memorandum of Understanding. *Source: Rwandese authorities; and IMF staff estimates, projections and texts contained in _cr04270 (excerpt provided).* ### 1. Macroeconomic performance during 2003, under the second annual PRGF ### 1. Macroeconomic performance during 2003, under the second annual PRGF ### Overview - Macroeconomic performance in 2003 was greatly affected by poor weather and by unprogrammed spending related to assuring a smooth political transition. - Strengthened economic institutions and financial management and oversight, and solid achievements in the implementation of poverty programs (including a substantially higher primary school enrollment rate and a reduced incidence of communicable diseases) set the foundation for rapid progress in 2004 under the poverty reduction and growth strategy. ### Real economy and inflation - Real GDP growth fell below the targeted range in 2003 due to poor rains and a fall in agricultural output. - Inflation rose to 7.7 percent at end-2003, compared with the program target of 3 percent, driven by sharp increases in food prices and rising import prices. ### Fiscal performance and public spending - Domestic revenue collections were equivalent to 13.5 percent of GDP, modestly exceeding the projected level. - Nontax revenue was 0.1 percentage points of GDP above the projected level. - Domestic spending exceeded the program target by 1.2 percent of GDP, largely due to election-related spending and unanticipated goods and service outlays. - Recurrent defense spending was held to 2.7 percent of GDP in 2003, compared with 2.9 percent in 2002 and 3.3 percent in 2001. - Expenditure on the constitutional referendum and presidential and legislative elections amounted to 1.6 percent of GDP, roughly twice the budgeted amount. - Exceptional spending exceeded the (adjusted) indicative program target by 0.5 percent of GDP. - Savings equivalent to 0.1 percent of GDP were realized on domestically financed capital spending. - Outlays for the strategic petroleum reserve were more than halved. - Demobilization program outlays of 0.6 percent of GDP were deferred to 2004. - Foreign-financed development expenditures for 2003 were about 4.2 percent of GDP—2 percentage points below the programmed level (preliminary data). - The domestic fiscal deficit amounted to RF 50 billion (5.5 percent of GDP) in 2003, exceeding the (adjusted) ceiling set as a performance criterion by RF 26.7 billion. - The overall deficit on central government operations was 10.5 percent of GDP before grants, and 2.5 percent of GDP after grants. - Settlement of pre-2003 domestic arrears exceeded the programmed value for end-December 2003 marginally (by 0.1 percentage points of GDP), but the performance criterion on the net reduction of domestic arrears was missed by 1.7 percent of GDP as the stock of bills payable for 2003 increased substantially. ### Monetary policy, liquidity, and reserves - Implementation of monetary policy was complicated by reliance on central bank credit to cover higher-than-programmed election spending beginning July 2003, unprogrammed domestic financing of a hotel project, relaxation of the limit on net foreign exchange positions of commercial banks, and lending by nonbank financial institutions after UBPR recapitalization. - Annual growth rate of broad money (at current exchange rates) rose from 15.8 percent in June 2003 to a peak of 19.0 percent in September 2003; the September reserve money benchmark was missed by 8.2 percent. - The National Bank of Rwanda (NBR) raised the discount rate from 13.5 percent to 14.5 percent in August and withdrew liquidity via open market operations and higher foreign exchange sales. - Interest rates on treasury bills and the central bank intervention rate rose from about 11 percent in mid-September to about 13 percent in mid-November. - Reserve money exceeded the performance criterion set for end-2003 by 9.6 percent. - Net foreign assets of the NBR declined to RF 57.8 billion at end-2003, from RF 72.6 billion at end-2002, falling short of the (adjusted) floor by RF 27.8 billion (evaluated at the program exchange rate of RF 511.9=US$1). - Net credit to government from the banking system increased to RF 17½ billion during 2003, exceeding the (adjusted) program ceiling by RF 32.6 billion. - Banking system credit to the economy grew by 14.8 percent—7 percentage points above the targeted level. - Broad money grew by 12.2 percent (on an annual basis) during 2003—4.2 percentage points above the targeted rate (evaluated at the program exchange rate). - The Rwanda franc/U.S. dollar exchange rate depreciated by 4.8 percent during the first half of 2003 and weakened by 8.2 percent during the second half of the year. - The NBR increased its weekly foreign exchange auction supply from US$1.3 million to US$1.8 million on average. - The NBR reduced its net foreign assets to US$113 million at end-December 2003, a decline of US$30 million relative to end-2002. ### External sector and debt - Merchandise exports fell from US$67 million in 2002 to US$63 million in 2003. - The current account balance weakened by 3.2 percentage points to 19.8 percent of GDP. - External budgetary assistance inflows fell short of the projected value by US$73 million (4.4 percent of GDP). - Additional grant financing projected at US$18 million for election costs and one-off health expenditures amounted to only US$6 million. - In February 2003, a loan agreement was signed with the OPEC Fund and BADEA for an energy sector project; the loan’s grant element was 47 percent and did not meet the PRGF concessionality test (50 percent floor). - Performance criteria on new nonconcessional external debt for end-June and end-December 2003 and the benchmark for end-September 2003 were not observed due to the concessionality shortfall; agreements have been reached to increase the grant element and bring terms within the required threshold (ratification by BADEA’s Board of Directors scheduled for June 9, 2004). - Government guarantees issued in August 2003 for an external US$10 million loan on commercial terms (hotel project) will be repaid in full by end-May, 2004. - No new nonreschedulable external arrears were accumulated in 2003; the performance criterion for external arrears was met. - The second phase of a capacity building program with Debt Relief International started in January 2003; activities included three country missions and a workshop on Rwanda’s longer-term debt sustainability. - Rwanda’s external debt amounted to US$1.4 billion (85 percent of GDP) at end-2003. - Paris Club creditors, in June 2003, decided to extend the consolidation period from June 20, 2003 to June 30, 2004 on the basis of Cologne terms; consolidation to end-June 2005 was requested. - An agreement with the Kuwait Fund was signed on February 5, 2003, rescheduling the stock of debt including arrears. ### Structural reforms and public financial management - Structural performance criteria on a revised investment code, issuance of financial instructions for more effective expenditure management, and incorporation of tax incentives into the income tax structure were not observed due to human capacity constraints; firm dates have been set and actions are being taken to realize missed criteria. - Three prior actions, now being implemented, underscore resolve on the structural agenda. - Progress on privatization and public enterprise reform: - Five-year management contract for Electrogaz agreed in March 2003 and entered into operation in October 2003. - Offer for sale of Rwandatel scheduled to be issued in May 2004. - Government sold 13.4 percent of its shares in Sorwathe to a private investor and a further 10 percent to a farmer’s association. - Two state-owned tea estates were offered for sale at end-August 2003; one bid under review in early-February 2004 and the other accepted. - Privatization of three rice processors, and mining, printing, hotel, and livestock enterprises planned as next steps. - Financial sector reforms: - Framework for supervision of microfinance institutions strengthened; on-site inspections slated to begin in 2004. - Loan recovery improved, access to mortgage finance widened, and interbank information sharing on creditor risk initiated. - Gross nonperforming loans stabilized at 37.4 percent of total loans at end-December 2003. - A World-Bank-sponsored financial sector study was completed in April 2004; restructuring of the Caisse Hypothécaire du Rwanda (CHR) is planned. - Tender for sale of Banque Commerciale du Rwanda (BCR) delayed; bank advertised for sale in June 2003; revised timetable expects the offer for sale by end-July 2004. - Public financial management: - A new constitution adopted at end-May 2003 established a new framework for institutions of public finance; the Auditor General (AG) vested with sole accounting authority, reporting directly to parliament. - The AG’s office audited the 2002 accounts of 41 public entities, including nine ministries, with a report issued to Parliament in March 2004. - A new Organic Budget Law (OBL) was drafted and readied for submission to parliament, planned for June 2004 (submission delayed from September 2003). - Issuance of financial instructions (structural performance criterion) moved from end-January 2004 to end-May 2004 due to OBL delay. - A joint World Bank/United Kingdom FARAP diagnostic mission in February 2003 led to a draft action plan issued in June 2003; the action plan incorporates Fund inputs and covers legal and institutional framework and budget and expenditure management. - A comprehensive review of tax exonerations, exemptions and incentives was completed (structural performance criterion completed by end-June 2003). - Structural benchmarks realized: draft report on implementation of the 2002 development budget (issued July 2003, finalized September 2003); list of overdue obligations for clearance issued September 2003; drafting of a new investment code and tax laws initiated with Fund staff support. - Other structural benchmarks progressed: MOF internal audit department fully in place; development of a monthly reporting mechanism for district governments; closure of government dormant accounts. - National Bank of Rwanda (NBR) structural actions: - NBR issued new instructions on solvency ratios, risk exposure and provisioning at end-December 2003. - Actions taken in response to the April 2003 Fund safeguards mission are detailed elsewhere in the source. - NBR continued consultations on drafting new anti-money laundering legislation; Fund and World Bank staff will provide technical assistance and an enforcement unit will be established at the NBR during 2004. ### Medium-term strategy - The medium-term strategy is guided by the PRSP issued in June 2002; the PRSP progress report of July 2003 highlights advances in human resource development and governance contributions to development objectives. - Priorities include elaborating policy frameworks in nonsocial sectors, improving the supply response of the economy, reducing vulnerability to exogenous shocks, and strengthening external sector performance. - Planned measures include programs to improve access to fertilizers and improved seeds, rural infrastructure development to increase employment and incomes in rural areas, and an export promotion strategy focused on export base diversification through tea privatization, shifting coffee production to the specialty market, and tourism development. - The strategy envisages gradual reduction of macroeconomic imbalances and dependence on external grants and borrowing through phasing out transitional programs, improving domestic resource mobilization, and export promotion, supported by prudent macroeconomic policies. - In the short run, an effort to mobilize more grants from development partners and multi-year donor commitments under a November 2003 policy cooperation agreement is emphasized; donors will move communications on external budgetary assistance forward in the planning cycle and aim towards multi-year commitments with joint progress reviews. *Source: _cr04270 - 1. Macroeconomic performance during 2003, under the second annual PRGF* ### 24. The program for 2004 will provide resources to assure that substantial progress is ### _cr04270 - 24. The program for 2004 will provide resources to assure that substantial progress is ### Overall objectives and social spending priorities - Program objective: assure substantial progress toward poverty reduction objectives and place Rwanda on a trajectory towards achievement of the millennium development goals by 2015. - Social and human-capital measures beginning in 2004: - 10 percent rise in the number of educators. - Fees eliminated for primary education. - Funding for health programs has been substantially increased. - Focus areas: strengthen export performance, advance privatization, improve legislative and regulatory climate for investment, improve economic infrastructure and productivity, and strengthen management, transparency and accountability in the financial sector and in public finances. ### Medium-term macroeconomic objectives (from the PRSP) - Achieve annual real GDP growth of at least 6 percent. - Limit end-period inflation at 5 percent in 2004 and 3 to 4 percent thereafter. - Reconstitute and maintain gross international reserves equivalent to at least 6 months of imports. - Context note: Rwanda’s population growth rate is about 3 percent. ### A. Macroeconomic policies — Fiscal policy - Revenue and tax administration: - Government domestic revenue is projected to steady at 13.5 percent of GDP in 2004. - No major tax policy changes planned for 2004; past reforms take full effect. - Custom duties on a reciprocal basis with other FTA members were eliminated as a result of Rwanda’s entrance into the COMESA free trade area (FTA) on January 1, 2004. - Further action to strengthen revenue administration, including formation of a large taxpayer unit at the Rwanda Revenue Authority, supported by IMF and United Kingdom technical assistance. - Government spending and composition: - Government domestic spending is budgeted to increase to the equivalent of 21.3 percent of GDP in 2004 (up from 14¾ percent envisaged under the initial PRGF arrangement). - Budgeted increases finance: new constitutionally mandated institutions, free basic education, government counterpart contributions for a comprehensive HIV/AIDS treatment program, supplementary pay for health sector workers, human resource development in tertiary education, labor intensive rural works, and export promotion. - 2004 budget reflects 0.5 percentage points of GDP in demobilization outlays carried over from 2003. - Government priority spending is budgeted to rise to 45 percent of domestic expenditure. - Net lending will increase by the equivalent of 1.5 percentage points of GDP to cover guarantees and financing for hotel construction and Electrogaz emergency generating equipment and fuel oil. - Fiscal balances and financing: - Domestic fiscal deficit under the 2004 budget is set to rise to the equivalent of 7.8 percent of GDP. - Budget provides for settlement of 0.9 percent of GDP in unpaid government bills outstanding at end-2003 (net basis). - Outlays equivalent to 0.7 percent of GDP on government domestic arrears accumulated prior to 2002. - Total budgeted government borrowing requirement for domestic operations (net of taxes) amounts to about 10.3 percent of GDP. - Currently identified external budgetary grants equivalent to 8 percent of GDP fall short of fully meeting financing requirements. - Budgetary operations equivalent to 1.4 percent of GDP were rephased from the first to the second half of 2004; these will be authorized only to the extent that additional external grant financing is secured and if monetary policy remains on track. ### A. Macroeconomic policies — Monetary policy - Inflation target: bring inflation down to 5 percent at end-2004. - Money and monetary base: - Broad money targeted to increase by 11 percent (at the program exchange rate) by year-end. - Targets for the expansion of the monetary base set accordingly. - Coordination and market infrastructure: - NBR to coordinate with the Ministry of Finance through the Treasury Committee. - Development of a secondary market for government securities is underway. - NBR will start to publish a new consumer price index for Kigali during the first half of 2004. - Balance-sheet and credit projections: - NBR’s international reserves will fall by US$6 million and gross official reserves will fall to the equivalent of 4.6 months of import cover. - Net credit to government by the banking system is targeted to increase by RF 5.5 billion. - Credit to the economy is programmed to grow by 10.6 percent. - Foreign exchange operations: - Auction operation to be further strengthened; NBR to review the auction system with IMF staff to limit collusion and ensure market-determined exchange rates. ### A. Macroeconomic policies — External sector - External current account (excluding current official transfers): - Deficit expected to rise to 21.4 percent of GDP in 2004, from 19.8 percent in 2003. - Trade projections: - Merchandise exports projected to increase modestly to US$68 million (driven by increased volume of tea and nontraditional exports). - Coffee: modest price gains constrained by poor rains, shortages of inputs, and limited infrastructure; fully washed coffee sales likely relatively flat. - Coltan export volumes projected to continue secular decline in 2004. - Merchandise imports projected to rise by 16 percent (driven by development budget outlays, intermediate goods including fertilizers, and purchase of electricity generating equipment and fuel oil). - Export promotion and diversification: - Export promotion commission (established December 2003) submitted a preliminary short-term action plan for cabinet consideration in February 2004; plan includes working capital facility for the coffee sector, producer and grower-targeted programs, and an export finance facility. - External partners requested to support articulation of policies and institutions for swift implementation. - Strategy for export base diversification continues, facilitated by return to stability in the Great Lakes region and outreach to COMESA markets. - Debt sustainability and HIPC: - Decline in exports in 2003 weakened debt sustainability indicators. - Actions continue to meet remaining floating Completion Point triggers under the HIPC Initiative while maintaining prudent debt management. - New debt contracted only on highly concessional terms and limited to levels consistent with assumptions at Decision Point. - Government reserves the option to rephase execution of its development budget if programmed external grant financing is only partially forthcoming. - Efforts underway to reach bilateral debt rescheduling agreements with Paris Club creditors on Cologne terms and to regularize relations with external creditors; efforts to ensure participation of all creditors in the HIPC Initiative will be strengthened. ### B. Structural policies — Productivity, privatization, and investment climate - Privatization and sales: - Privatization of Rwandatel (telecommunications parastatal) planned. - Finalization of sale of tea factories at Mulindi and Pfunda; preparation for offering seven remaining estates. - Continued efforts to sell a majority share in Prime Holdings (developed two hotel projects in 2003) to private investors. - Sector frameworks and projects: - Comprehensive policy framework for water sector and energy regulation slated for development with World Bank assistance. - Government continuing discussions with private investors on methane gas project at Lake Kivu. - Legal and regulatory reform: - New investment code drafted; to be submitted to parliament by end-September 2004. - New mining code being drafted; to be submitted for parliamentary consideration by end-2004. - Agriculture and rural works: - Labor intensive public works project to initiate operations (land terracing, reforestation, wetlands reclamation, road rehabilitation and extension, construction of district markets). - Ministry of Agriculture reassessing policy framework and reviewing modalities for improving access to agricultural credit and distribution of fertilizer and improved seeds. - Export promotion taskforce: - Taskforce constituted December 2003 will submit a detailed export promotion action plan for cabinet consideration by end-June 2004, including management structure and a specific time-bound agenda. ### B. Structural policies — Legal framework and institutions - Public finance legal reforms and timeline: - New organic budget law pending cabinet review; to be submitted to parliament by end-June 2004. - Critical financial instructions readied and to be issued in tandem with the budget law. - Draft income tax law (prepared with IMF technical assistance), eliminating ad hoc exemptions and exonerations, finalized and presented for cabinet consideration at end-March 2004; submission to parliament targeted by June 30, 2004, accompanied by a new procedures manual. - New procurement code (drafted in 2003) slated for cabinet approval by end-May 2004. - Draft customs law finalized and sent for cabinet consideration at end-June 2004; expected to take effect beginning with the 2005 budget pending parliamentary approval. ### B. Structural policies — Strengthening administration of public finances - Financial accountability and implementation arrangements: - Draft action plan reflecting findings of a financial accountability review and assessment issued in June 2003. - Treasury management team appointed February 2004 to manage plan implementation; EU-sponsored team assessed associated costs in March 2004. - World Bank to conduct a country financial accountability assessment in conjunction with a new poverty reduction strategy credit; Fund and World Bank to jointly update HIPC assessment and action plan. - 2004 operational priorities: - Focus on budgeting, internal accounting, and decentralization. - New chart of government accounts (developed in 2003 and tested early in 2004) to be applied beginning with the 2005 budget. - Computerized fiscal operations reporting system to be extended to cover the provincial level with IMF assistance, and reporting mechanism extended to cover district government operations by end-December 2004; support enhanced monitoring including monthly reporting. - Bank account management and treasury reforms: - Task force to streamline government bank accounts to issue a progress report by end-September 2004. - NBR to close dormant or noncompliant accounts in 2004 following publication of required notifications; progress report by end-December 2004. - Ministry of Finance and Economic Planning to intensify monthly reconciliation of balances on government budgetary operations with movements in financing balances. - IMF staff to provide assistance on treasury reforms, including progressive phase out of nontreasury bank accounts and adoption of a treasury single account system beginning in 2005. - Monthly reconciliation statements, showing unreconciled differences between fiscal and monetary data, to be published on the Ministry’s website on a quarterly basis with no more than a one month lag, beginning in July 2004. - Public asset and fiscal reporting to be included in the 2005 budget: - Inventory of physical assets of central government line ministries, provinces, public enterprises and joint development projects scheduled for completion by end-December 2004 and to be annexed to the 2005 budget. - 2005 budget to include: statement of tax expenditures, statement of assets and liabilities of all levels of government, financial statements of public enterprises, statement of consolidated government equity holdings, consolidated budget of the districts, fiscal risk assessment, and list of all contingent liabilities. - Transparency and audits: - Auditor General’s report on government 2002 operations to be made public at end-June 2004. - Consolidated central government accounts for 2003 transmitted to the Auditor General at end-March 2004; his audit to be submitted to parliament by end-June 2004. - Auditor General to conduct audits of the 2003 operations of every central government ministry in 2004. - Detailed list of pre-2002 domestic obligations scheduled for clearance during 2004 to be issued by end-June 2004. ### B. Structural policies — Revenue administration improvements - Rwanda Revenue Authority (RRA) 2004 reform agenda: - Establishment of a large taxpayer office and an operations policy department. - Appointment of a single commissioner for tax operations. - Improvement of the system of tax identification numbers to enable elimination of separate VAT registration numbers. - Review of late filing penalties for tax returns and update of tax legislation to include penalties for tax fraud. - Continued computerization of tax and customs administration during 2004. ### B. Structural policies — Financial sector reforms - Prudential regulation and supervision: - NBR to increase efforts to reestablish observation of prudential regulations on a regular basis. - NBR to work with commercial banks to agree on action plans with specific steps, deadlines and sanctions to bring banks into compliance with banking regulations by end-December 2004; agreement on plans targeted for end-June 2004. - Central bank to restore the net open foreign exchange position regulation to the text in force one year earlier by May 31, 2004. - NBR supervision plans: full annual audits of four commercial banks and the Rwandan Development Bank in 2004; plan to audit all commercial banks annually beginning in 2005. - Bank transactions and sales: - Sale of Banque Commerciale du Rwanda (BCR) planned to be completed by end-July 2004 (delayed from 2003 for due diligence). - Rehabilitation of CHR to be completed in 2004. - Joint Fund-World Bank financial sector action plan (FSAP) mission scheduled for the fourth quarter of 2004 following completion of the World Bank-sponsored financial sector study. *Source: _cr04270 - 24.* ### 49. Key recommendations of an IMF safeguards assessment for the improvements of the ### Key recommendations of an IMF safeguards assessment for the improvements of the ### Implementation of safeguards-assessment recommendations - Implemented recommendations: - Conduct of external audits of the NBR for 2001 and 2002. - Establishment of a formal policy for the conduct of annual external audits. - Adoption of resolution to publish the audited financial statements within six months of the financial year. - Limitation of 2004 distributable profit to realized gains, net of unrealized losses. ### Recommendations still in process / not yet fully implemented - IMF and external-auditor recommendations still in the process of implementation include: - Establishment of written procedures to ensure that monetary data used for program monitoring follow agreed definitions and are consistent with accounting records. - An audit of program data as of September 30, 2003. - Recruitment of additional accounting and internal audit staff. - Amendments to the central bank law with respect to internal accounting and audit procedures and the legal protection of senior staff in conducting their duties. - Tender for a study on potential improvements in the risk management of NBR. ### Program coordination and monitoring arrangements - Institutional arrangement: - Monitoring and program coordination expected to be strengthened by the recently established treasury committee comprising members from the Ministry of Finance, the Rwanda Revenue Authority, and the NBR, headed by the Secretary General of MOF. - Monitoring framework and timing: - The program for 2004 will be monitored on a continuous basis with quantitative and structural performance criteria, benchmarks, and indicative targets. - Fourth review: will reflect performance on quantitative performance criteria for June 2004 and structural benchmarks and performance criteria through September 2004; to be completed by mid-November 2004. - Fifth review: will reflect performance on quantitative performance criteria for end-December 2004, and structural benchmarks and performance criteria through end-March 2005; to be completed by end-May 2005. - A complete list of quantitative and structural performance criteria, as well as structural benchmarks, is included in Tables 1 and 2. The attached Technical Memorandum of Understanding lays out the details of program design and terminology. ### Selected quantitative performance criteria and indicative targets (Table 1 highlights; units as in source) - Net foreign assets of the NBR (floor on stock) — Program: - Mar.: 73.1 - Jun.: 67.7 - Sep.: 70.3 - Dec.: 101.0 - Mar. (2004): 65.0 - Jun. (2004): 55.4 - Sep. (2004): 64.5 - Dec. (2004): 62.3 - Reserve money (ceiling on stock) — Program: - Mar.: 44.6 - Jun.: 45.3 - Sep.: 44.1 - Dec.: 46.9 - Mar. (2004): 53.0 - Jun. (2004): 54.0 - Sep. (2004): 55.9 - Dec. (2004): 56.3 - Net credit to the government by the banking system (ceiling on stock) — Program: - Mar.: -0.1 - Jun.: 7.7 - Sep.: 0.1 - Dec.: -27.4 - Mar. (2004): 24.4 - Jun. (2004): 25.0 - Sep. (2004): 18.1 - Dec. (2004): 22.8 - Domestic fiscal balance (floor on cumulative flow since Dec. 31) — Program: - Mar.: -9.7 - Jun.: -23.9 - Sep.: -31.8 - Dec.: -39.1 - Mar. (2004): -9.8 - Jun. (2004): -32.6 - Sep. (2004): -54.0 - Dec. (2004): -78.7 - Recurrent priority spending (floor on cumulative flow since Dec. 31) — Program: - Mar.: 12.5 - Jun.: 30.3 - Sep.: 42.6 - Dec.: 56.2 - Mar. (2004): 14.9 - Jun. (2004): 37.5 - Sep. (2004): 62.5 - Dec. (2004): 88.2 - New nonconcessional external debt (ceiling on flow) — Program: - Mar. 2003–Dec. 2004 programed amounts: 0.0 (each listed period), 3.0 (Mar. 2004) - Short-term external debt (ceiling on stock) — Program: - 0.0 for listed periods - Stock of outstanding nonreschedulable external arrears (ceiling on stock) — Program: - 0.0 for listed periods - Net accumulation of domestic arrears (ceiling on cumulative net accumulation since Dec. 31) — Program: - Mar.: -5.9 - Jun.: -8.9 - Sep.: -8.9 - Dec.: -7.9 - Mar. (2004): -11.2 - Jun. (2004): -13.0 - Sep. (2004): -14.7 - Dec. (2004): -17.0 - Broad money (ceiling on stock) — Program: - Mar.: 148.0 - Jun.: 150.4 - Sep.: 148.9 - Dec.: 155.4 - Mar. (2004): 171.6 - Jun. (2004): 177.1 - Sep. (2004): 178.9 - Dec. (2004): 185.4 - Extended Broad money (ceiling on stock) — Program (2004 series): - Mar. (2004): 193.8 - Jun. (2004): 200.0 - Sep. (2004): 202.0 - Dec. (2004): 208.8 - Exceptional spending (floor on cumulative flow since Dec. 31) — Program: - Mar.: 9.8 - Jun.: 17.6 - Sep.: 30.7 - Dec.: 41.8 - Memorandum items (selected): - Demobilization and reintegration expenditure — Expected: Mar. (2003): 4.1; Jun. (2003): 7.7; Sep. (2003): 10.6; Dec. (2003): 13.7; Mar. (2004): 3.5; Jun. (2004): 7.5; Sep. (2004): 9.9; Dec. (2004): 12.6 - General budget support (in US$ million) — Received: Mar. (2003): 31.4; Jun. (2003): 51.9; Sep. (2003): 59.4; Dec. (2003): 100.5; Expected: Mar. (2004): 34.2; Jun. (2004): 57.2; Sep. (2004): 83.3; Dec. (2004): 161.9; Mar. (2005): 35.1; Jun. (2005): 90.1; Sep. (2005): 149.4; Dec. (2005): 201.0 - Of which: budget support grants (expected) — 35.1; 70.1; 109.4; 156.0 (periods as in source) ### Selected structural conditionality and status (Table 2 highlights) - Prior actions and early structural measures (met): - Ratify a revised 2002 budget in parliament reflecting program understandings, including: import tariff bands at 0, 5, 15, and 30 percent; VAT rate increased from 15 percent to 17 percent; reduction in the corporate income tax rate from 40 percent to 35 percent, announced — Timing: 7/1/02 — Status: Prior action PRGF (met). - Bring reserve money to or below indicative ceiling for end-June 2002 — Timing: 6/30/02 — Status: Prior action PRGF (met). - Issue guidelines determining qualification and priority for payment of outstanding government obligations for payment, eliminating discretion — Timing: 7/1/02 — Status: Prior action PRGF (met). - Enact a budget for 2003 including specified excise and TPR reforms — Timing: 1/1/03 — Structural performance criterion (First review) (met). - Finalize restructuring plan for a specified commercial bank — Timing: 9/30/02 — Structural benchmark (First review) (met). - Start publishing statistics of government financial operations, following the GFS format, on a quarterly basis — Timing: 10/31/02 — Structural benchmark (First review) (met). - Conduct full audits of three banks — Timing: 12/31/02 — Structural benchmark (First review) (met). - Ministry of Finance and Economic Planning to establish standard operating procedures for the conduct of annual audits of the NBR — Timing: 5/31/03 — Prior action First review (met). - Complete a comprehensive review of all tax exonerations, exemptions and incentives — Timing: 6/30/03 — Structural performance criterion Second review (met). - Prepare financial instructions in order to promote effective expenditure control — Timing: 7/31/03 — Structural performance criterion Second review (met). - Issue action plan for the closure of dormant accounts and accounts operating outside of controlling regulations — Timing: 9/30/03 — Structural benchmark Second review (met). - Operationalize the NBR’s Internal Audit Department by specified measures (including recruiting two qualified internal audit staff members; auditing program data as of September 30, 2003; preparation of a plan for 2004 audit activities approved by the Governor) — Timing: 12/31/03 — Structural benchmark Third review (met). - Measures not met or in progress (selected): - Incorporate extrabudgetary and off-budget projects into the budget as appropriate — Timing: 12/31/02 — Structural benchmark First review (not met/in progress). - Develop and implement mechanism to ensure all borrowing by district governments is reported monthly to central government — Timing: 12/31/02 — Structural benchmark First review (not met/in progress). - Commission comprehensive financial sector study; tenders to be awarded no later than 7/31/02 — Structural benchmark First review (not met/implemented in November 2002). - Ensure joint action plan to improve legal environment for loan recovery — Timing: 12/31/02 — Structural benchmark First review (not met/implemented in 2003). - Complete report on implementation of the 2002 development budget — Timing: 6/30/03 — Structural benchmark Second review (not met/implemented in September 2003). - Issue tender for sale of Rwanda Commercial Bank (BCR) — Timing: 6/30/03 — Structural benchmark Second review (not met, in progress). - Issue list of overdue obligations scheduled for clearance during 2003 — Timing: 6/30/03 — Structural benchmark Second review (not met/implemented in September 2003). - Establish written procedures to ensure monetary data used for program monitoring are in accordance with the TMU and reconciled to accounting records; external audit firm to complete review of consistency between data reported to the IMF and audited financial statements after audit of NBR’s 2002 financial statements — Timing: 8/31/03 — Structural benchmark Second review (not met/in progress). - Implement a monthly reporting mechanism for the financial operations of all districts — Timing: 9/30/03 — Structural benchmark Second review (not met/in progress). - Submit Organic Budget Law to parliament — Timing: 9/30/03 — Structural benchmark Second review (not met/in progress). - Submit revised investment code to parliament removing discretionary tax incentive authority — Timing: 12/31/03 — Structural performance criterion Third review (not met/in progress). - Issue financial instructions to promote effective expenditure control — Timing: 1/31/04 — Structural performance criterion Third review (not met/in progress). - Incorporation of tax incentives into the structure of the income tax — Timing: 3/31/04 — Structural performance criterion Third review (not met/in progress). - Cabinet approval of a new procurement code — Timing: 5/31/04 — Prior action (newly proposed). - NBR to establish written procedures ensuring data reported to the IMF for program purposes are consistent with the TMU and reconciled with accounting records — Timing: 5/31/04 — Prior action (newly proposed). - NBR regulation on the net open foreign exchange position of commercial banks to be restored to the text in force in June 2003 — Timing: 5/31/04 — Prior action (newly proposed). - External audit firm to complete the audit of the NBR’s 2003 financial statements — Timing: 6/30/04 — Structural benchmark (Fourth review). - Submit revised 2004 budget to Parliament — Timing: 6/30/04 — Structural performance criterion (Fourth review). - Finalization of action plans, including progressive penalties, for bringing commercial banks into full compliance with banking regulations by 12/31/04 — Timing: 6/30/04 — Structural benchmark (Fourth review). - Cabinet approval for export promotion action plan — Timing: 9/30/04 — Structural benchmark (Fourth review). - Monthly reconciliation statements for government financial statements to be published on a quarterly basis, with no more than a one-month lag — Timing: 10/31/04 — Structural benchmark (Fifth review). - Statements including tax expenditure, assets and liabilities, public enterprise finances, government equity holdings; consolidated district government budget; and list of government contingent liabilities to be included in the 2005 budget — Timing: 10/31/04 — Structural benchmark (Fifth review). *Technical Memorandum of Understanding between the Government of Rwanda and the International Monetary Fund — May 20, 2004.* *Source: _cr04270 - 49. Key recommendations of an IMF safeguards assessment for the improvements of the (PDF content supplied).* ### 1. This memorandum outlines the understandings between the Rwandese authorities and ### _cr04270 - 1. This memorandum outlines the understandings between the Rwandese authorities and ### Overview - Memorandum sets out understandings between the Rwandese authorities and the IMF mission on: - Definitions of quantitative and structural performance criteria, quantitative benchmarks and indicators for the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. - Modalities and data reporting requirements for monitoring the program. - Revisions since prior TMU made in: external budgetary support; net foreign assets; net credit to government; domestic fiscal balance; reserve money and broad money; nonconcessional external debt, short term external debt; and data requirements for the monetary sector and electronic data reporting. ### I. TARGET VARIABLES UNDER THE PROGRAM #### A. External Budgetary Support - Definition: - All official external grants and official external loans to the central government (including all expected or received HIPC Initiative-related grants), except external grants and loans related to the development budget. - If program is over financed (negative financing gap), programmed external budgetary support refers only to that level needed to close the financing gap to exactly zero at the time of the agreement. - Reporting requirement: - Data on external budgetary support, separately detailing grant and loan inflows, transmitted to the African Department of the IMF on a monthly basis within three weeks of the end of each month. #### B. Net Foreign Assets of the National Bank of Rwanda (NBR) - Definition: - Net foreign assets of the NBR in Rwanda francs defined consistent with SDDS template: external assets readily available to, or controlled by, the NBR net of external liabilities of the NBR. - Pledged or otherwise encumbered reserve assets (including reserve assets used as collateral or guarantee) are excluded. - Foreign assets and liabilities in U.S. dollars converted to Rwanda francs by using the U.S. dollar/Rwanda franc program exchange rate. - Foreign assets and liabilities in other currencies converted to U.S. dollars using actual end-of-period U.S. dollar/currency exchange rate. - Foreign liabilities include use of IMF resources (CCFF and post-conflict emergency assistance purchases and SAF/ESAF/PRGF disbursements). - Program exchange rate: - The program exchange rate for the 2004 program is set at RF 580.3=US$1. - Target and adjustments: - Program sets a floor on net foreign assets of the NBR (performance criterion or benchmark depending on test date). - In case of higher than programmed inflows of general external budgetary support, excess amounts targeted to be saved as reserves → program floor increased by any positive difference between actual and programmed general budgetary support. - Shortfalls of less than US$20 million of the programmed level of external budgetary support for end-September 2004, and US$25 million of the programmed level for end-December 2004 will not be adjusted. - Program floor on net foreign assets will be adjusted downward by the amount of any incremental shortfall in external budgetary support above US$20 million at end-September 2004, and above US$25 million at end-December, up to a maximum adjustor of US$30 million, evaluated at the program exchange rate. - Reporting requirement: - Data on foreign assets and foreign liabilities of the NBR transmitted to the African Department of the IMF on a weekly basis within seven days of the end of each week. - Data on the NBR’s foreign exchange liabilities to commercial banks (held as required reserves with the NBR) and the exchange rate used for conversion into Rwanda francs shown separately. #### C. Net Credit to Government (NCG) - Definition: - NCG from the banking system = (a) credit to government from the banking system, including credit to central government, provinces and districts, outstanding central government debt instruments; government debt to the NBR incurred as a result of the 1995 devaluation (RF 9 billion) and the overdraft to the prewar government (RF 2 billion), and (b) total government deposits with the banking system, including central government (including the fund for assistance to genocide survivors), provinces and districts, project accounts, counterpart funds, fonds publics affectés, and privatization proceeds with the NBR. - Central government comprises treasury and line ministries. - NCG not affected by credit to or deposits of public enterprises and autonomous public agencies. - Reclassifications: - Reclassification of deposits with the NBR of the 15 newly identified autonomous public agencies affects NCG (see Annex B in source). - Target and adjustments: - Program sets a ceiling on NCG (performance criterion or benchmark). - If higher than programmed inflows of general external budgetary support, excess amounts targeted to be saved as government deposits → ceiling on NCG decreased by positive difference between actual and programmed general budgetary support inflows. - Program ceiling on NCG adjusted upward by the amount of the incremental shortfall in external budgetary support above US$11 million at end-September 2004, and above US$24 million at end-December, up to a maximum adjustor of US$30 million. - NCG adjustor for budgetary support evaluated in Rwanda francs at the program exchange rate. - Reporting requirement: - Data on net credit to central government (showing separately treasury bills and government bonds outstanding, other government debt, and central government deposits) transmitted monthly within three weeks of the end of each month. - Deposits of the government with the NBR and with commercial banks separated from deposits of public enterprises and autonomous public agencies. #### D. Reserve Money - Definition: - Reserve money = currency in circulation, reserves in deposit money banks (excluding NBR borrowing from deposit money banks on the money market but including cash in vault held by commercial banks), deposits of public enterprises (including Caisse Sociale de Rwanda (CSR) and other autonomous public agencies (dépôts des établissements publics assimilés à l’état)), deposits of nonbank financial institutions, and deposits of the private sector (autres sommes dues à la clientèle are included). - Corollary: - Borrowing by the NBR from commercial banks on the money market is included under net domestic assets of the NBR; borrowing by the NBR is netted out from commercial bank borrowing from the NBR. - Money market balances of the NBR excluded from reserve money supply when excluded from use in meeting reserve requirements. - Exclusions for performance criterion/benchmark: - Exclude deposits of the Caisse d’Épargne du Rwanda (C.E.R.) with the NBR, import deposits placed at the NBR (cautions à l’importation), and dormant accounts. - Import deposits excluded up to a maximum amount of FR 150 million. - Maximum amount for deductible C.E.R. deposits is RF 1 billion. - Target and adjustments: - Program sets a ceiling on reserve money (performance criterion or benchmark). - If required reserve ratio of the NBR is lowered, NBR expected to absorb excess liquidity; reserve money target will be adjusted by the absolute change in the ratio times the deposit base of the commercial banks. - Reporting requirement: - Data on reserve money transmitted weekly to the African Department of the IMF within seven days of the end of each week. - Weekly transmission will include a weekly balance sheet of the NBR showing all items listed in reserve money definitions. #### E. Broad Money - Definition: - Broad money = sum of currency in circulation, deposits in commercial banks and nonbank deposits in the NBR. - Extended broad money = broad money plus deposits in credit unions and credit cooperatives (UBPR), and rural and agricultural banks (BRD; other banking institutions). - Target: - No performance criterion or benchmark on broad money or extended broad money; followed closely as indicative targets. - Reporting requirement: - NBR balance sheet transmitted weekly within seven days of end of week. - Balance sheets of commercial banks and other banking institutions (individual and sector aggregate) and monetary survey transmitted monthly within three weeks of end of month. - Monthly transmission includes monthly NBR balance sheet showing items in weekly balance sheet. #### F. Ceiling on Contracting or Guaranteeing New Nonconcessional External Debt (Original Maturity > 1 Year) - Definition: - Applies to contracting or guaranteeing by central government, local governments, or the NBR of new nonconcessional external debt with original maturity > one year, including commitments contracted or guaranteed for which value not received. - Term "debt" per Executive Board decision No. 6230-(79/140) (Aug 3, 1979), as amended by Decision No. 11096-(95/100) (Oct 25, 1995) and Decision No. 12274-(00/85) (Aug 24, 2000). - Excludes debt rescheduling and restructuring. - Includes financial leases and instruments giving rise to external liabilities on nonconcessional terms. - Concessional debt defined as having a grant element of 50 percent or more. - Discount rates for concessionality assessment: - For loans with maturity ≥ 15 years: 10-year average CIRRs published by OECD. - For loans with shorter maturities: 6-month average CIRRs. - Margins to be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years; 1.15 percent for 20–29 years; and 1.25 percent for 30 years or more. - Excludes use of Fund resources. - Special provision: - Loans contracted with BADEA and the OPEC Fund for energy rehabilitation financing, contracted in 2002 and 2003, and supplemental BADEA lending for this project in 2004 intended to improve concessionality, will be evaluated using reference interest rates prevailing in September 2002. - Target: - Program sets a performance criterion on the ceiling on contracting or guaranteeing new nonconcessional external debt (original maturity > 1 year). - Reporting requirement: - Details of all new external debt, including government guarantees, provided monthly within three weeks of end of each month. #### G. Ceiling on Change in Outstanding Stock of External Debt with Original Maturity Up To and Including One Year - Definition: - "Debt" meaning set forth in point No. 9 of the Guidelines on Performance Criteria with respect to Foreign Debt adopted on August 24, 2000. - Excludes normal import-related credits (defined as liabilities from direct extension of credit from supplier to purchaser in normal trading; pre-specified limits and payment times; no issuance of securities; funding by enterprise other than supplier does not benefit from exclusion). - Target: - Continuous performance criterion on the ceiling on change in outstanding stock of external debt owed or guaranteed by central government, local governments, or the NBR with original maturity up to and including one year. - Reporting requirement: - Data on debt and guarantees by central government, local governments, or NBR transmitted with detailed explanations monthly within three weeks of end of each month. #### H. Domestic Fiscal Balance - Definition: - Domestic fiscal balance = domestic revenue (excluding grants and privatization proceeds) minus current expenditure (excluding external interest due) and domestically financed capital expenditure on a payment order basis, minus net lending. - Target and adjustments: - Program sets a ceiling on the domestic fiscal deficit, i.e., a floor on the domestic fiscal balance (performance criterion or benchmark). - Adjustment: any shortfall in expenditure under the World Bank led demobilization and reintegration program used to reduce the deficit target (added to target for domestic fiscal balance). - Deficit ceiling revised downward by the Rwanda franc equivalent of shortfalls in external budgetary grant inflows from programmed level, evaluated at the program exchange rate, up to a maximum of US$11 million at end-September 2004 and up to a maximum of US$25 million end-December 2004. - Deficit ceiling also reduced by amount of privatization revenue (recorded under net lending). - Reporting requirement: - Data on domestic revenue, current expenditure, domestically financed capital expenditure and net lending transmitted with detailed explanations monthly within four weeks of end of each month. #### I. Priority Expenditure (Table 2) - Definition: - Central government priority expenditure = sum of outlays in the recurrent budget and of the community development fund identified as priority spending in line with the PRSP process. - Table 2 in source provides list of budget lines under this definition. - Target: - Program sets a floor on priority expenditure (performance criterion or benchmark). - Reporting requirement: - Data on priority expenditure, at the same level of detail as in Table 2, transmitted monthly within three weeks of end of each month. #### J. Net Accumulation of Domestic Arrears - Definitions: - Net accumulation of arrears for a calendar year = gross accumulation of new domestic arrears within the calendar year (cumulative Jan 1 to Dec 31, measured as difference between payment orders and actual payments) minus gross repayment during the calendar year of any arrears outstanding at 31 December of the preceding year (including repayment of preceding year’s float and repayment of older arrears in accordance with government guidelines). - Target and adjustments: - Program sets a ceiling on net accumulation of domestic arrears, with a negative target representing a floor on net repayment (performance criterion or benchmark). - Ceiling reduced downward by amount that excess of gross accumulated bills payable above RF 1 billion at end-June, RF 1.5 billion end-September 2004, and the excess above RF 2 billion at end-December 2004. - Reporting requirement: - Detailed data on repayment of domestic arrears and remaining previous-year stock of arrears transmitted monthly within three weeks of end of each month. #### K. Stock of Outstanding Nonreschedulable External Arrears Owed by the Central Government or the NBR - Definition: - Nonreschedulable external arrears = sum of arrears owed by the central government or the NBR to multilateral creditors and, if any, nonreschedulable arrears to bilateral official and commercial creditors. - Target: - Continuous performance criterion on the nonaccumulation of nonreschedulable external arrears. - Reporting requirement: - Detailed information on repayment and/or refinancing (including terms of refinancing) of arrears transmitted quarterly within three weeks of end of each quarter. - Fund notified immediately in case of incurrence of any nonreschedulable external arrears. ### II. OTHER DATA REQUIREMENTS FOR PROGRAM MONITORING #### A. Public Finance - Reporting requirement: - Monthly data on external budgetary support with breakdown of loans by creditor and grants by donor and domestic nonbank financing of the budget (including treasury bills and government bonds held by the nonbank public) transmitted monthly within three weeks of end of each month. - Quarterly data on implementation of the development budget with detailed information on sources of financing transmitted quarterly within three weeks of end of each quarter. - Public sector external and domestic scheduled debt service and payments transmitted monthly within three weeks of end of each month. - Rwanda Revenue Authority to transmit any updated census results of small and medium enterprises (including economic characteristics and estimated annual sales). #### B. Monetary Sector - Reporting requirement (monthly within three weeks of end of month): - Individual balance sheets and consolidated balance sheet of deposit money banks. - Individual and consolidated balance sheets of other bank institutions. - Monetary survey (situation monétaire intégrée). - Disaggregated data on “other items net” of the NBR and deposit money banks. - Required reserves and excess reserves of individual commercial banks, showing separately foreign exchange held as required reserves with the NBR. - Development bond and treasury bill holdings of individual commercial banks. - Nontreasury government deposits at individual commercial banks. - Nonperforming loans of individual commercial banks. - Required and actual provisioning of impaired assets for individual banks. - Capital adequacy ratio for individual commercial banks and a weighted average for all commercial banks. - Sanctions issued to banks. - Quarterly reporting: - Data on opening and closing balances, and debits and credits of government treasury (OTR) accounts, and accounts of the demobilization commission, the Rwanda Revenue Authority (RRA), Fund for Genocide Survivors (FARG), the Road Fund, the Electoral Commission and the Gacaca Commission in the central bank and commercial banks communicated quarterly. *Source: _cr04270 - 1. This memorandum outlines the understandings between the Rwandese authorities and the IMF mission (Technical Memorandum of Understanding), extracted from the provided PDF content.* ### 41. Definition: The financial statements and bank deposits of the key public enterprises ### _cr04270 - 41. Definition: The financial statements and bank deposits of the key public enterprises ### Public enterprises: definition and monitoring - Definition: "The financial statements and bank deposits of the key public enterprises (including Rwandatel, Electrogaz, Ocircafé, Ocirthé, and ONP) will be monitored under the program." (Paragraph 41) ### Public enterprises: reporting requirements - Frequency and content: - Semi-annual: "The financial accounts (including profit and loss accounts, balance sheets, and annual reports when published) of key public enterprises (including Rwandatel, Electrogaz, Ocircafé, Ocirthé, and ONP) will be transmitted to the African Department of the Fund within four weeks on a semi-annual basis or as the accounts become available." (Paragraph 42) - Quarterly: "The statement of these enterprises’ bank deposits (bank by bank) will be transmitted to the African Department of the Fund on a quarterly basis within four weeks of the end of each month." (Paragraph 42) - Table summary entries (Table 1): - Public enterprises financial statements: "Semiannual Four weeks" - Public enterprises bank deposits: "Quarterly Four weeks" ### External sector: exchange rates and weekly reporting - Weekly reporting (within seven days of the end of each week): transmission of the following exchange rates: - (i) "intervention exchange rates used in NBR's operations with the commercial banks;" - (ii) "the exchange rates used in interbank transactions among the commercial banks;" - (iii) "the average of (i) and (ii);" - (iv) "the exchange rates for transaction in banknotes at the commercial banks;" - (v) "the same for foreign exchange bureaus;" - (vi) "the parallel (black) market exchange rates." - Calculation method: "All these exchange rates will be calculated on the basis of daily buying and selling rates; the average exchange rates will be calculated on the basis of a simple average of the daily buying and selling rates." - Additional weekly report: "The NBR will report weekly on the difference between the parallel market rate (buying and selling) and the weighted weekly average rates of NBR intervention in the interbank market for purchases and sales, respectively." (Paragraph 43) ### External sector: monthly and quarterly data requirements - Monthly (within four weeks of the end of each month): - "The amount of foreign exchange held by commercial banks with the NBR as required reserves" - "net open foreign exchange position of each commercial bank and foreign exchange bureau, and the calculation method;" - "foreign exchange intervention by the NBR on interbank market;" - "imports, sales, and purchases of foreign exchange banknotes by commercial banks;" - "sales and purchases of foreign exchange banknotes by foreign exchange bureaus." - Exports/imports: "Export and import data, including volumes and prices, will be transmitted on a monthly basis within four weeks of the end of each month;" - Other balance of payments data: "other balance of payments data including the data on services, official and private transfers, capital account transactions, and the repatriation of export receipts will be transmitted on a quarterly basis within four weeks of the end of each quarter." (Paragraph 44) ### Real sector: price indices and GDP revisions - Monthly CPI reporting (within four weeks of the end of each month): - "Monthly disaggregated consumer price indices for Kigali (NBR), urban areas (Ministry of Finance), and rural areas (Ministry of Finance) will be transmitted on a monthly basis within four weeks of the end of each month;" - "Beginning with data for January 2004, disaggregated consumer price for a new national consumer price index will also be communicated on a monthly basis within four weeks of the end of each month." (Paragraph 45) - GDP revisions: "any revisions to gross domestic product by sector estimates will be transmitted within three weeks of the date of revision." (Paragraph 45) ### Electronic data reporting: datasets and frequencies - Where feasible, data to be provided electronically (Excel) and e-mailed to the African Department of the Fund. Key items and delivery timings: - Monthly (within three weeks of the end of the month): - "Monthly balance sheet of the NBR, summary balance sheet of the commercial banks, individual balance sheets of the commercial banks, details of public sector deposits with commercial banks, details of commercial banks’ loan provisioning and capital adequacy, monthly data on foreign exchange operations of commercial banks and the NBR, and net open foreign exchange positions." - Quarterly: - "Quarterly reporting on opening and closing balances as well as debits and credits of OTR accounts of, the demobilization commission, RRA, FARG, the Road Fund, the Electoral Commission and Gacaca Commission in the central bank and commercial banks." - Weekly (within seven days of the end of each week): - "Weekly balance sheet of the NBR" - "Weekly data on NBR interventions on the money market (appel d’offres) both to inject and to absorb liquidity, including the maturity and the due date of the transactions, the amounts offered, demanded, and allocated (by bank, in millions of Rwanda francs), the maximum, minimum, marginal, and average interest rates offered, and the interest payments (by bank, in Rwanda francs)." - "Weekly data on recourse to the discount window (prise en pension), including the period of borrowing, the discount rate, and the amount (by bank, in Rwanda francs)." - "Weekly update of the monthly treasury plan (plan de trésorérie) for foreign exchange reserves at the NBR." - "Weekly data on exchange rates, including foreign exchange auctions by the NBR, the amount of foreign exchange offered, demanded, and allocated (by commercial bank, in U.S. dollars and Rwanda francs), and the minimum, maximum, marginal, and average exchange rate offered." - "Weekly balance of the subaccount for HIPC Initiative assistance from the IMF at the NBR." - Daily (made available within seven days of the reported date): - "Daily balance by commercial bank of amounts outstanding from money market interventions to absorb liquidity (appel d’offres–ponction), to inject liquidity (appel d’offres–injection), under the discount window (prise en pension) and any other credit facility of the NBR, respectively." - Other electronic items: - "(ii) Fiscal “flash” report, including detailed lists of priority and exceptional expenditure. These data will be transmitted within four weeks of the end of the month." - "(iii) Detailed export and import data;" - "(iv) Detailed CPI data." (Paragraph 46) ### Program Monitoring Committee: composition and reporting - Definition: "The Interministerial Technical Committee, composed of senior officials of key ministries and the National Bank of Rwanda shall meet once a month and be responsible for monitoring the performance under the program, informing the IMF staff regularly about progress on program implementation, and transmitting supporting information necessary for program monitoring." (Paragraph 47) - Reporting requirement: - "The names of the Interministerial Technical Committee shall be communicated to the IMF no later than the date of submission of the authorities’ request for support of the three-year PRGF-supported program to the Executive Board of the IMF or the start of a new annual arrangement." - "The Interministerial Technical Committee shall provide to the IMF staff a progress report on the program implementation on a monthly basis within four weeks of the end of each month." (Paragraph 48) ### Reclassification note (monetary survey) - "Reclassification of the deposits of 15 additional autonomous public agencies: In tables presented by the IMF prior to November 5, 2000, deposits of the central government with the NBR included deposits of 15 autonomous agencies. As of November 6, 2000 these deposits will be itemized separately in a category called “public nongovernment deposits,” but will still be included in the domestic credit of the NBR." (Annex B) ### Table 1: Selected reporting frequencies and delays (extracts) - Monetary and foreign exchange items (selected): - "Net foreign assets National Bank of Rwanda (NBR) Weekly Seven days Yes" - "Reserve money Weekly Seven days Yes" - "Net credit to central government Monthly Three weeks Yes" - "Monthly balance sheet of the NBR Monthly Three weeks Yes" - "Summary balance sheet of the commercial banks Monthly Three weeks Yes" - "Individual balance sheets of the commercial banks Monthly Three weeks Yes" - "Details of public sector deposits with individual commercial banks Quarterly Three weeks Yes" - "Net open foreign exchange positions of commercial banks and foreign exchange bureaus Monthly Three weeks Yes" - "Exchange rates Weekly Seven days Yes" - Public enterprises (as in Table 1): - "Public enterprises financial statements Semiannual Four weeks" - "Public enterprises bank deposits Quarterly Four weeks" ### Composition of exceptional expenditure (selected totals) - Table 3: "Total 41,797" (In millions of Rwanda francs; 2003) and itemized components such as: - "Demobilization/Reintegration/Reinsertion 13,711" - "Victims of Genocide Fund (FARG) 5,895" - "Electoral Commission/Referendum/Elections 7,306" - "Educational institutes KIST 1,952; KHI 556; KIE 1,335" - "Special exceptional health expenditure 3,015" - "Special exceptional road works 1,000" (All figures appear in Table 3) ### IMF relations and program context (selected numeric items) - Membership and quota: - "Quota 80.10" - "Fund holdings of currency 80.11" - PRGF and financial arrangements: - "PRGF arrangements 61.84" - Financial arrangements table entries (fields preserved as presented): - "ESAF/PRGF 08/12/2002 06/24/1998 08/11/2005 04/30/2002 4.00 71.40 1.15 61.88" - "SAF 04/24/1991 04/23/1994 30.66 8.76" - "Stand-by 10/31/1979 10/30/1980 5.00 0.00" - Projected obligations to Fund (SDR million; forthcoming by year): - 2004: Principal 3.57; Charges/Interest 0.30; Total 3.87 - 2005: Principal 6.66; Charges/Interest 0.28; Total 6.94 - 2006: Principal 10.47; Charges/Interest 0.24; Total 10.71 - 2007: Principal 12.38; Charges/Interest 0.18; Total 12.56 - 2008: Principal 11.36; Charges/Interest 0.12; Total 11.48 - HIPC Initiative (Enhanced framework): - "Decision point date 12/22/2000" - "Assistance committed (end-1999 NPV terms) 13" - "Total assistance (US$million) 452.00" - "Of which: Fund assistance (US$million) 43.80" - "SDR equivalent in millions 33.81" - "Amount disbursed 9.97" - "Interim assistance 9.97" - Safeguards Assessment: - "A Safeguards Assessment was completed on April 14, 2003, and the proposed recommendations have largely been implemented." (Appendix II, Safeguards Assessments) *Source: _cr04270 - 41. Definition: The financial statements and bank deposits of the key public enterprises* ### 2004. Rwanda has not had an Official Financial Center (OFC) assessment. ### _cr04270 - 2004. Rwanda has not had an Official Financial Center (OFC) assessment. ### Official Financial Center (OFC) assessment - Rwanda has not had an Official Financial Center (OFC) assessment. ### XII. Technical Assistance - 1999: FAD long-term experts, on tax policy, on budget preparation, and on treasury management - 1999: MAE long-term general advisor to governor of NBR - 1999: MAE experts on banking supervision and foreign exchange market operations - 2000: FAD experts on budget execution and on tax policy - 2000: MAE experts on foreign exchange market operations, and banking supervision - 2000: STA mission on money and banking statistics. - 2000: STA mission on balance of payments statistics - 2001: FAD experts on expenditure management and on tax policy - 2001: FAD mission on tax policy - 2001: MAE mission on foreign exchange policy, monetary policy, and banking supervision - 2001: MAE expert on monetary policy implementation - 2001: FAD mission on assessment of tracking of poverty reducing expenditure, and the fiscal ROSC - 2001: MAE expert on banking supervision - 2001: FAD experts on expenditure management, and on tax policy (until mid-year) - 2002: MAE expert on banking supervision (until November) - 2002: MAE expert on monetary policy implementation - 2002: AFRITAC East work plan mission - 2003: AFRITAC East mission on statistical issues - 2003: FAD mission on fiscal ROSC and budget management system - 2003: AFRITAC East mission on developing the market for government treasury bills - 2003: FAD mission on reform of investment incentives and tax reform - 2003: STA multi-sector statistics mission on reform of investment incentives and tax reform - 2003: FAD mission on Decentralization - 2004: FAD tax administration expert on strengthening of revenue administration ### XIII. Resident Representatives - Mr. Abdikarim Farah has been in Kigali as Resident Representative since January 2001. ### Partnership for Rwanda’s Development Strategy (overview) - Donor agencies have been key players since the genocide; international support helped reconstruction, national reconciliation and economic reform. - PRSP timeline and targets: - PRSP completed in June 2002. - PRSP progress report issued in July 2003. - PRSP was discussed by the Boards of the IDA and the IMF on August 12, 2002. - PRSP targeted the halving of poverty by 2015. - PRSP focuses on six priority areas: (1) rural development and agricultural transformation; (2) human development; (3) economic infrastructure; (4) good governance; (5) private sector development; and (6) institutional capacity building. ### World Bank Group Program and Portfolio - Country Assistance Strategy: - Last CAS discussed by World Bank Board in December 2002. - A Poverty Reduction Strategy Credit (PRSC) under preparation; expected to go to the Board in September 2004. - PRSC support objectives: (i) plan and budget results oriented public sector actions; (ii) develop incentive frameworks through performance-based payments and contracting; (iii) establish strong accountability mechanisms for citizen monitoring; (iv) implement a sound fiduciary framework and monitoring and evaluation system for health, education, water, energy sectors. - International Development Agency (IDA) program summary: - Since 1970, Rwanda has received 56 IDA credits and grants totaling US$1,198 million. - Disbursements to date from IDA to Rwanda have totaled about US$907.2 million. - Total undisbursed balance: US$227 million. - Rwanda’s current portfolio as of March 2004: eight operations with total commitment value of US$261.3 million of credits and one grant facility of US$30.5 million for an HIV/AIDS project. - IDA financing areas include infrastructure, agriculture, social infrastructure, private sector development, and two policy-based quick-disbursing operations. - International Finance Corporation (IFC) program: - IFC investments include SORWAL, Highland Flowers (FY98 approval US$0.53 million), RWANDACELL (FY00 approval US$6.0 million), and an apartment hotel in Kigali (December 2000 approval US$0.8 million). - IFC also provided technical assistance on privatization, SMEs, financial and industrial sectors. - Multilateral Investment Guarantee Agency (MIGA) program: - Rwanda signed and ratified the MIGA Convention on October 27, 1989. - On September 27, 2002, Rwanda became a full member of MIGA. - Rwanda is a founding member of the Africa Trade Insurance Agency (ATI), officially launched in July 2001 in Uganda. ### Bank-IMF Collaboration in Specific Areas - Fund leads: - IMF leads policy dialogue on macroeconomic policies, including fiscal and monetary policies. - IMF support through several arrangements under ESAF/PRGF; a new three-year arrangement started in August 2002. - The second and third review of the arrangement would go to the IMF Board in May/June, 2004. - PRGF structural reforms focus on revenue mobilization, public expenditure management, and financial governance. - Bank leads: - Bank leads policy dialogue on structural and institutional reforms: infrastructure, private sector development, agriculture and rural development, social sectors, demobilization and reintegration. - Historical Bank support: first structural adjustment loan approved June 1991; emergency recovery credits of US$50 million each in 1995 and 1997; economic recovery credit (ERC) equivalent to US$75 million approved March 1999 with final tranche end-March 2001; supplement to ERC equivalent of US$15 million approved December 2000 (disbursed March 2001). - Institutional Reform Credit (IRC) of US$85 million approved December 2, 2002; first tranche US$45 million disbursed in December 2002. - Privatization of the Banque Commercial de Rwanda (BCR) is a specific condition for the floating tranche and is expected to be completed by June 2004. - Upcoming PRSC focus: (i) pro-poor public expenditures (education, health, water/sanitation, energy); (ii) improved quality, efficiency and equity of service delivery; (iii) policies to promote sustainable economic growth supporting rural productivity and export agriculture. - Areas of shared responsibility: - Budgeting, public expenditure management and revenue control: - Joint Bank-Fund assessment of Government’s capacity to track poverty expenditures completed in 2001; update planned for May 2004. - IMF technical assistance in financial management, fiscal decentralization, and revenue management. - Bank completed a Financial Accountability Review and Action Plan; Bank support via IDA Public Sector Capacity Building Project (PSCBP) under preparation. - Public Sector Reform and Capacity Building: - DfID leading donor in public service reform; PSCBP will support implementation of Public Sector Reform Strategy. - PSCBP objectives include: (i) attract, manage and retain qualified staff; (ii) improve service delivery quality and efficiency through “contracting for performance” and functional reviews; (iii) use financial resources effectively, transparently and accountably. - Financial Sector: - Bank supported restructuring of banking sector and addressing non-performing loans; supported micro-finance sector review and strategy development. - Upcoming technical assistance to support central bank on money laundering issues. - IMF provided technical assistance in banking supervision, prudential regulation, monetary policy analysis, internal audit, and development of securities markets. - A Financial Sector Assessment Program is planned later in 2004. ### Status of World Bank Group Operations in Rwanda (As of March 31, 2004) - A. Statement of IDA Credits (summary table data) - Closed credits: (47 credits closed) — 794.9 (original credit amount) and 15 (status/footnote marker in source) - Closed credits undisbursed: 0.0 - Active credits (extracted lines with Original Credit Amount and Undisbursed): - 2001 Competitiveness and Enterprise Dev: 40.8 34.9 - 2000 Rural Water Supply and Sanitation: 20.0 19.2 - 2001 Regional Trade Facility: 7.5 6.0 - 2000 Human Resource Development: 35.0 24.4 - 2001 Rural Sector Support Project: 48.0 47.2 - 2002 Demobilization & Reintegration: 25.0 18.6 - 2003 HIV/AIDS: 30.5 30.5 - 2003 Institutional Reform Credit: 85.0 45.0 - Total: active projects: 291.8 225.8 - Total approved amount: 1,228.6 - Of which: repaid 78.5 - Total held by the Bank and IDA 872.9 - B. Statement of IFC Investments in Rwanda - The IFC's pending commitments in Rwanda comprise those in Rwandacell, AEF Dreamland, and AEF Highland, amounting to US$5.326 million. *Source: _cr04270 - 2004. Rwanda has not had an Official Financial Center (OFC) assessment.* ### 1. The economic and financial database of Rwanda is weak, in part due to the ### The economic and financial database of Rwanda is weak, in part due to the destruction caused by the 1994 war ### Overview - Rwanda received considerable technical assistance in rebuilding the country’s statistical database since 1994. - Authorities are fully cooperative in providing data to the Fund. - Rwanda has very few statistical publications; a new annual publication covering main economic and financial data since 1990 was initiated in 1998. - National accounts and price statistics, government finance, and balance of payments statistics suffer from significant quality weaknesses. - Monetary statistics are adequate for surveillance and program monitoring, but quality needs further improvement. - Additional efforts are needed to improve statistics relevant for banking supervision. ### Real sector - The Statistics Directorate of the Ministry of Finance and Economic Planning (MINECOFIN) prepares national accounts data; compilation restarted from 1990 after the 1994 war. - Quality of national accounts data is weak due to shortages of human and material resources. - Considerable effort improved GDP estimates using the production approach, but significant weaknesses in data collection on expenditures and income remain. - Weaknesses cause uncertainties regarding the composition of GDP and complicate assessment of developments in savings and investment. - Reliability of national accounts estimates is further hampered by weak external sector statistics. - In 2003, an East AFRITAC mission visited Kigali to advise on real sector statistics, especially secondary sector statistics. - Monthly CPI data are compiled by MINECOFIN; NBR compiles a CPI for Kigali. - In 1996 MINECOFIN started publishing a CPI for Kigali and urban and rural areas based on a household income-expenditure survey (HIES) conducted between 1982 and 1986. - CPI quality is weak because it does not reflect changes in household consumption patterns since the base period (March–June 1982). - A 1996 technical assistance mission proposed implementing a new HIES; the HIES has recently been completed and work is under way to update CPI basket weights to compile a single price index for Kigali. - The introduction of the new CPI, planned to be available from January 2004, had not taken place by the end of April (2004). - Data on employment and wages are not collected, except for the central government and for daily informal work. - Real sector data are reported regularly for publication in International Finance Statistics (IFS), although with some lags, particularly for GDP estimates. ### Government finance statistics - Authorities transmit to the African Department detailed monthly data on revenue and expenditure, with a lag of three–four weeks. - Data are compiled by a flash-reporting unit established in 1996 within MINECOFIN with Fund assistance. - A functional classification of government expenditure was designed and presented with the 2003 budget. - Within the economic classification, expenditures identified by the PRSP as “priority areas” are clearly identifiable. - Fiscal data do not consistently capture capital expenditure (almost entirely foreign) because capital projects are mainly carried out by line ministries outside regular budget procedures. - Efforts are under way to integrate the development budget into the normal budgetary procedures. - Fiscal data have often shown a discrepancy between the deficit recorded from above the line and that derived from below the line (financing). - Adjustments have been made for changes in the balance of non-core government accounts, changes in cash in vault at the revenue authority, accounting errors, and other factors. - Selected aggregates on annual central government operations through 2002 have been reported to the Statistics Department and published in IFS; these data exhibit large statistical discrepancies mainly due to timing of recording of expenditures and the link with financing data. - No sub-annual data are reported to STA and government finance statistics have been reported for the GFS Yearbook only through 1993. ### Monetary statistics - NBR balance sheet is transmitted to the African Department on a weekly basis with a lag of one week. - Monetary survey and balance sheets of commercial banks are transmitted monthly with a lag of about four weeks. - Detailed data on interbank money market transactions are provided upon request to mission staff. - NBR established a working group to implement recommendations of previous missions. - A money and banking statistics mission visited Kigali in November 2000 and conducted an in-depth review of monetary statistics compilation. - NBR is implementing mission recommendations, and adopted in June 2002 an improved classification of central bank balance sheet accounts, specifically those related to transactions with the government. - Monetary data are reported separately to the Statistics Department on a timely basis and published in IFS. - In early 2004, NBR changed the reporting format for the banking sector balance sheet to the framework provided by the IMF MFS Manual. ### Balance of payments statistics - Foreign trade data are provided to Fund missions by NBR; inconsistencies exist between NBR data and customs records. - Significant unrecorded trade and scarce information on invisible transactions. - Indications of significant under recording of official external transfers; data on level and composition of private flows are poor. - Key challenge: ensure an adequate number of well-trained staff for balance-of-payments compilation (highlighted by a STA mission to Kigali in September 2000). - Trade in goods data are mostly collected by customs with major exceptions: imports and exports of electricity, tea, and coffee. - Customs is expected to take over responsibility for reporting of these goods in the near future. - STA mission recommended implementation of supplementary surveys; NBR launched a unit in charge of these surveys which still lacks adequate training. - Annual balance of payments and quarterly import and export data are reported to STA, albeit with some lags, and are published in IFS. - Rwanda sent methodology notes describing compiling methods for balance of payments statistics included in Part 3 of the 2002 Balance of Payments Statistics Yearbook (BOPSY). - Databases on external public debt are maintained by both MINECOFIN and NBR. - Authorities established a committee composed of staffs of the ministries of Finance and Economic Planning and Foreign Affairs and the NBR to collect, harmonize, and monitor information on external public debt. ### Core statistical indicators (As of April 28, 2004) — selected metadata (no indicator values provided in source text) - Date of latest observation examples in the table: Current 4/16/04; 1/31/04; 1/04; 7/03; 2002; 3/04; 2003; 1/12/02; 12/03; 1/12/03. - Date received examples: Current 4/23/04; 3/29/04; 10/03; 2/03; 4/04; 2/04. - Frequency of data examples: Daily; Weekly; Monthly; Annually; Semi-annually. - Frequency of reporting examples: Weekly; Monthly; Semi-annually. - Sources cited: NBR and MFEP. - Modes of reporting examples: Facsimile/ e-mail; Facsimile/ missions/ e-mail; Mainly during missions. - Confidentiality notes: entries include "No" and "Preliminary data for staff use only; actual data are unrestricted." - Footnotes: International Reserves refer to gross official reserve assets. Overall Government Balance refers to Central Government Balance. External public debt refers to external public debt owed or guaranteed by the central government, local governments or the National Bank of Rwanda; normal import-related credits are excluded. ### PRGF disbursements phasing (2002-05) — selected entries - August 12, 2002: Three-year arrangement approved. - August 16, 2002: First disbursement — 0.574 (In millions of SDRs) — 0.7 (In percent of quota). - June 13, 2003: First review completed. - June 14, 2003: Second disbursement — 0.571 — 0.7. - June-04: Second and third review completed. - June-04: Third and fourth disbursement — 1.142 — 1.4. - November-04: Fourth review completed. - November-04: Fifth disbursement — 0.571 — 0.7. - May-05: Fifth review completed. - May-05: Sixth disbursement — 0.571 — 0.7. - November-05: Sixth review completed. - November-05: Seventh disbursement — 0.571 — 0.7. - Total — 4.000 — 5.0. ### Safeguards assessment—National Bank of Rwanda (NBR) - A safeguards assessment of NBR was completed in April 2003 with full cooperation of NBR; an agreement was reached on measures to remedy identified vulnerabilities. - Vulnerabilities identified: (i) The external audit mechanism needs strengthening to ensure annual external audits and operational Committee of Auditors. (ii) The newly established internal audit department requires additional resources to become operational. (iii) Procedural controls over compilation of program monetary data require strengthening. (iv) Formal investment guidelines for management of foreign reserves need to be established. - Remedies under program conditionality: - NBR developed an action plan to strengthen external and internal audit mechanisms, legal structure and independence, financial reporting and internal controls. - Of seventeen recommendations by the Safeguards Assessment mission, eleven have been implemented. - Implementations include: - A regular and yearly external audit system established, with the 2003 audit expected before end (March 2004). - Foreign exchange reserve management system overhauled, including establishment of investment guidelines and staff training. - Discontinuation of distribution of unrealized foreign exchange gains. - Improved financial reporting with production of consistent monetary data reported to the Fund and in NBR’s financial statements. - Internal audit department operationalized with recruitment of qualified staff and technical assistance from the Fund. - Significant progress in implementing recommendations of the 2002 external audit exercise. ### Millennium Development Goals — selected indicators (years and values from source) - Prevalence of child malnutrition (% of children under 5): 1990 = 29.4; 1995 = 27.3; 2001 = 24.0. - Population below minimum level of dietary energy consumption (%): 1990 = 34.0; 2001 = 40.0. - Net primary enrollment ratio (% of relevant age group): 1990 = 65.9; 2001 = 97.3. - Percentage of cohort reaching grade 5 (%): 1990 = 60.0; 2001 = 39.1. - Youth literacy rate (% ages 15-24): 1990 = 72.7; 1995 = 78.6; 2001 = 84.2; 2002 = 84.9. - Ratio of girls to boys in primary and secondary education (%): 1990 = 97.6; 2001 = 97.1. - Ratio of young literate females to males (% ages 15-24): 1990 = 86.4; 1995 = 91.8; 2001 = 96.3; 2002 = 96.9. - Proportion of seats held by women in national parliament (%): 1990 = 17.0; 1995 = 17.0; 2001 = 26.0; 2002 = 26.0. - Under 5 mortality rate (per 1,000): 1990 = 178.0; 1995 = 210.0; 2001 = 183.0; 2002 = 191.0. - Infant mortality rate (per 1,000 live births): 1990 = 107.0; 1995 = 122.0; 2001 = 96.0; 2002 = 99.0. - Immunization, measles (% of children under 12 months): 1990 = 83.0; 1995 = 84.0; 2001 = 78.0. - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1995 = 2,300.0. - Births attended by skilled health staff (% of total): 1990 = 25.8; 2001 = 30.8. - Prevalence of HIV, female (% ages 15-24): 2001 = 11.2. - Contraceptive prevalence rate (% of women ages 15-49): 1990 = 21.0; 2001 = 13.2. - Number of children orphaned by HIV/AIDS: 2001 = 260,000. - Incidence of tuberculosis (per 100,000 people): 2001 = 404.7. - Tuberculosis cases detected under DOTS (%): 1995 = 32.0; 2001 = 29.0. - Forest area (% of total land area): 1990 = 18.5; 2001 = 12.4. - Nationally protected areas (% of total land area): 1995 = 14.6; 2001 = 14.7; 2002 = 14.7. - Fixed line and mobile telephones (per 1,000 people): 2001 = 10.9. - Source: World Bank. ### Statement by the IMF Staff Representative (June 9, 2004) — Prior Actions and Recent Economic Developments - Prior Actions required by May 31, 2004: (i) Cabinet approval of a new procurement code. (ii) NBR establishment of written procedures ensuring data reported to the Fund for program purposes are consistent with the TMU and reconciled with accounting records. (iii) Restoration by the NBR of the regulation on the net open foreign exchange position of commercial banks to the text in force in June 2003. - All three prior actions were met on time: - A new procurement code was approved by cabinet on May 31, 2004; it strengthens transparency in award of government contracts and widens eligibility for participation in tenders. - Statistical guidelines and verification procedures meeting the prior action on written procedures were issued by the central bank on May 31, 2004 and applied beginning with submission of data for April 2004. - The revised regulation on the net open foreign exchange position of commercial banks, aligning with widely observed international norms, took effect on May 19, 2004. - Recent economic developments (as of June 9, 2004): - Rainfall through April 2004 was close to the long term average; agricultural output for 2004 could support the targeted real GDP growth rate of 6 percent envisaged in the program. - The 12-month rate of inflation peaked at 11.2 percent in February 2004, declining to 10.4 percent in April 2004. - As the value of the Rwanda franc vis-à-vis the US dollar stabilized in 2004 following pronounced depreciation during 2003, the price pass-through of depreciation should moderate in the period ahead. - Government operations through end-April 2004 were consistent with program targets: - Revenue was slightly above projected level, boosted by strong customs collections. - Domestic spending and the domestic fiscal balance remained in line with program targets. - The stock of unpaid government bills (“arrears”) accumulated during 2003 was cleared as of end-May 2004. *Source: IMF staff report content as provided in the supplied document.* ### 5. The end-2003 liquidity overhang was progressively reduced through April 2004 and ### 5. The end-2003 liquidity overhang was progressively reduced through April 2004 and ### Liquidity and monetary developments - Commercial bank reserves were brought substantially in line with requirements. - As of May 21, 2004, the year-on-year growth rate for reserve money had declined to 10.3 percent. - Central bank foreign exchange sales have been limited, in line with the program. - Through end-May, reserve money growth, reflecting the limited extension of net banking system credit to government, was lower and the net foreign assets of the central bank higher than had been targeted. - On the monetary front (2003 developments): net credit to government was higher than program target owing to exceptional government expenditure increases financed by bank borrowing; private sector credit increased, notably due to commercial banks lending to Prime holdings hotel project; reserve and broad money were above program targets. - The NBR has implemented the prior action restoring the regulation on the net open foreign exchange position of commercial banks to the text in force in June 2003; a review of the current auction system is envisaged. ### Banking sector, privatization, and financial supervision - Five interested investors have completed due diligence studies of the Commercial Bank of Rwanda; investor bids were due on June 16, 2004. - The central bank issued a payment order on June 7, 2004, to fully amortize the external government-guaranteed loan for the hotel project. - Progress noted in loan recovery, information sharing on credit risk, on-site banking supervision, and creation within the Central Bank of a micro Finance Sector Supervision Department. - The plan for restructuring Caisse Hypothécaire du Rwanda is underway; substantial progress towards the sale of Banque Commerciale du Rwanda has been made. - Some banks failed to comply with prudential norms in the second half of 2003 (minimum reserve requirements and foreign exchange open position); capacity constraints limited effectiveness of bank supervision. - The commercial banking statistics reported to the Fund correspond to data collected by the central bank as part of its regular supervision activities. ### Fiscal issues and corrective measures - The 2004 program includes a substantial reduction in net credit to government from the banking system and a fiscal program that incorporates a specific contingency mechanism. - Domestic arrears accumulated during 2003 were cleared by end-May 2004. - Financing terms for the energy rehabilitation project were modified to comply with the floor on concessionality set under the program. - Legislation on the new budget law, financial instructions, and new tax legislation have been readied for submission to parliament. - Fiscal consolidation aims to progress towards the achievement of the millennium development goals. - Value added and customs tax rates were revised during 2002-03; revenue enhancement will result from implementation of revised tax and customs laws and improvement in tax administration, with technical assistance from the Fund and other partners. - Wage bill: 4.8 percent of GDP. - Composition of expenditure: defense spending on wages and goods and services decreased to 2.7 percent of GDP in 2003, from 2.9 percent in 2002. - Contingency measures to deal with possible shortfall in aid inflows consist mainly of delaying funding increases for districts and introduction of new programs in nonessential areas. ### Growth prospects and medium-term program - For 2004, projected GDP growth largely reflects expected recovery of agricultural production from a drought-induced decline in 2003. - Staff projection for 2004: real GDP growth is expected to accelerate to 6 percent; monetary policy will aim at limiting inflation to 5 percent by year’s end. - Authorities’ medium-term targets: real GDP growth of at least 6 percent; contain inflation at 5 percent in 2004 and 3 or 4 percent thereafter; reconstitute gross international reserves to at least six moths of imports. - Rwandan authorities’ medium-term macroeconomic targets: achieve a real GDP growth of at least 6 percent; contain inflation at 5 percent in 2004 and 3 or 4 percent thereafter; reconstitute gross international reserves to at least six moths of imports. - Authorities’ fiscal priorities for 2004: consolidate revenue gains; fully implement reforms in direct tax and Rwanda Revenue Authority (including large taxpayer unit); core outlays to remain within program targets while increasing slightly for constitutionally mandated institutions, free basic education, HIV/AIDS programs, human resources development, tertiary education, labor-intensive works and export promotion. - In the event of revenue shortfall, the government stands ready to cut non-priority expenditure. ### Exports and external sector - Export projections used WEO prices; year-to-year supply shocks resulted in pronounced variability in international market prices for coffee and tea. - For 2004, projected volume increase for coffee: 2 percent. - Tea export data for January-March 2004 are in line with projected volumes. - Structural benchmark: cabinet approval of the export promotion action plan was established for end-September 2004. - Mineral exports: Rwanda exported 732 tons of coltan during 2003, with a value of US$6.4 million; production is projected to decline by another 30 percent in volume terms during 2004. - The decline in exports contributed to Rwanda’s net present value of debt ratio standing at around 300 percent at end 2003 against 190 based on the decision point projection. - Performance criterion for non-accumulation of external arrears in 2003 was met; external borrowings have been kept in line with the level projected in the HIPC decision point document. ### Structural conditionality and capacity constraints - Structural conditionality targeted creation of a comprehensive and coherent framework (procurement, budget law, financial instructions, tax and customs laws). - Achievements: new procurement code approved; budget law, financial instructions, and tax and customs laws finalized and readied for submission to parliament. - Given advanced stage of reforms, new performance criteria were not seen as necessary by staff; staff will continue to monitor implementation of unobserved structural performance criteria. - Implementation of structural conditionality depended on coordinated scheduling of technical assistance; delays occurred due to limited human resources. ### IMF Executive Board actions, PRGF reviews, and HIPC assistance - The IMF completed the second and third reviews of Rwanda's PRGF arrangement. - Rwanda eligible to draw SDR 1.14 million (about US$1.68 million), bringing total disbursed under the arrangement to SDR 2.29 million (about US$3.38 million). - The Board approved additional interim assistance under the enhanced HIPC Initiative of SDR 4.482 million (about US$6.6 million) through June 8, 2005. - The Board granted waivers for the nonobservance of quantitative performance criteria for end-June 2003 and end-December 2003, and structural performance criteria for end-December 2003, end-January 2004 and end-March 2004. - Rwanda's PRGF arrangement was approved on August 12, 2002, for SDR 4 million (about US$6 million). - PRGF loan terms: annual interest rate of 0.5 percent; repayable over 10 years with a 5 ½-year grace period on principal. ### Key quoted policy statements (selected) - Agustín Carstens (Deputy Managing Director and Acting Chair) summarized Board discussion priorities: growth to 6 percent in 2004; inflation target 5 percent by year-end; fiscal consolidation and prioritization of social spending including free primary schooling and extended health services; limit new external borrowing and promote higher domestic savings; privatization of state enterprises (telecommunications, tea, banking, and hotel sectors); export promotion; strengthen financial sector supervision; tackle capacity constraints and secure lasting peace in the Great Lakes area. _Statement and press release material from IMF staff and Rwandan authorities, June 2004._ ### 2004. In the same vein, full annual audits of four banks are to be carried out in 2004 and as ### _cr04270 - 2004. In the same vein, full annual audits of four banks are to be carried out in 2004 and as ### Financial sector audits and reforms - Full annual audits of four banks are to be carried out in 2004 and as from 2005; the audit of all commercial banks will be conducted on an annual basis. - Authorities will continue to execute pending structural reforms in the financial sector including: - Restructuring of Caisse Hypothécaire du Rwanda. - Privatization of BCR. - Authorities anticipate a forthcoming FSAP mission jointly conducted by the Bretton Woods institutions to provide a comprehensive program for the reform and development of the financial sector. ### Structural reforms (broader economic governance and productivity) - Main objectives for structural reforms: improve economic productivity, governance, efficiency and external sustainability. - These objectives will be intensified in 2004 to reflect priorities outlined in the PRSP. - Privatization plans to be completed in 2004 include the telecommunication enterprise and some tea factories. - Legal framework strengthening to develop a conducive environment for private investment: - A new investment code and a new mining code are slated for consideration by the Parliament before year-end. ### External sector and export promotion - An export promotion task force was put in place in December 2003. - A detailed export promotion action will be submitted before end-June for consideration by the authorities. ### Public finances and institutional reform - Achievements from the past 2 years in establishing modern, efficient and transparent laws and institutions will be extended in 2004. - Legislation and codes in process to be submitted to the Parliament for consideration include: - The new organic budget law. - A draft tax law. - A new procurement code. - A draft customs law. - An inventory of the physical assets belonging to the public sector and joint development projects will be completed before end-2004 and annexed to the 2005 budget. - These actions and new regulations are presented as reinforcing the legal framework governing the management of public finances. ### Poverty reduction strategy and implementation - Authorities are strongly determined to pursue the fight against poverty through a strategy that includes the private sector and rural-led growth. - The PRSP, fully endorsed by all stakeholders, identified six priority areas to focus projects and programs for poverty reduction. - The first progress report covering the period August 2002-June 2003 highlighted commendable achievements in health and education sectors as well as governance and infrastructure development. - Authorities note that attainment of poverty reduction objectives requires sectoral strategies and programs in other sectors to be similarly articulated and implemented. - The cluster framework developed with the help of the World Bank and other donors will continue to be used as a coordination mechanism for articulating strategies for the remaining sectors. ### Conclusion, requests, and external assistance - Under the Fund-supported programs, Rwanda has implemented sound macroeconomic policies and achieved remarkable economic and financial performances. - Remaining challenges include boosting economic growth, stimulating economic diversification, and reducing poverty. - Authorities are determined to capitalize on past progress and persevere in reforms and adjustment endeavors to reach the completion point under the Enhanced HIPC initiative. - Authorities express hope to rely on additional international assistance to support adjustment efforts and renew appreciation to the international community and the Fund for their solidarity during the commemoration of the 10th anniversary of the genocide in Rwanda. - Formal requests made to the Fund include: - Board approval for waivers of the performance criteria missed. - Completion of the second and third review under the PRGF. - Provision of additional assistance under the Enhanced HIPC initiative. *Source: _cr04270 - 2004. In the same vein, full annual audits of four banks are to be carried out in 2004 and as* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04270.pdf_