## _cr05171 - Executive Summary

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### Overview and recent developments
- Ten years after the genocide Rwanda has: recovered output (driven mainly by agriculture), largely achieved macroeconomic stability, and continued nation building (new constitution in May 2003; presidential and legislative elections in 2003).
- Main medium-term challenge: achieve sustained high growth while maintaining debt sustainability to make significant progress on the Millennium Development Goals (MDGs).
- Short- to medium-term policy priorities:
  - Increase growth through productivity-enhancing strategies.
  - Manage donor inflows while strengthening capacity to cope with exogenous shocks.
  - Reorient fiscal spending toward poverty reduction and investment, strengthen revenue, and rely primarily on external grants for financing.
- 2004 performance:
  - GDP growth rose to 4 percent, driven by strong activity in construction, transport, and communication, despite major electricity shortages.
  - Underlying inflation remained low, but rising food and energy prices pushed annual inflation to 10 percent at end-2004 (detailed figure: 10.2 percent at end-December 2004).
  - All performance criteria for the fourth review were met, except for two quantitative and one structural criterion; deviations were minor and temporary, and staff recommends waivers.
- Regional tensions: increased tensions with the Democratic Republic of Congo in late 2004, later eased by a joint verification mechanism and planned regional summit.

### Program for 2005 — objectives and macro framework
- Overall aim: preserve macroeconomic stability while laying foundations for strong growth; focus on private sector development and productivity-enhancing strategies.
- Program macro assumptions and targets:
  - Growth rate of 4 percent for 2005.
  - Reduction in inflation to 6 percent by end-2005 (including an impulse of about 2 percent from increased electricity tariffs).
- Fiscal stance:
  - Baseline domestic fiscal deficit (excluding demobilization) of 4½ percent of GDP.
  - Deficit could widen by up to about 2 percent of GDP if budgetary financing (mostly grants) materializes as programmed and the monetary program remains on track.
  - Priority spending could increase by up to 1⅔ percent of GDP subject to obtaining budget support in line with program projections and the monetary program being on track.
- Structural agenda and Fund conditionality:
  - Public expenditure management.
  - Tax administration.
  - Export promotion.
  - Financial sector reform.

### Recent policy implementation and sectoral developments
- Fiscal policy and revenues:
  - Revenue-to-GDP ratio rose to almost 14 percent of GDP in 2004 due to one-off nontax revenue and tax administration efficiency gains.
  - Domestic fiscal deficit (excluding demobilization) in 2004 was 5½ percent of GDP.
  - Priority spending fell short at end-June 2004 due to delays in donor disbursements; shortfall later made up as disbursements resumed.
- Monetary policy and financial conditions:
  - End-quarter targets on reserve money were met through 2004; reserve money exceeded targets within quarters due to a seasonal increase in currency in circulation (coffee payments mid-2004).
  - Authorities issued a large amount of treasury bills to the nonbank sector to meet reserve money targets, keeping interest rates high.
- External sector:
  - Current account deficit narrowed relative to program due to rebound in exports and slowdown in intermediate and capital goods imports, despite higher oil imports.
  - Donor assistance was higher than programmed (World Bank PRSC disbursement in December), temporarily increasing gross official reserves to 5.8 months of imports (program projected 4.6 months).
  - Estimated real exchange rate appreciation of about 8 percent for end-2004.
- Electricity crisis (summary of causes and fiscal response):
  - Causes: growing demand, higher international oil prices, lack of investment, depleted hydro dam water levels.
  - Rehabilitation financed from budgetary resources (1½ percent of GDP), World Bank emergency energy loan (1½ percent of GDP), African Development Bank and BADEA project financing (1 percent of GDP).
  - Government purchased diesel generators (late 2004 and 2005) as short-term relief; medium-term plans include rehabilitating Electrogaz infrastructure, expanding rural grid, constructing micro-dams, and exploring methane gas in Lake Kivu.
  - Fiscal costs of addressing electricity crisis likely up to 2½ percent of GDP spent through 2008.
  - Electricity tariffs were doubled on January 1, 2005 to limit fiscal costs; cross-subsidization to be worked out with the World Bank.

### Structural reforms and institutional strengthening
- Financial sector reforms:
  - Majority shares of two commercial banks sold to foreign investors in December 2004 to reduce government involvement.
  - NBR agreed action plans in June 2004 with five commercial banks to achieve compliance with prudential regulations by end-2004; similar agreement with the sixth bank in December 2004.
  - External auditor completed audit of NBR’s 2003 financial statements in August 2004, concluding the statements provide a true and fair view.
- Public expenditure management and revenue administration:
  - Organic budget law submitted to parliament in August 2004; supporting financial regulations finalized.
  - Cash management unit and treasury committee created; dormant bank accounts closed.
  - Creation of a large taxpayer unit in 2004; new investment code, income tax, and customs laws before parliament.
- Export promotion:
  - Cabinet endorsed an export promotion strategy with short-term measures for coffee and tea and an inter-ministerial monitoring structure to improve access to inputs and international marketing.

### Fiscal program design and composition (selected exact figures)
- Baseline fiscal and contingent figures (percent of GDP, 2005):
  - Revenue: Excluding Contingency 13.9; Including Contingency 14.0; Contingency column 14.0
  - Domestic expenditure: Excluding Contingency 19.2; Including Contingency 18.6; Contingency column 20.4
    - Priority spending (including electricity) 1/: Excluding 8.5; Including 9.4; Contingency 10.3
    - Other spending 2/: Excluding 10.7; Including 9.2; Contingency 10.1
  - Domestic fiscal deficit: Excluding Contingency -5.2; Including Contingency -4.5; Contingency -6.3
  - Memorandum item: Priority spending (excluding electricity): 7.5; 8.8; 9.7
- Quality and composition of spending:
  - Priority spending increases:
    - Would increase by 1⅔ percent of GDP if the contingency is spent (and by 0.9 percent of GDP otherwise).
    - Contingency priority spending of about one percent of GDP will augment allocations for agriculture, export promotion, rural roads, and water.
    - Social spending in health and education will increase by 0.3 percent of GDP.
  - Nonpriority spending reductions:
    - Expected to fall by at least ½ percent of GDP if contingency is spent (and by 1½ percent of GDP if not).
    - Program accommodates new one-off items of about one percent of GDP mostly related to peace-keeping efforts in Darfur and a temporary fuel subsidy to Electrogaz.
  - Specific projects and fiscal limits:
    - Lake Kivu gas project: authorities committed to limit total fiscal costs to 2½ percent of GDP (0.4 percent of GDP of which will be in 2005).
    - Program accommodates repayment of mostly genocide-related arrears of almost one percent of GDP.
    - Program accommodates loan payments of ¼ percent of GDP linked to the 2003 hotel projects.

### Monetary policy, reserves, and external sector projections
- Monetary stance:
  - Monetary program aims at lowering inflation while allowing expansion in private sector credit.
  - Reserve money growth target: limit year-end reserve money growth to 12 percent.
  - Broad money and extended broad money projected to grow by 5½ percent and create room for credit expansion to the private sector by 12 percent.
  - Interest rates: should not be lowered before a clear downward trend in inflation is established.
- External sector:
  - External current account deficit (excluding grants) projected to widen to 22 percent of GDP in 2005; expected to remain high over the medium term.
    - Drivers: strong increase in imports of diesel fuel and equipment for electricity sector rehabilitation and other priority projects.
  - Financing the 2005 higher current account deficit: mostly from a drawdown of central bank reserves of about 2½ percent of GDP, accumulated from disbursements received at end-2004.
  - Gross official reserves target: at least US$264 million by end-2005; program envisages reserves could decline to just over four months of imports depending on contingent spending release.

### Program performance, conditionality, and monitoring
- Fourth review performance:
  - All performance criteria for the fourth review were met, except for two quantitative and one structural criterion.
  - End-June 2004 quantitative performance criterion on priority expenditures was missed by 0.2 percent of GDP.
  - Continuous performance criterion on external arrears was not observed; Managing Director’s memorandum addresses waiver.
  - Structural performance criterion on submission of a revised 2004 budget was missed but implemented with a delay of one month (submitted end-July 2004); staff recommends waivers.
- Structural conditionality focus areas:
  - Tax administration.
  - Public expenditure management.
  - Governance related to the 2003 hotel project.
  - Export promotion.
  - Financial sector reform.
- Reporting and TMU adjustments:
  - TMU changes: include treasury bill holdings of nonbanks in net credit to government; extend definition of priority spending to include electricity; introduce adjuster on contingent spending for key monetary and fiscal program variables.
  - Interministerial Technical Committee to meet monthly and provide progress reports to IMF staff.

### Risks, capacity, and statistical issues
- Key risks:
  - Managing donor inflows to preserve tradable sector competitiveness and avoid real appreciation pressures.
  - Capacity constraints that reduce ability to cope with shocks and weaken program implementation.
  - High external debt burden even after debt relief; need to limit new debt and rely on grants where possible.
  - Regional instability in the Great Lakes region that could affect donor assistance and fiscal balances.
- Statistical issues:
  - Weaknesses in national accounts and price statistics; staff urges review of agricultural statistics.
  - Authorities plan to make operational a new statistical institute by end-2005 to improve compilation and dissemination.

### Staff appraisal: key messages and recommendations
- Macroeconomic achievements and recent shocks:
  - Rwanda has made great strides since the genocide; macroeconomic stability largely achieved with inflation averaging in the single digits for the last seven years and international reserves at comfortable levels.
  - 2004 policies strengthened; output growth was somewhat lower and inflation higher due to exogenous shocks (particularly energy). Exports rebounded and current account narrowed.
- Staff recommendations (selected):
  - Grant requested waivers for temporary nonobservances (priority spending and delayed revised budget) and complete the fourth review under the PRGF arrangement.
  - Implement the Organic Budget Law and associated financial regulation without delay.
  - Continue to mobilize domestic revenue, identify new tax measures, and reduce tax exemptions.
  - Reallocate fiscal resources over time to support agriculture, exports, transport, and energy reforms; limit the cost of the Lake Kivu project and implement it with World Bank support.
  - Reduce nonessential spending and avoid directed lending; welcome external audit of Prime Holdings.
  - Manage domestic demand impact of large external flows without rekindling inflation: NBR should ensure reserve money targets are met by stepping up foreign exchange sales if government spending threatens reserve money growth; allow greater exchange rate flexibility, including accepting a nominal appreciation of the Rwandan franc.
  - Accelerate and forcefully implement the export promotion strategy and address structural bottlenecks to trade and growth.
  - Develop an action plan for further financial sector reforms based on FSAP recommendations and address weaknesses of noncompliant commercial banks.

### Key projections and selected indicators (exact figures preserved)
- Real GDP growth (2002–2007): 9.4, 0.9, 6.0, 4.0, 6.0, 4.0, 4.3, 4.5
- Export, f.o.b (annual percent changes shown): -28.1, -6.3, 8.0, 54.3, 17.0, -8.3, 7.1, 7.1
- Imports, f.o.b (annual percent changes shown): -1.3, 4.0, 16.0, 12.4, 7.1, 28.2, 5.7, 4.4
- Consumer prices (period average): 2.0, 7.4, 6.9, 12.0, 4.0, 7.0, 4.0, 4.0
- External current account balance (including official transfers, percent of GDP): -6.7, -7.8, -6.9, -3.0, -8.2, -9.0, -7.0, -7.2
- External current account balance (excluding official transfers, percent of GDP): -16.6, -19.2, -21.4, -18.1, -20.8, -21.9, -20.4, -19.4
- Total revenue (excluding grants; percent of GDP): 12.2, 13.5, 13.5, 13.9, 13.5, 14.0, 14.1, 14.3
- Total expenditure and net lending (percent of GDP): 21.2, 23.9, 28.3, 26.1, 26.1, 26.7, 27.7, 27.3
- Domestic fiscal balance (percent of GDP): -4.2, -5.5, -7.8, -5.5, -5.2, -5.3, -6.4, -5.9
- Gross official reserves (in months of imports of goods and services): 6.3, 5.0, 4.6, 5.8, 5.2, 4.8, 4.8, 4.8
- External debt (end of period, in millions of U.S. dollars): 1,476.8 (2002); 1,572.4 (2003); 1,485.5 (2004); 1,711.2 (2005); 1,556.2 (2006); 1,515.9 (2007)
- NPV of external debt (in percent of exports of goods and services): 270.3, 319.9, 354.5, 337.1, 376.4, 323.9, 315.2, 323.8

*Source: Executive Summary (pages indicated) of _cr05171 - Executive Summary*

### Executive Summary ......................................................................................................

### _cr05171 - Executive Summary

### Overview and recent developments
- In the ten years after the genocide, Rwanda has: recovered output (driven mainly by agriculture), largely achieved macroeconomic stability, and continued nation building (new constitution in May 2003; presidential and legislative elections in 2003).
- Main medium-term challenge: achieve sustained high growth while maintaining debt sustainability to make significant progress on the Millennium Development Goals (MDGs).
- Short- to medium-term policy priorities:
  - Increase growth through productivity-enhancing strategies.
  - Manage donor inflows while strengthening capacity to cope with exogenous shocks.
  - Reorient fiscal spending toward poverty reduction and investment, strengthen revenue, and rely primarily on external grants for financing.
- 2004 performance:
  - GDP growth rose to 4 percent, driven by strong activity in construction, transport, and communication, despite major electricity shortages.
  - Underlying inflation remained low, but rising food and energy prices pushed annual inflation to 10 percent at end-2004.
  - All performance criteria for the fourth review were met, except for two quantitative and one structural criterion; deviations were minor and temporary, and staff recommends waivers.
- Regional tensions: increased tensions with the Democratic Republic of Congo in late 2004, later eased by a joint verification mechanism and planned regional summit.

### Program for 2005 — objectives and macro framework
- Overall aim: preserve macroeconomic stability while laying foundations for strong growth; focus on private sector development and productivity-enhancing strategies.
- Program macro assumptions and targets:
  - Growth rate of 4 percent for 2005.
  - Reduction in inflation to 6 percent by end-2005.
- Fiscal stance:
  - Baseline targets a domestic fiscal deficit (excluding demobilization) of 4½ percent of GDP (lower than the 2004 outcome by almost one percentage point of GDP).
  - The deficit could widen by up to about 2 percent of GDP if budgetary financing (mostly grants) materializes as programmed and the monetary program remains on track.
  - Priority spending could increase by up to 1⅔ percent of GDP subject to obtaining budget support in line with program projections and the monetary program being on track.
- Structural agenda and Fund conditionality:
  - Public expenditure management.
  - Tax administration.
  - Export promotion.
  - Financial sector reform.

### Recent policy implementation and sectoral developments
- Fiscal policy and revenues:
  - Revenue-to-GDP ratio rose to almost 14 percent of GDP (½ percent of GDP higher than programmed) in 2004 due to one-off nontax revenue and tax administration efficiency gains.
  - Domestic fiscal deficit (excluding demobilization) in 2004 was 5½ percent of GDP, substantially lower than expected.
  - Priority spending fell short at end-June 2004 due to delays in donor disbursements; shortfall later made up as disbursements resumed.
- Monetary policy and financial conditions:
  - End-quarter targets on reserve money were met through 2004; reserve money exceeded targets within quarters due to a seasonal increase in currency in circulation (coffee payments mid-2004).
  - To meet reserve money targets, authorities issued a large amount of treasury bills to the nonbank sector, keeping interest rates high.
- External sector:
  - Current account deficit narrowed relative to program due to rebound in exports and slowdown in intermediate and capital goods imports, despite higher oil imports.
  - Donor assistance was higher than programmed (World Bank PRSC disbursement in December), temporarily increasing gross official reserves to 5.8 months of imports (program projected 4.6 months).
  - Estimated real exchange rate appreciation of about 8 percent for end-2004.
- Electricity crisis (Box 1 highlights):
  - Causes: growing demand, higher international oil prices, lack of investment, depleted hydro dam water levels.
  - Fiscal/financing responses: rehabilitation financed from budgetary resources (1½ percent of GDP), World Bank emergency energy loan (1½ percent of GDP), African Development Bank and BADEA project financing (1 percent of GDP).
  - Government purchased diesel generators (late 2004 and 2005) as short-term relief; medium-term plans include rehabilitating Electrogaz infrastructure, expanding rural grid, constructing micro-dams, and exploring methane gas in Lake Kivu (fiscal costs of up to 2½ percent of GDP likely to be spent through 2008).
  - Electricity tariffs were doubled on January 1, 2005 to limit fiscal costs; cross-subsidization to be worked out with the World Bank.

### Structural reforms and institutional strengthening
- Financial sector reforms:
  - Majority shares of two commercial banks sold to foreign investors in December 2004 to reduce government involvement.
  - NBR agreed action plans in June 2004 with five commercial banks to achieve compliance with prudential regulations by end-2004; similar agreement with the sixth bank in December 2004 (end-June benchmark for all banks).
  - External auditor completed audit of NBR’s 2003 financial statements in August 2004, concluding the statements provide a true and fair view (end-June benchmark).
- Public expenditure management and revenue administration:
  - Organic budget law submitted to parliament in August 2004; supporting financial regulations finalized.
  - Cash management unit and treasury committee created; dormant bank accounts closed.
  - Creation of a large taxpayer unit in 2004; new investment code, income tax, and customs laws before parliament.
- Export promotion:
  - Cabinet endorsed an export promotion strategy (end-September benchmark) with short-term measures for coffee and tea and an inter-ministerial monitoring structure to improve access to inputs and international marketing.

### Risks, monitoring, and program implementation issues
- Key risks:
  - Managing donor inflows to preserve tradable sector competitiveness.
  - Capacity constraints that reduce ability to cope with unanticipated shocks and weaken program implementation.
  - High external debt burden even after debt relief; need to limit new debt and rely on grants where possible.
- Program performance monitoring:
  - Minor and temporary deviations in quantitative and structural performance criteria for the fourth review; staff recommends waivers.
  - Statistical and monitoring workstreams continued (statistical issues and program monitoring referenced in contents).
- Implementation challenges underscored by 2004 experience:
  - Seasonality (coffee payments) affected reserve money targets intraperiod.
  - Donor disbursement timing affected priority spending and fiscal management choices.

*Source: Executive Summary (pages indicated) of _cr05171 - Executive Summary*

### 8.      In terms of program performance, all performance criteria for the fourth review

### 8. In terms of program performance, all performance criteria for the fourth review were met, except for two quantitative and one structural criterion

### Program performance — key findings
- All performance criteria for the fourth review were met, except for two quantitative and one structural criterion (Table 8, and MEFP, Table 1).
- At end-June 2004, the quantitative performance criterion on priority expenditures was missed by 0.2 percent of GDP (see para. 5).
- The continuous performance criterion on external arrears was not observed; the facts and basis of the waiver are set out in the separate memorandum from the Managing Director on noncomplying purchases and disbursements.
- The structural performance criterion on the submission of a revised 2004 budget was missed (but implemented with a delay of one month).
- One end-June structural benchmark (external audit of the NBR’s 2003 financial statement) was met only in August; the other (finalization of action plans for commercial banks) was met with a delay of seven months (see para. 8).

### Policy discussions — overarching objectives
- Focus: structural reforms to enhance growth and macroeconomic management of large donor inflows, while achieving fiscal and external sustainability over the medium term.

### A. Medium-Term Strategy for Poverty Reduction and Growth — consensus building blocks
- Renew efforts to implement productivity-enhancing sectoral programs:
  - Rwanda’s PRSP targets halving poverty by 2015 through policies focused on private sector development, particularly in rural areas.
  - To achieve this, real GDP would need to grow annually by double digits over the medium term.
  - Staff cautioned against overoptimistic growth projections; high growth rates are possible only with sectoral strategies to raise productivity as the catch-up effect following the genocide appears to be waning (Box 2).
  - Given budget constraints, realization rests on redirection of central government spending toward priority areas and increased spending efficiency.
  - Authorities view public investment as capable of significant short-term returns, especially in agriculture, expected to benefit from the resumption of the World Bank’s rural support credit.
- Cope with potential real appreciation from increased aid inflows:
  - Large external inflows could pressure the real exchange rate to appreciate and penalize net exports; essential responses include raising productivity in the export sector and increasing the export ratio (merchandise exports comprise about 4–5 percent of GDP).
  - Staff welcomed rollout of the export promotion strategy and review of structural bottlenecks (see para. 22).
- Mobilize domestic revenue to fund development and reduce external reliance:
  - Revenue ratio has improved but remains slightly lower than the average for HIPC decision point countries.
  - Lower ratio could reflect possible overestimation of GDP (particularly agricultural production) and substantial tax exemptions from tax incentives.
  - Staff encouraged a comprehensive review of agricultural statistics and reduction of tax exemptions (MEFP, para. 17).
  - Staff highlighted risks of introducing export-processing zones (MEFP, para. 27).

### Selected revenue ratios (in percent of GDP) — Source: IMF International Financial Statistics
- Rwanda: 1999 9.9; 2000 9.7; 2001 11.4; 2002 12.3; 2003 13.5
- Burundi: 1999 16.2; 2000 19.2; 2001 20.0; 2002 20.3; 2003 21.1
- Kenya: 1999 24.9; 2000 23.1; 2001 21.8; 2002 21.0; 2003 21.2
- Tanzania: 1999 10.7; 2000 10.6; 2001 11.2; 2002 11.0; 2003 11.4
- Uganda: 1999 10.6; 2000 10.1; 2001 10.5; 2002 10.6; 2003 10.8
- HIPC decision point countries: 1999 13.8; 2000 14.2; 2001 14.6; 2002 14.8; 2003 15.4

### Box 2 — Medium-Term Growth Prospects (summary)
- Post-1994 recovery: economy grew about 8 percent on average between 1996 and 2004; growth declined to 5 percent on average during the last three years—somewhat above historical growth rate of about 4 percent.
- HP-filtered underlying growth trend estimated at 4.1 percent in 1970-1992 (two decades preceding the genocide); without further action, growth may revert to this trend.
- Investment ratios: average investment ratio rose from 13.6 percent of GDP during 1970-90 to 16.9 percent of GDP during 1996-2003.
- Two perspectives on achieving a 6 percent target:
  - Growth accounting: labor productivity growth would have to increase to about 4 percent from the current 1.8 percent to achieve 6 percent output growth; labor force growth about 2 percent.
  - Investment-output relation: given long-term ICOR of about 4, the economy would grow by 4–5 percent at current investment levels; augmenting growth to 6 percent implies changing ICOR to 3 (marginal annual return of 33 percent).
- Revised medium-term growth projection: gradual increase from 4 percent in 2005 to 5½ percent from 2011 onward, reflecting higher investment financed by aid inflows (consistent with average ICOR of 4). Greater efficiency could lead to higher long-term growth.

### B. The Program for 2005 — macroeconomic framework
- Program objectives: preserve macroeconomic stability, strengthen exports through structural reform, and lay foundations for strong growth via increased spending in critical PRSP sectors.
- Assumptions and targets:
  - Real growth rate: 4 percent.
  - Inflation: reduction to 6 percent by end-2005, accounting for electricity tariff increase of about 2 percent.
  - Central bank reserves could decline to just over four months of imports (depending on contingent spending release), a level staff regards as prudent.
  - Macroeconomic and structural policies to enhance private sector development and accelerate productivity-enhancing strategies, particularly in exports.

### Fiscal policy — design and conditionality
- Baseline domestic fiscal deficit (excluding demobilization): 4½ percent of GDP; tighter than 2004 by almost one percent of GDP due to lower nonpriority spending.
- Contingency: deficit allowed to widen by up to about 2 percent of GDP if additional spending is financed by external budgetary support and monetary program is kept on track; may require allowing a nominal appreciation of the exchange rate (see para. 25).
- Contingency release: to be released in equal amounts for priority and nonpriority spending; will enable review of fiscal impact on domestic demand and coordination with monetary and exchange rate policies.
- No new revenue measures programmed for 2005; authorities intend to consolidate recent tax law and administration changes (MEFP, para. 17).
- Staff recommendations:
  - Develop new revenue measures in time for the 2006 budget to strengthen medium-term fiscal sustainability.
  - If possible, advance unification of large taxpayer and internal revenue departments.
- Note: Revenue expected to decline by ½ percent of GDP in 2006 due to lower nontax revenues (mostly one-off receipts) and reduction in corporate tax rate; potential further revenue losses from regional integration.

### Fiscal program — contingent spending (in percent of GDP), 2005
- Revenue: Excluding Contingency 13.9; Including Contingency 14.0; Contingency column 14.0
- Domestic expenditure: Excluding Contingency 19.2; Including Contingency 18.6; Contingency column 20.4
  - Priority spending (including electricity) 1/: Excluding 8.5; Including 9.4; Contingency 10.3
  - Other spending 2/: Excluding 10.7; Including 9.2; Contingency 10.1
- Domestic fiscal deficit: Excluding Contingency -5.2; Including Contingency -4.5; Contingency -6.3
- Memorandum item: Priority spending (excluding electricity): 7.5; 8.8; 9.7
- Notes:
  - 1/ Electricity was not included in the definition of priority spending in 2004.
  - 2/ Includes domestic interest bill, defense, and nonpriority spending.

### Quality and composition of spending — priorities and cuts
- Priority spending increases:
  - Would increase by 1⅔ percent of GDP if the contingency is spent (and by 0.9 percent of GDP otherwise).
  - Contingency priority spending of about one percent of GDP will augment allocations for agriculture, export promotion, rural roads, and water.
  - Social spending in health and education will increase by 0.3 percent of GDP.
- Nonpriority spending reductions:
  - Expected to fall by at least ½ percent of GDP if contingency is spent (and by 1½ percent of GDP if not).
  - Program accommodates new one-off items of about one percent of GDP mostly related to peace-keeping efforts in Darfur and a temporary fuel subsidy to Electrogaz to allow more gradual electricity tariff increases.
  - To achieve targeted overall reduction, other nonpriority spending will need cuts of 2½ percent of GDP if contingency not released (and 1½ percent of GDP otherwise) through reduced allocations to nonpriority ministries and net lending (including reduced payments on government guarantees related to large hotel projects).
- Beyond 2005:
  - Most new nonessential spending is one-off; substantial funds expected to become available in 2006 for priority spending to develop sectoral strategies.
  - Staff urged exploration of additional cuts in nonessential spending via civil service reform and efficiency gains.
  - Monitor pressures for possible real appreciation from domestic demand impact of fiscal policies.

### Specific projects and fiscal limits
- Lake Kivu gas project:
  - Could be a major stepping stone to address the electricity crisis.
  - Authorities committed to limit total fiscal costs to 2½ percent of GDP (0.4 percent of GDP of which will be in 2005).
  - World Bank supportive and invited for technical assistance; staff urged authorities to seek World Bank support and technical assistance.
  - Medium-term fiscal implications to be covered at the next review.
- Other fiscal notes:
  - Program accommodates repayment of mostly genocide-related arrears of almost one percent of GDP, based on a medium-term repayment plan.
  - Program accommodates loan payments of ¼ percent of GDP (compared with one percent of GDP in 2004) linked to the 2003 hotel projects; an audit of Prime Holdings (public entity owning hotels) is envisaged to assess repayment inability and facilitate privatization.

### Public financial management — Organic Budget Law (OBL) and implementation challenges
- OBL expected to improve efficiency and transparency of public expenditure management by strengthening legal/regulatory framework and Ministry of Finance oversight.
- Implementation challenges:
  - Significant capacity building required in line ministries and local governments; program includes measures to expand reporting responsibilities gradually.
  - Recent difficulties in implementing cash management and zero balance accounts need to be addressed.
  - Two October structural benchmarks for the fifth review were either not met or only partially met; authorities cited timing and scope as too ambitious and intend more gradual rollout.
  - Benchmark on reconciliation statements: Treasury and Rwanda Revenue Authority first (March), then line ministries and other public entities.
  - Benchmark on documentation for the 2005 budget: revised 2005 budget will include a statement of contingent liabilities, fulfilling one of two outstanding commitments.
  - The end-October structural benchmark required the 2005 budget to include statements of tax expenditure, public enterprise budgets, government equity holdings, consolidated district budgets, assets and liabilities, and contingent liabilities; the budget was presented without the assets and liabilities and contingent liabilities items. Pilot projects for assets and liabilities statements will be undertaken in 2005 before involving the entire public sector.

*Source: IMF staff report excerpt (section 8–III, policy discussions; program material and MEFP references).*

### Box 3. Expenditure Management Reforms

### Box 3. Expenditure Management Reforms

### Expenditure management reform actions and achievements
- In 2002 the government, in close consultation with development partners, developed a time-bound and monitorable action plan: the Financial Accountability Review and Action Plan (FARAP) to rebuild expenditure management after its unraveling in 1994.
- Reform focus has been on implementing FARAP, including:
  - Introducing a medium-term expenditure framework as part of budget preparation.
  - Adopting a computerized system for budget execution management.
  - Establishing an independent Auditor General.
  - Restarting the preparation of annual accounts.
- The Organic Budget Law (OBL) is expected to lay the basis for future reforms and address reconciliation of fiscal and monetary accounts and public budgeting and accounting practices.

### Planned OBL-based reforms (to be gradually implemented)
- Adopting a Treasury Single Account by end-2005 for all government operations to:
  - Facilitate regular reconciliation of government accounts.
  - Improve cash management and coordination with monetary policy.
- Applying budgeting and accounting standards to local governments as the basis for planned devolution of significant expenditure responsibilities.
- Integrating the recurrent and development budgets to provide a more transparent and comprehensive statement of government operations.

### Monetary policy
- The monetary program aims at lowering inflation while allowing an expansion in private sector credit.
- Observations and guidance:
  - Private sector credit in 2004 had been constrained by high nominal interest rates; ex-post real interest rates had declined.
  - Interest rates should not be lowered before a clear downward trend in inflation is established.
  - If government domestic spending threatens to push reserve money growth above program limits, foreign exchange sales would need to be stepped up (“ex ante sterilization”) to keep reserve money growth on track and protect the inflation objective.
  - Close coordination with the Ministry of Finance and managers of large project accounts is critical for improving liquidity forecasting.
  - Continued reliance on sterilization through sales of treasury bills rather than foreign exchange could, over time, crowd out private sector activity and prove costly for the central bank’s profits.
- Exchange rate guidance:
  - Given the program’s money anchor, some nominal appreciation of the exchange rate would need to be allowed should there be pressures for a real appreciation.
  - The NBR should allow greater price flexibility in the foreign exchange auction bidding process.
  - Authorities noted that a sharp appreciation during the coffee season (March-September) would adversely impact exporters’ income and their ability to repay Rwandan-franc–denominated bank loans; they agreed to explore options to allow lending in foreign exchange to exporters and to consider further changes to the auction bidding process.
- Program-specific monetary notes:
  - As in 2004, the program envisages a repayment of about one percent of GDP to nonbanks (including the repayment of arrears).
  - The surge in currency in circulation in 2004 could represent a structural increase in money demand, which should be accommodated by a one-off upward adjustment in the reserve money target (a preliminary assessment indicates that banks’ excess reserves were not unduly large). Given instability of monetary parameters, loosening the monetary program was deemed premature; the issue would be discussed at the next review.

### External sector
- The external current account deficit (excluding grants) would widen to 22 percent of GDP in 2005 and is expected to remain high over the medium term.
  - Drivers: strong increase in imports of diesel fuel and equipment for electricity sector rehabilitation and other priority projects.
  - Export earnings are expected to decline slightly after an exceptionally strong performance in 2004.
- Planned expansion in diesel-generated electricity will contribute to a significant structural increase in fuel imports in the medium term; authorities agreed increasing electricity supply is critical to developing the export sector and will explore alternative energy sources.
- Financing the 2005 higher current account deficit: mostly from a drawdown of central bank reserves of about 2½ percent of GDP, accumulated from disbursements received at end-2004 that had temporarily increased reserves to very high levels.

### Structural reforms and conditionality
- Structural agenda focus: advancing public sector reform and private sector development to increase productivity, particularly in exports.
- Fund conditionality will focus on:
  - Tax administration.
  - Public expenditure management.
  - Governance (notably related to a large hotel project undertaken in 2003 by government-owned Prime Holdings).
  - Export promotion.
  - Financial sector reform.
- Box 4 highlights structural conditionality under the PRGF arrangement (areas of macroeconomic relevance):
  - Strengthening tax administration by increasing the number of audits of large taxpayers.
  - Improving public expenditure management (see Box 3).
  - Enhancing governance in connection with payment of a government guarantee related to the 2003 hotel project.
  - Monitoring progress in implementing the export promotion strategy by a benchmark on submission to cabinet of the first progress report of the Rwanda Investment and Export Promotion Agency.
  - Possibly undertaking further measures to strengthen and develop the financial sector after a comprehensive review.
- World Bank lending (Poverty Reduction Strategy Credit, about US$225 million over 3 years) focuses mainly on:
  - Creating a favorable private investment climate.
  - Improving quality, efficiency, and equity of public service delivery—particularly in health, education, water, and energy sectors.
  - Supporting improvement of public expenditure management and governance, with emphasis on transparency and accountability.

### Export promotion
- Authorities adopted a two-pronged approach addressing sector-specific and cross-sector issues.
  - Increase budgetary allocations for tea, coffee, and tourism sectors to facilitate structural reform.
  - Strengthen coordinating role of the Rwanda Investment and Export Promotion Agency (RIEPA).
  - Take measures to diversify exports.
  - Define actions to address common export constraints: infrastructure, customs administration, access to financing; these actions will be discussed at the fifth review under the PRGF arrangement.
- Staff welcomed the strengthened approach, especially specificity on policy actions and acceleration of tea factory privatization, and urged authorities to assess impacts of regional trade agreement membership.

### Financial sector reform
- Reforms build on the February 2005 Financial Sector Assessment Program (FSAP) mission findings.
- Authorities reported all banks but one were in compliance with prudential regulations by end-2004.
- Agreed positions:
  - Any further recapitalization and hotel-related loan repayments would be undertaken only after assurances that banks are sound or their weaknesses are being addressed.
  - Supervisory authority needs sufficient autonomy to strengthen enforcement of corrective measures; this will be discussed in the context of the fifth review under the PRGF arrangement.
- Concerns and recommendations:
  - Address weaknesses of commercial banks not in compliance at end-2004.
  - Avoid proliferation of government micro credit schemes without systematic oversight; although magnitudes so far do not appear large, a more systematic approach including oversight procedures was urged.

### Private sector development
- Goal: make the private sector the engine of growth by creating an enabling environment.
- Positive developments:
  - New land law (with parliament) could improve security of land tenure and promote private sector credit without jeopardizing banks’ lending quality.
  - Overhaul of legal framework and progress in privatization agenda are positive steps.
- Further progress needed to promote private investment.

### Risks to the program
- Main macroeconomic risk: management of pressures for a real appreciation of the exchange rate from domestic demand impact of fiscal policies.
  - Risk mitigation: program makes a large part of fiscal spending contingent on the monetary program staying on track.
- Other risks:
  - Limited absorptive and administrative capacity could delay structural reforms; increased spending on education and training over the long run will mitigate this risk.
  - Regional instability: renewed tensions in the Great Lakes region could adversely affect donor assistance, private investment, and fiscal balances if military spending rises.

### Statistical issues
- Authorities acknowledge weaknesses in national accounts and expect to make operational a new statistical institute by end-2005.
  - The institute would compile and disseminate statistics currently collected by various government ministries and the NBR and work to improve agricultural statistics.

### Program monitoring, disbursements, and reviews
- Understandings reached on quantitative performance criteria for end-June 2005 and indicative targets for end-March, end-September, and end-December 2005, as well as structural performance criteria and benchmarks.
- Technical memorandum of understanding modifications:
  - Change definition of performance criterion on net credit to the government to include treasury bill holdings of nonbanks to better monitor domestic borrowing by the central government.
  - Extend definition of priority spending to include spending on the electricity sector.
  - Introduce an adjuster on contingent spending (if budgetary support is available and the monetary program remains on track) on net foreign assets, net credit to government, the domestic fiscal balance, and priority spending.
- Authorities requested a six-month extension of the current PRGF arrangement to allow completion of the sixth review and disbursement of the seventh and final loan; delays in completing second and third PRGF reviews make it impossible to conclude the sixth review prior to August 2005 when the current arrangement is scheduled to expire.

### Staff appraisal: key messages and recommendations
- Rwanda has made great strides since the genocide; macroeconomic stability largely achieved with inflation averaging in the single digits for the last seven years and international reserves at comfortable levels.
- 2004 policies strengthened; output growth was somewhat lower and inflation higher due to exogenous shocks (particularly energy). Exports rebounded and current account narrowed, strengthening net international reserves more than programmed.
- Performance issues:
  - End-June performance criterion on priority spending was not met due to a delayed donor disbursement; authorities temporarily restrained spending to maintain macroeconomic stability and later made up the shortfall.
  - Continuous performance criterion on nonaccumulation of external arrears was not observed; payments were made in July 2004.
  - Some structural benchmarks were delayed, but authorities have substantively met structural reform commitments covered by the review.
- Structural policy priorities and recommendations:
  - Implement the organic budget law and associated financial regulation without delay as they form the basis for modern expenditure management.
  - Continue efforts to mobilize domestic revenue, identify new tax measures, and reduce tax exemptions—especially given expected loss in direct tax and nontax revenue in 2006.
  - Further reallocate fiscal resources over time to support agriculture, exports, transport, and energy reforms; limit the cost of the Lake Kivu project and implement it with World Bank support and advice.
  - Reduce nonessential spending and avoid directed lending (as with the 2003 hotel project); welcome external audit of Prime Holdings to increase transparency and assess debt servicing capacity and medium-term profitability.
  - Manage domestic demand impact of large external flows without rekindling inflation: NBR should ensure reserve money targets are met by stepping up foreign exchange sales if government spending threatens reserve money growth; allow greater exchange rate flexibility, including accepting a nominal appreciation of the Rwandan franc.
  - Accelerate and forcefully implement the export promotion strategy and address structural bottlenecks to trade and growth.
  - Develop an action plan for further financial sector reforms based on FSAP recommendations and address weaknesses of noncompliant commercial banks; ensure any further recapitalization or hotel-related repayments occur only after banks are sound or weaknesses are being addressed.

*Source: Box 3. Expenditure Management Reforms (IMF staff report content).*

### 38.      Staff supports the authorities’ intention to limit external borrowing and to rely

### _cr05171 - 38.      Staff supports the authorities’ intention to limit external borrowing and to rely

### External financing, debt sustainability, and grants
- Staff supports the authorities’ intention to limit external borrowing and to rely mostly on grants.
- By reaching the completion point under the enhanced HIPC Initiative, Rwanda’s debt is being reduced to a sustainable level.
- To maintain external sustainability in the future, the authorities’ commitment to seek external financing—including for spending to advance toward the MDGs—mostly in the form of grants is appropriate.

### National accounts and statistical capacity
- Efforts to address weaknesses in the national accounts are welcome.
- Staff urges the authorities to review, in particular, their agricultural statistics.
- Staff encourages the authorities to take full advantage of available technical assistance, including from the Fund.

*Source: IMF staff report excerpt (paragraphs 38–39).*

### 40.      Based on the assessment above, staff recommends that the requested waivers for

### _cr05171 - 40.      Based on the assessment above, staff recommends that the requested waivers for

### Staff recommendations and government requests
- Staff recommends that the requested waivers for the nonobservance of the end-June 2004 performance criteria on priority spending and the submission of the revised 2004 budget to parliament (as the nonobservances were temporary) be granted.
- Staff recommends that the fourth review under the PRGF arrangement be completed.
- The Managing Director’s memorandum to the Board recommends a waiver in connection with the continuous performance criterion on external arrears.
- Staff recommends that an extension of the PRGF arrangement by six months be granted to allow for the disbursement of the rephased amounts.
- Government request (letter of March 25, 2005): completion of the fourth review and disbursement of the fifth loan in an amount equivalent to SDR 0.571 million; extension of the PRGF arrangement to February 11, 2006 to allow for disbursement of rephased amounts.
- Government expects to reach the completion point under the Enhanced HIPC Initiative with completion of the fourth review and intends to request additional topping up from creditors because of a deterioration in the NPV of external debt to exports ratio.

### Macroeconomic outlook (selected projections and indicators)
- Real GDP growth (2002–2007): 9.4, 0.9, 6.0, 4.0, 6.0, 4.0, 4.3, 4.5
- Export, f.o.b (in U.S. dollars; annual percent changes shown): -28.1, -6.3, 8.0, 54.3, 17.0, -8.3, 7.1, 7.1
- Imports, f.o.b (in U.S. dollars; annual percent changes shown): -1.3, 4.0, 16.0, 12.4, 7.1, 28.2, 5.7, 4.4
- Consumer prices (period average): 2.0, 7.4, 6.9, 12.0, 4.0, 7.0, 4.0, 4.0
- External current account balance (including official transfers, percent of GDP): -6.7, -7.8, -6.9, -3.0, -8.2, -9.0, -7.0, -7.2
- External current account balance (excluding official transfers, percent of GDP): -16.6, -19.2, -21.4, -18.1, -20.8, -21.9, -20.4, -19.4

### Fiscal stance and public finances (selected items)
- Total revenue (excluding grants; percent of GDP): 12.2, 13.5, 13.5, 13.9, 13.5, 14.0, 14.1, 14.3
- Total expenditure and net lending (percent of GDP): 21.2, 23.9, 28.3, 26.1, 26.1, 26.7, 27.7, 27.3
- Total priority expenditures (percent of GDP; excluding energy / including energy): 6.2 / 6.2 (2002), 6.9 / 6.9 (2003), 3.7 / 3.7 (2004), 3.3 / 3.3 (2004 quarters), 6.2 / 6.2 (2004 annual), 5.1 / 5.1 (2005), 8.8 / 8.8 (2006), 7.5 / 8.5 (2006 quarters/projections)
- Primary fiscal balance (percent of GDP): -1.6, -0.3, -2.6, -1.7, -2.6, -1.8, -3.7, -4.0
- Domestic fiscal balance (percent of GDP): -4.2, -5.5, -7.8, -5.5, -5.2, -5.3, -6.4, -5.9
- Overall balance (payment order) after grants (percent of GDP): -1.7, -2.3, -2.2, -0.2, -0.7, -0.9, -1.5, -1.8
- Overall balance (payment order) before grants (percent of GDP): -8.9, -10.3, -14.8, -12.1, -12.5, -12.7, -13.6, -13.0
- External budgetary assistance to central government (percent of GDP; memorandum): 7.9, 6.3, 11.7, 12.2, 8.3, 9.8, 8.8

### Monetary and reserves (selected)
- Broad money (M2) growth (annual percent change; selected observations): 11.4, 15.2, 11.0, 12.6, ... , 5.4, ...
- Reserve money annual growth (mem. items): 12.2, 16.2, 14.2, 14.1, 14.0, 13.4, 13.4, 12.2
- Gross official reserves (in millions of U.S. dollars / memoranda): 243.6, 217.6, 208.6, 314.5, 251.5, 263.9, 280.5, 288.3
- Gross official reserves (in months of imports of goods and services): 6.3, 5.0, 4.6, 5.8, 5.2, 4.8, 4.8, 4.8

### External debt and debt relief
- External debt (end of period, in millions of U.S. dollars / selected): 1,476.8 (2002), 1,572.4 (2003), 1,485.5 (2004), 1,711.2 (2005), 1,556.2 (2006), 1,515.9 (2007), 1,564.2, 1,609.4 (projections shown)
- Total external debt (in percent of GDP; memorandum): 85.3, 93.4, 86.6, 93.3, 73.7, 70.8, 68.4
- Net present value (NPV) of external debt (in percent of exports of goods and services; memorandum): 270.3, 319.9, 354.5, 337.1, 376.4, 323.9, 315.2, 323.8
- Scheduled debt-service ratio after HIPC Initiative debt relief (in percent of exports of goods and services; memorandum): 12.0, 11.1, 9.6, 9.7, 12.7, 7.9, 8.6, 10.2
- Total debt relief (in millions of U.S. dollars): 32.5, 29.1, 38.2, 46.9, 49.4, 47.2

### Program implementation, conditionality, and structural actions
- Waiver requests: end-June 2004 nonobservance of performance criterion on priority spending; waiver for delayed submission of revised 2004 budget to parliament (submitted end-July 2004; waiver required).
- Managing Director’s memorandum recommends waiver on continuous performance criterion on external arrears.
- Outstanding and completed structural conditions (selected):
  - Submit revised 2004 budget to parliament: Performance criterion — Waiver required. Submitted at end-July 2004.
  - Submit Organic Budget Law to parliament: Benchmark — Met. Submitted to parliament in June 2004.
  - Issue the tender for the sale of Rwanda Commercial Bank (BCR): Benchmark — Met. BCR sold in December 2004.
  - Monthly reconciliation statements for government financial statements to be published on a quarterly basis: Prior action for circulating staff report — Not met; a December reconciliation statement of the Treasury and RRA accounts to be published as a prior action.
  - External audit firm to complete the audit of the NBR’s 2003 financial statements: Timing 6/30/2004 — Completed in August 2004.

### PRGF disbursement phasing (summary)
- Three-year arrangement approved August 12, 2002; total equivalent 4.000 SDRs / 5.0 percent of quota (table shows a sequence of disbursements and reviews).
- Disbursements and review timing (selected): June 23, 2003 second disbursement 0.571 (10.7 percent of quota); June 16, 2004 third and fourth disbursement 1.142 (21.4 percent of quota); April 6, 2005 fifth disbursement 0.571 (10.7 percent of quota). Total shown: 4.000 / 5.0.

*Sources: Rwandese authorities; Fund staff estimates and projections; letter from the Government of Rwanda (Kigali, March 25, 2005); staff report tables and appendices contained in the cited chapter.*

### 1.      Rwanda’s medium-term economic program is supported by a three-year

### Rwanda’s medium-term economic program is supported by a three-year

### Program overview and objectives
- Arrangement: three-year under the Poverty Reduction and Growth Facility (PRGF) covering 2002–05.
- Purpose: implement the poverty reduction strategy (PRSP) and medium-term macroeconomic and structural agenda for 2005.
- Completion point goal: subject to satisfactory performance, Rwanda aims to attain the completion point under the Enhanced HIPC Initiative by the beginning of April.

### 2004 program performance — macroeconomic outcomes
- Real GDP growth: estimated to have recovered to about 4 percent in 2004, driven by construction, transport, and communication.
- Sectoral weaknesses: other parts of the formal sector weak due to an electricity shortage and increasing energy prices; agricultural production remained flat despite increased export crops.
- Inflation: annual inflation rose to 10.2 percent at end-December; underlying inflation remained stable.
- Revenue and spending shifts:
  - Revenue ratio rose to 14 percent of GDP.
  - Priority spending increased by 1.5 percent of GDP.
  - Capital spending increased by 2.9 percent of GDP.
  - Government transfer to Electrogaz: about one percent of GDP in December 2004 to purchase additional generators and rehabilitate the network.
- External current account (excluding official transfers): narrowed to 18 percent of GDP in 2004.
  - Merchandise exports value: rose by 54 percent (good coffee harvest, tin and coltan exports).
  - Imports value: increased by 13 percent (fuel, food, consumption goods including pharmaceuticals).
  - International reserves: accumulated about US$100 million, reserve cover rose to 5.8 months of imports from 5.0 months at end-2003.
  - Real exchange rate: appreciated by about 8 percent for end-2004.
- Monetary aggregates and banking:
  - Total bank deposits grew by 11 percent in 2004 (mainly Electrogaz deposits in December 2004).
  - Broad money growth: slightly higher than anticipated.
  - Credit to private sector: estimated to have grown by about 11 percent (or remained unchanged in real terms).
  - Lending constrained by balance sheet weaknesses in some commercial banks and restoration of reserve requirements by all but one bank.
  - NBR actions: implemented safeguards recommendations and extended maximum weekly variation in the fixing of the exchange rate.
- Structural reform progress:
  - Financial sector: five commercial banks agreed on action plans in June 2004; all met requirements at end-2004 except one bank in breach of two regulations. Foreign investors bought majority shares in two banks. External audit of NBR 2003 financial statements completed in August 2004.
  - Tax system reforms: submission to Parliament in September 2004 of a revised investment code, a new tax procedures code, and a draft income tax law (eliminates ad hoc exemptions, lowers tax rates, provides tax holidays in exporting processing zone and free trade zones). These three laws are expected to be adopted in early 2005.
  - Rwanda Revenue Authority (RRA): LTD and IRD replaced former VAT and income tax departments; ASYCUDA++ IT system launched in two main customs offices; termination of Pre-Shipment Inspection (PSI) services; new customs code submitted to Parliament in September 2004.
  - Public financial management: procurement code and organic budget law submitted to parliament; Cabinet approved financial regulations supporting the budget law in September 2004; Treasury Management Committee (TMC) created; Treasury Department created a cash management unit (CMU); Budget Department established a fiscal unit; Auditor General published 2002 report and transmitted 2003 report to Parliament.
  - Export promotion: Cabinet approved export promotion strategy and created an Export Promotion Commission; RIPA restructured to RIEPA; action plans for coffee, tea, and tourism being designed.
  - Civil service reform: Cabinet approval of new administrative structure, new pay structure, identification of staff to be retrenched (504) or redeployed (150) in central administration.
- External debt:
  - External debt stock: increased to US$1.7 billion at end-2004.
  - Debt-to-GDP ratio: expected to remain broadly at the 2003 level of 93 percent due to higher US$ GDP growth.
  - Actions taken: repayment in full of guarantees for a nonconcessional foreign loan issued August 2003 (June 2004); new loan signed with BADEA to bring joint financing above the 50 percent concessionality threshold required by PRGF; Paris Club extension of consolidation period on Cologne terms to June 30, 2005; ongoing efforts with remaining creditors.
  - Outstanding creditor issues: agreements outstanding with Abu Dhabi Fund and Libya; intent to seek additional debt relief from Kuwait Fund, the People’s Republic of China, and the Saudi Fund at completion point.
- PRGF performance criteria (fourth review):
  - All but three performance criteria observed.
  - Misses: quantitative performance criterion on priority expenditures missed by 0.2 percent of GDP by end-June 2004 (due to temporary donor delays); continuous criterion on nonaccumulation of external arrears missed (payments made in July 2004); revised 2004 budget submitted late in July, causing related structural criterion to be missed.
  - One structural benchmark (Cabinet approval of export promotion strategy) met; two others delayed (agreement with banks on action plans and completion of audit of 2003 NBR financial statements).

### Medium-term strategy (objectives and constraints)
- Long-term target: Vision 2020 aims for middle-income status by 2020.
- Poverty: about two thirds of Rwandans still live in poverty.
- Sectoral focus: productivity-enhancing strategies in agriculture, energy, water, health, and education.
- Policy priorities:
  - Maintain macroeconomic stability: low and predictable inflation, prudent central bank international reserves.
  - Strengthen administrative capacity in public expenditure management.
  - Implement productivity-enhancing policies to offset negative impacts of real exchange rate appreciation: remove structural bottlenecks, improve infrastructure, reduce rents.
  - Monitor impact of donor-financed spending on fiscal and external sustainability.
  - Develop domestic revenue base to reduce dependence on external financing.
  - Strictly limit new borrowing, even on highly concessional terms; mobilize more grants.
- HIPC Completion Point:
  - Cornerstone for external debt sustainability is reaching Completion Point under Enhanced HIPC Initiative in early 2005.
  - Updated debt sustainability analysis done with Debt Relief International.
  - Given projected NPV of debt-to-exports ratio remaining substantially above the HIPC 150 percent threshold after decision point relief, government intends to request additional topping up from creditors.

### 2005 program — macro targets and policy pillars
- Policy pillars:
  (i) improve quality of spending by increasing spending in priority areas to strengthen growth and reduce poverty;
  (ii) improve public finances by reinforcing expenditure management and tax administration and implementing civil service reform;
  (iii) raise Rwanda’s export base by addressing vulnerabilities;
  (iv) support private sector growth by strengthening financial sector and progressing in land reform;
  (v) reduce government role by privatizing public enterprises.
- Macroeconomic objectives for 2005:
  - GDP growth: sustain at 4-5 percent.
  - End-year inflation: reduce to 6 percent, including an impulse of 2 percent from increased electricity tariffs.
  - Gross international reserves: maintain at least 4.8 months of imports.
- Fiscal policy (highlights):
  - Aim: reprioritize spending to strengthen growth and reduce poverty.
  - Revenue-to-GDP ratio: maintained at 14 percent of GDP.
  - Priority spending (including electricity): expected to grow by at least about 1 percent of GDP, financed from external budgetary assistance and cuts in nonessential spending.
  - Domestic fiscal deficit (excluding demobilization spending): projected to fall to 4.5 percent of GDP from 5.3 percent of GDP in 2004.
  - Contingency: could be adjusted upward by up to 2 percent of GDP to allow additional spending contingent on additional grant financing and reserve money growth remaining in line with program limits; contingency released in equal amounts for priority and nonessential spending.
  - Minister of Finance: press statement on February 25 indicating budget changes to be done during June Budget Revisions.
- Revenue administration reforms:
  - Large Taxpayers Department (LTD): responsible for about three quarters of domestic tax revenue; clear inclusion criteria defined; self-assessment to be introduced upon approval of income tax law; SIGTAS computer system to be launched in March 2005; 25 risk-based comprehensive audits of large businesses to be completed in the LTD in January–April 2005 (structural benchmark).
  - Feasibility study to integrate LTD and IRD under single responsibility and strengthen links between tax and customs administration by establishing either a single operational policy unit or separate units within the departments by end-March 2006.
  - Action plan to reduce tax incentives, including tax holidays and exemptions, to be submitted to Cabinet by end-September 2005; plan based on comprehensive review undertaken in 2004 with DFID support and a new monitoring and monthly reporting system for tax incentives and exemptions introduced in September 2004.
- Expenditure program:
  - Nonpriority spending: expected to decline by 0.6 percent of GDP compared with 2004 (even including the contingency).
  - Specific outlays included in 2005 budget:
    - Payment to honor government guarantee linked to a large hotel project: 1/3 percent of GDP.5
    - Outlays on peace keeping: 0.3 percent of GDP.6
    - Opening of embassies: 0.1 percent of GDP.
    - Recapitalization of a housing bank: 0.1 percent of GDP.
    - Temporary fuel subsidy: 0.4 percent of GDP (see para. 22).
  - Offsetting cuts: net lending and goods and services spending for some ministries.
  - Priority spending increase: 0.8–1.7 percent of GDP depending on contingency release.7
  - Priority areas: education, health, electricity, and water.
  - Arrears repayments: 0.6 percent of GDP included for arrears repayments to private sector and Caisse Sociale du Rwanda (CRS) as part of medium-term repayment plan based on Auditor General’s audit.

### Key fiscal numbers (excerpt from authorities' data and IMF estimates)
- 2004 2005
- Revenue and grants 25.9 25.9
- Revenue 13.9 14.0
- Grants 12.0 11.9
- Total Expenditure and net lending 26.1 26.7
- Domestic fiscal balance (excluding contigency expenditures) 1/ -5.3 -4.5
- Contingent expenditure 0.0 2.0
- Domestic fiscal balance (including contingent expenditures) 1/ -5.3 -6.5
- 1/ The domestic fiscal balance excludes demobilization expenditures.

*IMF staff summary based on Rwanda authorities' data (2002–05 PRGF context).*

### 19.      The continued strengthening of public expenditure management remains a

### _cr05171 - 19.      The continued strengthening of public expenditure management remains a

### Public expenditure management — implementation actions and benchmarks
- Priority: implement the new organic budget law and associated financial regulations to ensure transparent and efficient execution of the spending program (focus in 2005).
- Key actions and benchmarks:
  - Net domestic financing definition extended to include sales of Treasury bills to the nonbank sector and to exclude project accounts (to better monitor full domestic borrowing requirement).
  - Systematic reconciliation framework to be implemented, calling for regular publication (with no more than one month lag) of monthly reconciliation statements by:
    - (i) the Treasury for the main treasury account at the NBR;
    - (ii) the Rwanda Revenue Authority for its revenue collection accounts and transit accounts;
    - (iii) line ministries for their bank accounts for cash-based operations;
    - (iv) provinces, autonomous agencies, and extra-budgetary funds for their accounts.
  - Benchmark: end-December 2005 for publication of the November reconciliation statement.
  - Reporting improvements in line with the organic budget law:
    - Timely production and audit by the Auditor General of consolidated annual accounts for 2004 by end-June 2005.
    - Implement monthly reporting from line ministries on donor funded expenditure (in particular AfDB, EU, DFID, and the World Bank).
    - Establish an inventory of all extra-budgetary resources.
    - Monthly reporting of financial operations by autonomous agencies and extra-budgetary funds.
    - Consolidate district fiscal reports by the Ministry of Finance.
    - Prepare a consolidated general government fiscal report (covering central government, including project accounts, provinces, at least 70 percent of the districts, autonomous agencies and extra-budgetary funds) on a quarterly basis starting in December 2005 (benchmark on the basis of September data).
    - Facilitation via implementation of the SIBET II computer system in 2005.
  - Budget documentation: 2005 supplementary budget and 2006 budget will include all expected annexed statements except a comprehensive inventory of assets and liabilities.
    - Pilot: complete inventory of physical assets of at least two line ministries, one province, and two districts by end-December 2005.
  - Cashflow planning and Treasury Single Account (TSA):
    - Convert 80 percent of line ministries’ accounts (except bank accounts for donor-financed projects) into zero-balance accounts by end-May 2005 (benchmark).
    - Convert all accounts of line ministries (except bank accounts for donor-financed projects) and autonomous agencies into zero-balance accounts by end-September 2005 (performance criterion).
    - Integrate these accounts into the TSA by end-December 2005 (benchmark).
    - Extension envisaged to semi-autonomous agencies and possibly some externally-funded project accounts in 2006.
  - Integration of recurrent and development budgets: integrate the CEPEX development budget unit into the budget department of the Ministry of Finance by June 2005.

### Civil service reform and fiscal costs
- Continue civil service reform at central level and roll out to provinces and parastatals.
- Implement a new pay structure in 2005 to simplify pay and integrate benefits into base pay.
- Budgeted retrenchment and reform costs in 2005:
  - RF 0.5 billion for retrenchment costs.
  - RF 1 billion for design of training courses, funding income-generating activities for redeployed public servants, and scholarships for retraining.

### Electricity and energy sector actions, financing, and fiscal implications
- Rationale: resolve the energy crisis to support agriculture, export promotion, and private sector development; actions aimed at increasing electricity supply to enable modern technologies and expand manufacturing.
- Proposed 2005–07 actions:
  - Rehabilitation of Electrogaz’ infrastructure.
  - Acquisition of additional diesel-fueled generators.
  - Construction of micro-dams.
  - Implementation of programs generating alternative energy sources (e.g., biogas).
- Complementary financing: World Bank emergency energy loan of US$25 million, augmented by US$6 million in grant financing from the Nordic Fund.
- Lake Kivu methane project (contract signed March 2005 with foreign consortium):
  - 2005 costs: Euro 5.1 million (0.3 percent of GDP) for purchase of an equity share of 30 percent; about 0.1 percent of GDP for transmission lines.
  - Over 2006–08, the government will lend an additional Euro 14.6 million to the gas extraction company.
  - Government will finance a letter of credit of Euro 2.7 million and provide a guarantee for a minimum purchase commitment of Euro 10.7 million.
  - Maximum government cost for the project (excluding transmission line spending in 2005) limited to Euro 33.1 million (or 2½ percent of 2005 GDP).
  - The contract does not involve other government costs or contingent liabilities; no new public nonconcessional external debt or government guarantees will be contracted under the program’s limits.
  - Proceed only after securing a partial risk guarantee from the World Bank or another development agency; IFC participation being sought.
- Electricity tariff and subsidy policy:
  - New tariff: RF 82 per kWh with envisaged quarterly adjustments to reflect changes in cost of diesel purchases by Electrogaz.
  - Temporary fuel subsidy included in the budget because the tariff does not cover Electrogaz’ payments for taxes related to fuel imports.
  - Objective: gradually increase tariff to reach full cost-recovery; timetable to be decided in cooperation with the World Bank at the next review.
  - Tariff restructure to allow cross-subsidization of poorer segments.

### Monetary policy stance and operational targets
- NBR uses broad money as nominal anchor; reserve money as operational target.
- Inflation objective and targets:
  - Reduce headline inflation to 6 percent.
  - Limit year-end reserve money growth to 12 percent (slightly less than in 2004).
  - Projections: broad money and extended broad money to grow by 5½ percent and create room for credit expansion to the private sector by 12 percent.
  - The NBR will monitor inflation and stand ready to tighten policy if new inflationary pressures emerge.
  - Gross international reserves aim: at least US$264 million by end-2005.
  - Monitor money demand to assess persistence of the unusual rise in currency in circulation observed in 2004.
  - Starting in 2006, the NBR will target the extended broad money aggregate including deposits of the Union de Banques Populaires de Rwanda (UBPR) for its monetary program.
- Exchange rate policy:
  - Rwandan franc exchange rate remains market-determined.
  - With comfortable gross international reserves, the NBR will step up market sales of foreign exchange as necessary.
  - Sterilization via foreign exchange sales could cause some nominal exchange rate appreciation to support the inflation objective.
  - Increased variation in the margin by which the exchange rate can vary from the previous day’s exchange rate to +/-RF 5.
  - Finalize a study by end-March 2005 on ways to further increase flexibility.

### External sector outlook and export promotion
- External current account (excluding current official transfers) projection:
  - Projected to widen to about 22 percent of GDP in 2005.
  - Drivers: slightly lower merchandise export earnings (decline in unit prices for minerals and normalization of coffee export volumes after 2004) and substantially increased import bill.
  - Public capital goods imports expected to increase to US$119 million from US$52 million in 2004 (reflecting investments in electricity, delayed project spending for which grants were received in 2004, and other PRSP projects).
- Export Promotion Strategy (EPS) implementation and sectoral actions:
  - RIEPA to centralize monitoring of EPS rollout and prepare quarterly progress reports to the Cabinet and Export Promotion Commission; first report covering progress through end-June is a structural benchmark for end-July 2005.
  - Increased budget allocation for export promotion to accelerate sectoral efforts.
  - Coffee sector:
    - OCIR-Café to reinforce training for growers, introduce certification for organic and mountain coffee, and step up marketing to niche markets.
    - BRD to increase funding for a working-capital facility aimed at cooperatives and washing station entrepreneurs.
    - Expected exports of fully washed coffee relatively flat at about 1,100 tons.
  - Tea sector:
    - Launch a second bidding round for Mulindi tea factory and bring 4 of remaining 7 tea estates to point of sale.
  - Tourism:
    - Develop and enforce hotel standards; establish Rwanda Tourism and Hospitality College in partnership with private operators.
    - Private hotel projects eligible for BRD financing.
  - Export Processing Zone (Nyandungu): preparatory work (master plan and feasibility study) expected completed by end-September 2005; construction aimed to start at end-2005.
  - Mining sector:
    - Start a study on mineral potentials and modernization of legal framework from April 2005.
    - RIEPA to complete negotiations with a potential strategic investor for restructuring REDEMI by June 2005.
  - Export diversification study to be presented to Cabinet by end-September 2005 (focus on mining, horticulture, fruits, handicrafts, ICT).
  - Horticulture:
    - Establish a Horticulture Board by end-June 2005.
    - MAGERWA to start construction of a Cold Storage Room at Kigali International Airport (Kanombe).
    - Study on cut flowers industry to be finalized by end-July; pyrethrum expansion study to be submitted to Cabinet at end-July.
  - Handicrafts:
    - Organize basket weavers into cooperatives around Handicraft Centers; develop four centers in 2005 for training and collection.
    - Introduce a trademark label for the Rwandan basket and support participation in international trade fairs.
- PRSP update to address cross-cutting trade impediments identified by the Diagnostic Trade Integration Study (DTIS) — transportation, customs, energy, water, infrastructure, access to financing — with specific actions in the PRSP action matrix by mid-2005. The MEFP for the fifth review will assess progress and possibly establish structural conditionality.

### Structural policies, financial sector reform, and business environment
- Objective: improve climate for private sector activity.
- Financial sector reform priorities:
  - Strengthen prudential supervision of banks and nonbank institutions providing rural financial intermediation.
  - Establish strong oversight for new financing facilities at the Rwanda Development Bank (BRD).
  - Develop an action plan based on the FSAP mission findings to be presented in the MEFP for the fifth review.
  - Recapitalization of the housing bank and payment to banks of government-guaranteed loans linked to the hotel project will occur only after assurances that banks’ business plans are sound or action plans are in place.
- Legal and institutional reforms to foster private/public partnerships:
  - Creation of the Permanent Private/Public Partnership Secretariat in MINICOM.
  - National investment dialogue held in February 2005 to develop an action plan; investment conference planned for March 2005.
  - Study on manufacturing sector performance to be conducted in consultation with the World Bank by September 2005.
- Land reform:
  - New land law being discussed in Parliament and expected to be approved in 2005.
  - Land tenure reform intended to enable use of land as collateral and broaden access to credit, including micro-finance and concessional lending facilities at the BRD.
  - Conduct a national land survey to develop an accurate and complete land database.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 33.      The role of the public sector in the economy will be further reduced by the

### 33.      The role of the public sector in the economy will be further reduced by the

### Privatization and governance actions
- Privatization of several public enterprises will further reduce the role of the public sector.
- Specific actions underway or planned:
  - Privatization of Rwandatel: bids are being evaluated; intention to "bring to the point of sale (i.e., invited interested parties to bid, evaluated bids, and started good faith negotiations) the parastatal before end-2005."
  - Sale preparation for Primeholdings’ hotel projects will be intensified.
  - A financial audit and business plan of Prime Holdings prepared by a foreign-based international audit firm will be published by end-September 2005 (structural performance criterion).

### Program monitoring: prior actions, reviews, and TMU
- Prior actions: The government will undertake a number of actions prior to the IMF Board meeting that considers the fourth review under the PRGF arrangement; these prior actions are set out in Table 2 of the MEFP.
- Reviews and timing:
  - Fifth review under the PRGF: will assess quantitative performance as of end-December 2004 and structural conditionality through end-March 2005; will focus on financial sector reform, the medium-term implications of the Lake Kivu project, and structural conditionality related to progress with the export promotion strategy.
  - Sixth review (scheduled for completion by December 15, 2005): will review quantitative performance as of end-June 2005 and structural conditionality through end-September 2005.
- Technical Memorandum of Understanding (TMU): lays out program design and terminology; the government will make available to Fund staff all data as specified in the TMU.

### Quantitative performance criteria and benchmarks (selected figures from Table 1)
- Net foreign assets of the NBR (floor on stock) — Actual (program exchange rate):
  - Mar. 67.6; Jun. 70.2; Sep. 76.0; Dec. 125.4
- Net foreign assets of the NBR — Adjusted program:
  - Mar. 63.6; Jun. 53.3; Sep. 56.6; Dec. 75.1
- Net foreign assets of the NBR — Program:
  - Mar. 65.0; Jun. 55.4; Sep. 64.5; Dec. 62.3; Mar. 109.5; Jun. 108.3; Sep. 103.5; Dec. 101.6
- Reserve money (ceiling on stock):
  - Actual: Mar. 50.2; Jun. 51.7; Sep. 54.1; Dec. 56.0
  - Program: Mar. 53.0; Jun. 54.0; Sep. 55.9; Dec. 56.3; Mar. 58.8; Jun. 60.6; Sep. 61.8; Dec. 63.0
- Net credit to the government by the banking system (ceiling on stock) — Actual:
  - Mar. 8.3; Jun. 2.3; Sep. -0.6; Dec. -30.7
- Domestic fiscal balance (floor on cumulative flow since Dec. 31) — Actual:
  - Mar. -2.1; Jun. -16.6; Sep. -31.9; Dec. -58.1
- Domestic fiscal balance — Program:
  - Mar. -9.8; Jun. -32.6; Sep. -54.0; Dec. -78.7; Mar. -12.4; Jun. -32.8; Sep. -48.4; Dec. -61.8
- Total priority spending (floor on cumulative flow since Dec. 31) — Actual:
  - Mar. 15.2; Jun. 34.4; Sep. 53.6; Dec. 78.7
- Broad money (ceiling on stock) — Actual:
  - Mar. 162.9; Jun. 161.3; Sep. 167.7; Dec. 188.1
- Broad money — Program:
  - Mar. 171.6; Jun. 177.1; Sep. 178.9; Dec. 185.4; Mar. 190.0; Jun. 192.5; Sep. 195.4; Dec. 198.3
- Extended Broad money (ceiling on stock) — Actual:
  - Mar. 182.1; Jun. 182.2; Sep. 190.1; Dec. 211.8
- Extended Broad money — Program:
  - Mar. 193.8; Jun. 200.0; Sep. 202.0; Dec. 208.8; Mar. 213.9; Jun. 216.7; Sep. 220.0; Dec. 223.2
- General budget support (in US$ million) — Received:
  - Mar. 32.6; Jun. 86.5; Sep. 115.5; Dec. 223.1
- General budget support (in US$ million) — Expected:
  - Mar. 35.1; Jun. 90.1; Sep. 149.4; Dec. 201.0; Mar. 32.7; Jun. 96.2; Sep. 129.7; Dec. 169.7
- Stock of outstanding nonreschedulable external arrears (ceiling on stock) — Actual (thousand US$):
  - Mar. 25.1; Jun. 25.1; Sep. 0.0; Dec. 0.0

(Note: Table 1 headings indicate figures are in billions of Rwanda francs unless otherwise indicated; monetary program exchange rates: for 2004: RF 580.3/US$; for 2005: RF 566.9/US$.)

### Structural conditionality and benchmarks for 2005 (selected items from Table 2)
- Public Expenditure Management:
  - Issue draft instructions by the Public Accounts Department for routine reconciliation, and publish December reconciliation statement for the Treasury and the Rwanda Revenue Authority accounts — Prior action.
  - Minister of Finance to give press statement on fiscal program, outlining the changes to the 2005 budget — Prior action.
  - Complete restructuring agreements with all banks on Prime Holdings’ government guaranteed loans — Prior action.
  - Convert 80 percent of bank accounts of line ministries (except for donor-financed projects) into zero-balance accounts — End-May 2005 Benchmark.
  - Convert all bank accounts of line ministries and autonomous agencies into zero-balance accounts — End-September 2005 Performance criterion.
  - Integrate the bank accounts of line ministries and autonomous agencies in a Single Treasury Account — End-December 2005 Benchmark.
  - Publish November reconciliation statements for multiple entities; move to regular monthly statements with no more than one month lag — End-December 2005 Benchmark.
  - Prepare a consolidated general government fiscal report on a quarterly basis (data at end-September for benchmark) — End-December 2005 Benchmark.
- Revenue administration:
  - Complete 25 risk-based comprehensive audits of large businesses by the LTD for January–April 2005 — End-April 2005 Benchmark.
- Export promotion strategy:
  - Submit progress report to the Cabinet and the Export Promotion Commission on execution of action plans covering progress through end-June — End-July 2005 Benchmark.
- Governance:
  - Publish a financial audit and business plan of Prime Holdings prepared by a foreign-based international audit firm — End-September 2005 Performance criterion.

### Key TMU definitions and program adjusters (selected)
- External budgetary support:
  - Defined as all official external grants and official external loans to the central government (including all expected or received HIPC Initiative-related grants), except for external grants and loans related to the development budget.
  - Baseline budgetary support (excluding demobilization grants) is lower than programmed budgetary support by $0 million for end-March 2005, $0 million for end-June 2005, $17 million for end-September 2005, and $34 million for end-December 2005.
  - Reporting: data to African Department of the IMF monthly within three weeks of end of each month.
- Net foreign assets (NFA) of the NBR:
  - Defined consistent with SDDS template; excludes pledged/encumbered reserve assets; conversions use program exchange rate.
  - Program sets a floor on NFA; NFA floor increased by positive difference between actual and programmed general external budgetary support; adjusted downward for contingent spending up to US$0 million at end-March 2005, US$0 million at end-June 2005, US$17 million at end-September 2005, and US$34 million end-December 2005.
  - NFA floor also adjusted downward by amount of any negative difference between actual and baseline budgetary support up to a maximum adjustor of US$30 million, evaluated at the program exchange rate.
  - Reporting: weekly to African Department within seven days of end of each week.
- Net Credit to Government (NCG):
  - Calculated as change from end-December 2004 of net credit from banking system plus change of holdings of treasury bills and other government securities by nonbank sector; excludes project accounts and deposits over which central government does not have control.
  - Program sets a ceiling on NCG; ceiling decreased by positive difference between actual and programmed general external budgetary support; adjusted upward for contingent spending up to specified US$ amounts (US$0 million at end-March 2005, US$0 million at end-June 2005, US$17 million at end-September 2005, US$34 million end-December 2005); also adjusted upward by negative difference up to a maximum adjustor of US$30 million.
  - NCG adjustor evaluated in Rwanda francs at program exchange rate (for 2005: RF 566.9 = US$1).
  - Reporting: monthly within three weeks of end of each month (showing treasury bills, government bonds, other government debt, and central government deposits separately).
- Reserve money:
  - Defined to include currency in circulation (including FR 5,000 banknotes of 1998 issue and coins that ceased to be legal tender after December 31, 2004, but can still be exchanged at the NBR until end-2005), reserves of deposit money banks, deposits of public enterprises and autonomous public agencies, deposits of nonbank financial institutions, and deposits of the private sector.
  - Exclusions when used as performance criterion/benchmark: deposits of Caisse d’Épargne du Rwanda (C.E.R.) with the NBR (up to RF 1 billion), import deposits at the NBR (up to RF 150 million), and dormant accounts.
  - Program sets a ceiling on reserve money; if required reserve ratio is lowered, NBR expected to absorb excess liquidity; reserve money target adjusted by absolute change in ratio times deposit base of commercial banks.
  - Reporting: weekly to African Department within seven days of end of each week, including a weekly NBR balance sheet.

*Source: _cr05171 - 33.      The role of the public sector in the economy will be further reduced by the* (attachment content of the IMF staff report).*

### 17.      Definition: Broad money is defined as the sum of currency in circulation, deposits in

### 17.      Definition: Broad money is defined as the sum of currency in circulation, deposits in commercial banks, and nonbank deposits in the NBR. In addition, extended broad money is defined as broad money plus deposits in credit unions and credit cooperatives (mainly UBPR).

### Definition and scope
- 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 (mainly UBPR).

### Role in the program
- There is no performance criterion or benchmark on broad money or extended broad money, but "given its key influential role on inflation, they will be followed closely as indicative targets."

### Reporting requirement (monetary data)
- Weekly: balance sheet of the NBR transmitted within seven days of the end of each week.
- Monthly (within five weeks of the end of each month):
  - Balance sheets of commercial banks and other banking institutions (individual institutions and sector aggregate).
  - The monetary survey.
  - Monthly balance sheet for the NBR showing all items shown in the weekly NBR balance sheet.

### Related program constraints and definitions referenced in adjacent sections
- Ceiling on contracting or guaranteeing of new nonconcessional external debt (original maturity > one year):
  - Applies to central government, local governments, or the NBR.
  - Debt definition: Executive Board decision No. 6230-(79/140) adopted August 3, 1979, as amended by Decision No. 11096-(95/100) of October 25, 1995 and Decision No. 12274-(00/85) adopted August 24, 2000.
  - Exclusions: debt rescheduling and restructuring.
  - Includes: financial leases and instruments giving rise to external liabilities on nonconcessional terms.
  - Concessional debt: grant element of 50 percent or more.
  - Discount rates for concessionality assessment:
    - For loans with maturity of at least 15 years: 10-year average CIRRs published by the OECD.
    - For loans with shorter maturities: 6-month average CIRRs.
    - Margins to be added to the 10-year and 6-month averages:
      - 0.75 percent for repayment periods of less than 15 years;
      - 1 percent for 15–19 years;
      - 1.15 percent for 20–29 years;
      - 1.25 percent for 30 years or more.
  - Performance criterion excludes use of Fund resources.
- Special evaluation note:
  - Loans contracted with BADEA and OPEC Fund for energy rehabilitation financing (contracted in 2002 and 2003) and supplemental BADEA lending in 2004 will be evaluated using reference interest rates prevailing in September 2002.
- Target: A performance criterion on the ceiling of contracting or guaranteeing new nonconcessional external debt with original maturity of more than one year is set by the program.
- Reporting requirement: Details of all new external debt, including government guarantees, provided monthly within five weeks of the end of each month.

### Other monitoring elements summarized (contextual reporting requirements in the same attachment)
- Ceiling on change in outstanding stock of external debt with original maturity up to and including one year:
  - Definition references Guidelines on Performance Criteria with respect to Foreign Debt (point No. 9) adopted on August 24, 2000.
  - Excludes normal import-related credits (defined in detail).
  - Target: continuous performance criterion on the ceiling on change in outstanding short-term external debt.
  - Reporting: data on debt and guarantees transmitted monthly within five weeks of the end of each month.
- Domestic fiscal balance:
  - Definition: 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:
    - Ceiling on domestic fiscal deficit (floor on domestic fiscal balance) set as performance criterion or benchmark.
    - Shortfall in grants linked to the World Bank led demobilization and reintegration program will be used to reduce the deficit target (i.e., added to the target for the domestic fiscal balance).
    - Deficit ceiling revised upward for contingent spending up to amounts by which external budgetary support (excluding demobilization grants) exceeds baseline: up to US$0 million at end-March 2005, US$0 million at end-June 2005, US$17 million at end-September 2005, and US$34 million end-December 2005.
    - Contingent spending release conditions:
      1. Monetary program on track as evidenced by meeting quarterly targets on reserve money (NFA floor adjusted downward if foreign exchange spending occurs).
      2. Released in equal portions for priorities and nonpriorities.
    - Deficit ceiling will be reduced by privatization revenue minus any expenditure integral to privatization (recorded under net lending).
  - Reporting: Data on domestic revenue, current expenditure, domestically financed capital expenditure and net lending transmitted monthly within four weeks of the end of each month.
- Priority expenditure:
  - Definition: central government priority spending equals sum of recurrent expenditures and domestically-financed capital expenditures identified as priority in line with the PRSP process (program classification of the annual budget). Table 2 (attached in source) lists included programs (including spending on electricity).
  - Target: floor on priority expenditure (performance criterion or benchmark); adjusted upward by contingent priority spending if external budgetary support exceeds baseline amounts listed above (US$0 million, US$0 million, US$17 million, US$34 million for quarter-ends in 2005).
  - Reporting: Data at same level of detail as Table 2 transmitted monthly within three weeks of the end of each month.
- Net accumulation of domestic arrears:
  - Definition: net accumulation in a calendar year = gross accumulation of new domestic arrears within the year (difference between payment orders and actual payments related to payment orders issued during the year) minus gross repayment during the year of any arrears outstanding at 31 December of the preceding year (including repayment of preceding year’s float and older arrears as per government guidelines).
  - Target and adjustments: ceiling on net accumulation (negative target = floor on net repayment). Ceiling reduced downward by gross accumulated bills payable in excess of RF 1 billion at end-March 2005, RF 1.5 billion at end-June 2005, RF 2 billion at end-September 2005 and RF 2 billion at end-December 2005.
  - Reporting: detailed data on repayment of domestic arrears and remaining previous-year stock transmitted monthly within three weeks of the end of each month.
- Stock of outstanding nonreschedulable external arrears:
  - Definition: 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 nonaccumulation of nonreschedulable external arrears.
  - Reporting: detailed information on repayment and/or refinancing transmitted quarterly within three weeks of the end of each quarter; Fund notified immediately in case of incurrence.

*Source: _cr05171 - 17.      Definition: Broad money is defined as the sum of currency in circulation, deposits in commercial banks, and nonbank deposits in the NBR. In addition, extended broad money is defined as broad money plus deposits in credit unions and credit cooperatives (mainly UBPR).*

### 47.      Definition: The Interministerial Technical Committee, composed of senior officials

### 47.      Definition: The Interministerial Technical Committee, composed of senior officials

### Definition and responsibilities
- The Interministerial Technical Committee is composed of senior officials of key ministries and the National Bank of Rwanda.
- It shall meet once a month.
- It shall 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.

### Reporting requirement for the Committee
- 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.

### Reclassifications: 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.

### Summary of Reporting Requirements (selected items)
- Reporting status codes: PC = performance criterion or quantitative benchmark; QI = quantitative indicator; OV = other variable.
- Monetary and Foreign Exchange (examples):
  - Net foreign assets, National Bank of Rwanda (NBR): Weekly reporting; Seven days reporting delay; Electronically: 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; Five weeks; Yes.
  - Individual balance sheets of the commercial banks: Monthly; Five weeks; Yes.
  - Details of public sector deposits with individual commercial banks: Quarterly; Five weeks; Yes.
  - Quarterly opening/closing balances and debits/credits for OTR accounts, demobilization commission, Rwanda Revenue Authority (RRA), Victims of Genocide Fund (FARG), the Road Fund, and Gacaca in the central bank and commercial banks: Quarterly; Five weeks; Yes.
  - Details of commercial banks’ loan provisioning and capital adequacy: Quarterly; Five weeks; Yes.
  - Monthly data on foreign exchange operations of commercial banks, the NBR, and foreign exchange bureaus: Monthly; Five weeks; Yes.
  - Net open foreign exchange positions of commercial banks and foreign exchange bureaus: Monthly; Five weeks; Yes.
  - Exchange rates: Weekly; Seven days; Yes.
- Debt:
  - New external government borrowing: Monthly; Three weeks.
  - Stock of short-term external government debt: Monthly; Three weeks.
- Fiscal (selected):
  - Domestic arrears (repayment of the end-of-year stock of arrears and accumulation of new arrears): Monthly; Three weeks; Yes.
  - External arrears: PC status; reporting delay and electronic provision indicated.
  - External budgetary support with a break down between of loans by creditor and grants by donors: Monthly; Three weeks; Yes.
  - Fiscal data (revenue, expenditure, priority expenditure, exceptional expenditure, wage bill): Monthly; Three weeks; Yes.
  - Development budget implementation: Quarterly; Three weeks; Yes.
  - Scheduled debt service and payments: Quarterly; Four weeks; Yes.
- Public enterprises:
  - Public enterprises financial statements: Semiannual; Four weeks.
  - Public enterprises bank deposits: Quarterly; Four weeks.
  - Estimated and actual tax payments of the public enterprises: Quarterly; Four weeks.
- Civil service:
  - Size of the civil service (core civil service and teachers): Monthly; Three weeks; Yes.
- Balance of payments:
  - Export and imports: Monthly; Four weeks; Yes.
  - Detailed Balance of Payments: Quarterly; Four weeks.
- Prices:
  - CPI Kigali: Monthly; Four weeks; Yes.
- Notes:
  - 1/ The authorities will notify immediately the Fund in case of incurrence of any nonreschedulable external arrears.
  - 2/ On commitment basis (engagement) and on payment order basis (ordonnancement); the provision of fiscal data is based on the Αflash≅ reporting (aggregate and by ministry).

### Priority expenditure and budget figures (selected exact values)
- 2004-2005 proj. Total: 88,267109,163
- Recurrent: 69,31594,810
  - Internal Affairs: 5,5527,558
  - Agriculture: 2,2382,828
  - Commerce: 8031,435
  - Education: 17,37925,484
  - Youth and sport: 439298
  - Health: 7,21410,536
  - Transport and communication: 3,6255,551
    - Road fund: 3,2933,873
    - Other: 3321,678
  - Gender: 299277
  - Public service: 5242,176
  - Lands and natural resources: 715609
  - Local government: 3,7664,321
    - Districts: 2,8323,584
    - Other: 934784
  - Provinces: 24,36131,104
  - TIG (MINIJUST): 110300
  - HIMO (MINALOC): 290300
  - Export promotion: 2,0002,033
- Development: 18,95214,353
  - CDF: 2,7503,500
  - Electricity: 14,0006,929
  - Education: ...450
  - Health (equipment): ...1,000
  - Water: ...1,000
  - Study of manufacturing sector: ...100
  - Export promotion (capital): 2,0021,074
  - Agriculture guarentee fund: 200300
- Memorandum items:
  - Social spending (as percent of GDP) 1/5.05.3
    - Health1.01.3
    - Education4.04.0
- Table 3. Contingency expenditures, 2005 (In billions of Rwandan franc) — quarterly totals (selected):
  - Total by quarter: Q1 Q2 Q3 Q4 Total = 0.00 0.0 6.9 13.2 20.0
  - Nonpriority total: 0.00 0.0 4.2 5.6 9.9
  - Priority expenditures total: 0.00 0.0 2.7 7.5 10.2
  - Priority recurrent: 0.00 0.0 2.7 4.8 7.5
  - Priority capital: 0.00 0.0 0.0 2.7 2.7
  - Domestic arrears: 0.00 0.0 0.0 0.5 0.5
  - Export promotion (quarterly breakdown): 0.00 0.0 1.0 2.7 3.7
  - Agriculture-fertilizers: 0.00 0.0 0.0 1.7 1.7

### Rwanda: Relations With the Fund (as of January 31, 2005) — key facts and figures
- I. Membership Status:
  - Joined: 09/30/1963; Article VIII
- II. General Resources Account (SDR million / percent Quota):
  - Quota: 80.10 / 100.00
  - Fund holdings of currency: 80.11 / 100.02
  - Reserve position in Fund: 0.00 / 0.00
- III. SDR Department (SDR million / percent Allocation):
  - Net cumulative allocation: 13.70 / 100.00
  - Holdings: 19.45 / 141.97
- IV. Outstanding Purchases and Loans:
  - PRGF arrangements: 59.41 / 74.17 (SDR million / percent Quota)
- V. Financial Arrangements (selected entries):
  - PRGF / ESAF-PRGF:
    - Approval date: 08/12/2002 / 06/24/1998
    - Expiration date: 08/11/2005 / 04/30/2002
    - Amount approved: 4.00 / 71.40 (SDR million)
    - Amount drawn: 2.29 / 61.88 (SDR million)
  - SAF:
    - Approval date: 04/24/1991
    - Expiration date: 04/23/1994
    - Amount approved: 30.66 (SDR million)
    - Amount drawn: 8.76 (SDR million)
  - Stand-by:
    - Approval date: 10/31/1979
    - Expiration date: 10/30/1980
    - Amount approved: 5.00 (SDR million)
    - Amount drawn: 0.00 (SDR million)
- VI. Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs, without HIPC Assistance) — Forthcoming:
  - 2005 Principal: 6.66
  - 2006 Principal: 10.47
  - 2007 Principal: 12.38
  - 2008 Principal: 11.36
  - 2009 Principal: 9.15
  - Charges/Interest by year: 2005: 0.29; 2006: 0.25; 2007: 0.19; 2008: 0.12; 2009: 0.07
  - Total by year: 2005: 6.95; 2006: 10.72; 2007: 12.56; 2008: 11.48; 2009: 9.22

### HIPC Initiative and Fund assistance
- VII. Implementation of HIPC Initiative: Enhanced framework
  - Decision point date: 12/22/2000
  - Assistance committed (end-1999 NPV terms):
    - Total assistance (US$million): 452.00
    - Of which: Fund assistance (US$million): 43.80
    - (SDR equivalent in millions): 33.81
  - Completion point date: Floating
  - Delivery of Fund assistance (SDR million):
    - Amount disbursed: 14.45
    - Interim assistance: 14.45
    - Completion point: ...
  - Additional disbursement of interest income: ...
  - Amount applied against member’s obligations (cumulative): 14.45

### Safeguards, exchange system, consultations, and assessments
- VIII. Safeguards Assessments:
  - The Banque Nationale du Rwanda (BNR) is subject to a safeguards assessment under the PRGF arrangement.
  - A Safeguards Assessment was completed on April 14, 2003, and the proposed recommendations have largely been implemented.
- IX. Exchange System:
  - On March 6, 1995, Rwanda adopted a market-determined exchange rate system. Before then, the Rwanda franc was pegged to the SDR.
  - On December 1998, Rwanda accepted the obligations under Article VIII, Sections 2, 3 and 4 of the IMF.
  - In 2001, a foreign exchange auction system was put in place with technical assistance from MFD. Since February 7, 2001, auctions have been taking place on a weekly basis.
  - The exchange rate regime is currently classified as a managed float, and the foreign exchange auctions impose a limit of +/- RF 5 to the margin by which the exchange rate can vary from the previous day.
- X. Article IV Consultation:
  - Rwanda is on the revised 24-month consultation cycle.
  - The Executive Board discussed the staff report for the 2004 Article IV consultation (Country Report No. 04/382) on October 6, 2004.
- XI. FSAP, ROSCs, and OFC Assessments:
  - A Report on Observance of Standards and Codes on Fiscal Transparency (ROSC) was issued in July 2003.
  - A Financial Sector Assessment Program (FSAP) has taken place in February 2005.
  - Rwanda has not had an Offshore Financial Center (OFC) assessment.

### Technical assistance (selected missions and experts)
- 1999 FAD long-term experts, on tax policy, on budget preparation, and on treasury management.
- 1999 MFD long-term general advisor to governor of NBR.
- 1999 MFD experts on banking supervision and foreign exchange market operations.
- 2000 FAD experts on budget execution and on tax policy.
- 2000 MFD 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 MFD mission on foreign exchange policy, monetary policy, and banking supervision.
- 2001 MFD expert on monetary policy implementation.
- 2001 FAD mission on assessment of tracking of poverty-reducing expenditure, and the fiscal ROSC.
- 2001 MFD expert on banking supervision.
- 2001 FAD experts on expenditure management, and on tax policy (until midyear).
- 2002 MFD expert on banking supervision (until November).
- 2002 MFD expert on monetary and foreign exchange rate policy.
- 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 MFD expert on monetary and foreign exchange rate policy.
- 2003 MFD expert on banking supervision and regulation.
- 2003 MFD missions on banking supervision.
- 2003 MFD mission on foreign reserves management.
- 2003 STA multi-sector statistics mission.

*Source: _cr05171 - 47.      Definition: The Interministerial Technical Committee, composed of senior officials*

### APPENDIX                                                                        II

### APPENDIX II

### Resident Representative
- Mr. Abdikarim Farah completed his posting as Resident Representative in Kigali on June 30, 2004.
- Mr. Lars Holger Engström assumed his duties as Resident Representative in February 2005.

### Partnership for Rwanda’s Development Strategy (PRSP)
- PRSP completed in June 2002; discussed by the Boards of the IDA and the IMF on August 12, 2002.
- PRSP objective: targeted the halving of poverty by 2015 through a private sector and rural sector strategy.
- Six priority areas identified:
  - (1) rural development and agricultural transformation;
  - (2) human development;
  - (3) economic infrastructure;
  - (4) good governance;
  - (5) private sector development;
  - (6) institutional capacity building.
- Stakeholder involvement: civil society, government agencies and ministries, and donors actively involved in PRSP process and monitoring.
- Reporting timeline:
  - First PRSP progress report issued in July 2003.
  - Bank-Fund JSA produced in May 2004.
  - Second PRSP progress report issued in December 2004.

### World Bank Group Program and Portfolio
- Country Assistance Strategy (CAS) discussed by the World Bank Board in December 2002; aligns with PRSP and emphasizes move from project-based approaches to budget support.
- Poverty Reduction Strategy Credit (PRSC) under preparation; credit went to the Board in October 2004.
- PRSC objectives (as described):
  - strengthen GoR capacity to plan and budget results-oriented public sector actions supporting PRSP;
  - develop incentive frameworks through performance-based payments and contracting;
  - establish strong accountability mechanisms for citizen monitoring and feedback;
  - implement a sound fiduciary framework and monitoring and evaluation system for transparency and accountability in service delivery (health, education, water, energy).

### IDA Program (as of end-January 2005)
- Since 1970, Rwanda has received 60 IDA credits and grants totaling US$1,333.6 million.
- As of end-January 2005:
  - disbursements from IDA to Rwanda totaled about US$1026.7 million;
  - total undisbursed balance of US$221.9 million.
- Current portfolio (as of January 2005): ten operations representing a total commitment value of US$221.3 million of credits and grant facilities of US$30.5 million for an HIV/AIDS project and US$20 million for a decentralization and community development project.
- Sectors financed by IDA include:
  - infrastructure (roads, electricity, water supply, sanitation);
  - agriculture, rural development, forestry;
  - social infrastructure (health and population, education and training);
  - private sector development, public enterprise reform, financial development, technical assistance;
  - two policy-based quick-disbursing operations (IRC and PRSC1).
- Post-genocide response: two emergency budget support operations and a social fund-type project; restructuring of prewar portfolio to meet emergency and transition needs.

### IFC and MIGA Programs
- IFC investments historically:
  - FY1998: US$0.53 million in Highland Flowers;
  - FY2000: US$6.0 million in RWANDACELL;
  - December 2000: US$0.8 million approved for an apartment hotel in Kigali;
  - Investments with the exception of SORWAL have been cancelled as of the date of this report.
- IFC technical assistance: privatization, SMEs, financial and industrial sectors.
- MIGA:
  - Rwanda signed and ratified the MIGA Convention on October 27, 1989.
  - Became a full member of MIGA on September 27, 2002.
  - Rwanda was elected to MIGA’s Board of Directors during the World Bank/IMF annual meetings following membership completion.
  - Rwanda is a founding member of the Africa Trade Insurance Agency (ATI) launched in July 2001; ATI headquartered in Nairobi, Kenya, provides political risk insurance for trade credits in African countries.

### Bank-Fund Collaboration (summary of thematic areas)
- Development agenda:
  - Bank: complements poverty reduction goals with broad structural and sectoral work through lending and capacity building (budget management, energy, infrastructure, banking, telecommunications).
  - Fund: leads policy dialogue and macroeconomic policies including fiscal and monetary policies; supporting Rwanda through arrangements under ESAF/PRGF.
- Macroeconomic stability and development:
  - Collaboration in growth-oriented reforms; Fund provides technical assistance in macro framework and related issues.
- Public finance management and governance:
  - Bank: assistance to improve budget process via public expenditure reviews; completed Financial Accountability Review and Action Plan (FARAP); expected support through Country Financial Accountability Assessment (CFAA).
  - Fund: TA missions in financial management, fiscal decentralization, and revenue management; technical assistance in revenue management and modernization.
  - Joint Bank-Fund assessment in July 2004 on government capacity to track poverty expenditures.
- Structural and policy reforms and financial sector:
  - Bank: support in restructuring banking sector, addressing non-performing loans, micro-financing, controlling money laundering.
  - Fund: TA in banking supervision and prudential regulation; assistance to Central Bank in monetary policy analysis, banking supervision, and internal audit.
- Infrastructure and private sector development:
  - Bank: infrastructure projects in transport, water/sanitation, energy; Competitiveness and Enterprise Development Project (CEDP) supports telecommunications reform, privatization, tea factory privatization; Institutional Reform Credit (IRC) supports banking sector reforms and privatization process.
  - Fund: complements Bank through fiscal and monetary policy work.
- Agriculture and rural development:
  - Recent budgetary policies support productivity-enhancing measures such as fertilizer and seed policies and fully washed coffee promotion.
  - Bank supports through Rural Sector Support Project (RSSP).
- Social sector and community development:
  - Bank support for health, education, HIV/AIDS after the genocide; PRSCs support social sector; Decentralization and Community Development Project supports service delivery and local ownership.

### Status of World Bank Group Operations in Rwanda (As of January, 2005)
- IDA Credits (Statement):
  - Closed credits: 50 credits closed, total US$955.16 million; undisbursed for closed credits: 0.0
  - Active credits (selected list with Original Credit Amount in US$ Million and Undisbursed):
    - 2001 Competitiveness and Enterprise Dev: 40.8 24.0
    - 2000 Rural Water Supply and Sanitation: 20.0 18.3
    - 2001 Regional Trade Facility: 7.5 5.9
    - 2000 Human Resource Development: 35.0 21.5
    - 2001 Rural Sector Support Project: 48.0 41.7
    - 2002 Demobilization & Reintegration: 25.0 17.9
    - 2003 HIV/AIDS: 30.5 25.1
    - 2004 Decentralization & Community Development: 20.0 20.7
    - 2005 Public Sector Capacity Building: 20.0 21.2
    - 2005 Urgent Electricity Rehabilitation: 25.0 25.0
  - Total amount: 271.8 221.9
  - Total approved amount: 1,333.6
  - Of which: repaid 90.6
  - Total held by the Bank and IDA 1,019.8
- IFC pending commitments in Rwanda: US$5.326 million (Rwandacell, AEF Dreamland, and AEF Highland).
- Footnotes:
  - Includes two emergency recovery credits of US$50 million each, approved in 1995 and 1997, respectively, and fully disbursed.
  - Total approved amount covers closed and active credits which also included cancellations.

### Statistical Issues — overview and data quality
- General:
  - Macroeconomic database is weak due to destruction from the 1994 war.
  - Considerable technical assistance provided since the end of the war; some progress in compilation and dissemination of economic and financial statistics.
  - Authorities cooperative in providing data to the Fund.
  - Very few statistical publications; new annual publication initiated in 1998 covering major economic and financial statistics, including historical data back to 1990 (estimates where partial data).
  - Significant quality weaknesses: national accounts and price statistics, government finance, and balance of payments statistics.
  - Monetary statistics adequate for surveillance and program monitoring but quality and timeliness need improvement.
  - Scope for improving data relevant for banking supervision.

- GDDS participation and TA:
  - Rwanda participating in the IMF General Data Dissemination System; metadata posted since October 2003.
  - DFID project supports establishment of “Institut National des Statistiques de Rwanda” with a national accounts component to establish economic surveys and leading economic indicators for GDP compilation.
  - East AFRITAC assistance focuses on capacity building to construct short-term indicators on the formal sector, starting with a monthly PPI for the manufacturing (formal) sector; joint project with the central bank (BNR) with DFID financial support.
  - PPI for October 2003-June 2004 computed and under analysis; publication of PPI expected to begin in January 2005.

- Real sector statistics:
  - Statistics Directorate of MINECOFIN prepares national accounts; national accounts compiled starting from 1990 but quality weak due to shortages.
  - Efforts made to improve GDP estimates using production approach; significant weaknesses remain in expenditures and income data, complicating assessment of savings and investment and hampering reliability due to weak external sector statistics.
  - 2003 East AFRITAC mission advised on secondary sector statistics.
  - February 2004: EREBS group assisted MINECOFIN to develop new benchmarking GDP estimates (2001) and manufacturing PPI.
    - New GDP estimates show an increase by about 7 percent as compared to previous ones, with greater differences in many component categories.
  - Work advanced for implementation of the 1993 SNA.

- Prices and CPI:
  - NBR set up an improved consumer price index (CPI) covering 438 goods with a total sample of more than 25,000 observed in Kigali (weighted 77 percent) and eleven provincial towns.
  - CPI based on a survey of 6,450 households in 2000/01 (last survey before that was 1989) and on average 2003 prices.
  - CPI composition: local goods 70 percent; imported goods 30 percent; food and drinks 37 percent; housing and energy 16 percent.
  - Shortcomings:
    - Aggregation of infrequently purchased products into groups with same weights assigned to all products in group.
    - Index of underlying inflation too narrow as it excludes 53 percent of the goods as seasonal or exchange-rate-determined.
  - In 2003, old and new index developed closely in line; old index indicated higher inflation pressures during the period of monetary overhang in the last quarter of 2003 than the new index.

- Employment and wages:
  - Data on employment and wages are not collected except for central government and daily informal work.

- Data reporting:
  - Real sector data reported regularly for publication in International Finance Statistics (IFS), with some lags, particularly for GDP estimates.
  - Government finance:
    - Authorities report detailed monthly revenue and expenditure data to the African Department with a lag of three–four weeks via a flash-reporting unit established in MINECOFIN in 1996 with Fund assistance.
    - A functional classification of government expenditure was designed and presented with the 2003 budget; expenditures in PRSP “priority areas” are identifiable within economic classification.
    - Fiscal data do not consistently capture capital expenditure because capital projects (mainly foreign financed) are carried out by line ministries outside regular budget procedures; efforts under way to integrate development budget into normal budgetary procedures.
    - Fiscal data often show discrepancy between deficit derived above the line and deficit derived below the line (financing); Fund staff and authorities have made adjustments for changes in 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 reported to STA and published in IFS; these data exhibit large statistical discrepancies mainly due to time of recording of expenditures.
    - No sub-annual data reported to STA; GFS reported for publication in the GFS Yearbook only through 1993.

- Monetary statistics:
  - NBR balance sheet transmitted to the African Department on a weekly basis with a lag of one week.
  - Monetary survey and consolidated balance sheet of commercial banks transmitted monthly with a lag of about five weeks.
  - Detailed interbank money market transaction data provided upon request.
  - Monetary data reported separately to the Statistics Department on a timely basis and published in IFS.
  - NBR measures following STA mission recommendations:
    - adopted in June 2002 an improved classification of central bank balance sheet accounts related to transactions with government;
    - adapted in early 2004 the reporting format for the banking sector closer to the methodology proposed in the Monetary and Financial Statistics Manual;
    - expanding institutional coverage of broad money survey to include credit and savings unions, and microfinance institutions.

- Balance of payments statistics:
  - (Content on balance of payments statistics begins but is not included in the supplied text.)

*Source: _cr05171 - APPENDIX II*

### 12.      Foreign trade data are provided to Fund missions by the NBR. There are

### _cr05171 - 12.      Foreign trade data are provided to Fund missions by the NBR. There are

### Foreign trade and balance-of-payments data: main findings
- Foreign trade data are provided to Fund missions by the NBR.
- There are inconsistencies between data reported by the NBR and data recorded by customs.
- There is significant unrecorded trade, and information on invisible transactions is scarce.
- There are indications of significant under recording of official external transfers.
- Data on the level and composition of private flows are poor.
- Lack of well-trained staff for balance-of-payments compilation is a major impediment to improving data quality.
- Trade in goods data are mostly collected by customs with the major exception of imports and exports of electricity, tea, and coffee.
- Customs is expected to take over responsibility for reporting imports and exports of electricity, tea, and coffee in the near future.
- The implementation of supplementary surveys to companies, recommended by a STA mission to Kigali in September 2000, is currently being implemented: the NBR launched a unit in charge of these surveys, which, however, still lacks adequate training.

### Short-run improvement priorities identified by missions
- Reorganizing data entry and production of external trade statistics, using ASYCUDA and Eurotrace softwares.
- Adapting survey forms to companies to the BPM5 methodology.
- Working with CEPEX to obtain exhaustive data on international and bilateral aid.
- A follow-up mission visited Kigali in January 2004.

### Reporting, publication, and methodological notes
- 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 the compiling methods for balance of payments statistics which were included in Part 3 of the 2002 Balance of Payments Statistics Yearbook (BOPSY).

### External public debt data and institutional arrangements
- Databases on external public debt are maintained by both MINECOFIN and the NBR.
- The authorities have established a committee, composed of the 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.

*Source: IMF staff report content as provided in the supplied document excerpt.*

### 0.9 percent in 2003, thanks to strong activity in the construction, transport and,

### _cr05171 - 0.9 percent in 2003, thanks to strong activity in the construction, transport and,

### Economic performance and inflation (2003–2004)
- Real GDP growth: "0.9 percent in 2003, thanks to strong activity in the construction, transport and, communication sectors" (text).
- Annual inflation: "10.2 percent at end-December 2004" due to higher energy and food prices.
- Underlying inflation: "6 percent" (stable).
- Electricity shortages in 2004 negatively impacted growth in the formal and manufacturing sectors; causes: "lack of investment in the sector, the drop in water levels in hydroelectric dams and the surge in oil prices."
- Electricity policy response: rehabilitation of infrastructure and electricity tariffs were "doubled in January 2005" to cover additional rehabilitation investment costs.

### Fiscal sector outcomes (2004) and public expenditure management
- Domestic fiscal deficit (2004): "5.5 percent" (lower-than the programmed "7.8 percent").
- Revenue-to-GDP ratio: rose to "14 percent of GDP" from "13.5 percent in 2003".
- Revenue sources: higher revenue "due largely to increases in indirect taxes and strengthening of tax administration."
- Donor disbursement management: following delays to end-June 2004, authorities "restrain[ed] temporarily the public expenditure including the priority sectors instead of using the central bank financing." Once external disbursements resumed, "the short fall in priority spending was made up."
- Recent legal and institutional measures submitted to Parliament in 2004: "an organic budget law and financial regulations" (August 2004); a "new investment code, a new tax procedures, income tax and customs laws" (submitted in September).
- Treasury and cash management: establishment of a "Treasury Management Committee", a "cash management unit" and a "fiscal unit to consolidate budgets for districts and autonomous agencies."
- Public sector staffing reform: civil service reform to continue; "A new pay structure, simplifying the old one and integrating benefits will be introduced in 2005."
- Planned efficiency measures: "an action plan to reduce tax incentives, including tax holidays and exemptions will be submitted by end-September 2005."

### Monetary policy, reserves and exchange rate
- Monetary objectives 2005: contain inflation "at least at 6 percent" and continue building international reserves.
- 2004 monetary operations: objectives on reserve money under the program were met; to offset increased currency in circulation (payment of coffee farmers mid-year), authorities issued "a large amount of Treasury Bills, mainly to non bank sector."
- Gross official foreign reserves: increased to "5.8 months of imports" compared with an objective of "4.6 months."
- Real exchange rate: "appreciated slightly."
- Policy framework 2005: "Broad- money will be used as the nominal anchor to control inflation with reserve money as the operational target." The exchange rate "will remain market determined."
- Foreign exchange auctions: "the variation in the margin by which the exchange rate can vary has been increased and a study towards a further flexibility will be finalized by end-March 2005."
- Central bank stance: credit to the private sector "is expected to expand" and the central bank "stands ready to tighten the monetary policy in the event of inflationary pressures emerge."

### External sector and exports
- Current account: "the current account deficit narrowed compared to the program target, due to strong export growth and slowdown in imports."
- Export strategy: authorities "endorsed an export promotion strategy in September 2004 and created a inter-ministerial monitoring structure."
- Export measures: short-term measures to "improve access of coffee and tea farmers to inputs factors and strengthen Rwanda’s presence in the international market."
- External financing: continued use of "highly concessional loans" and ongoing efforts to reach agreements on debt cancellations or rescheduling with remaining Paris Club and non-Paris Club creditors.

### Financial sector assessment and reforms (FSAP)
- FSAP: "A joint Bank-Fund mission conducted last February the Financial Sector Assessment Program for Rwanda" to identify strengths/weaknesses and design action plans.
- FSAP findings: "Rwanda’s financial sector remains shallow and relatively underdeveloped. The size and structure of the economy pose significant challenges for building a deep, efficient and diversified financial sector."
- Authorities’ measures and commitments:
  - Privatization of banks (majority shares of two commercial banks "were sold to investors").
  - Strengthening banking sector regulation and supervision.
  - Creation of "a regulatory framework for micro finance" and "a new independent regulator for insurance industry."
  - Agreement to establish a "road map, identifying needs for capacity building and seek the necessary technical assistance."
  - Use of FSAP findings to "further strengthen the supervision of the banking sector in particular, the non bank institutions which provide rural areas with financial services."
  - Action plan to address weaknesses in financial institutions, including the "Housing Bank."
- Audit and governance: "the audit of the National Bank of Rwanda’s 2003 financial statements was completed"; delay was due to procurement tendering procedures.

### Structural reforms, privatization, and business environment
- Objectives: "improve the business environment with a view to further spur the private sector activity."
- Institutional steps:
  - Creation of a permanent secretariat to promote public/private partnership.
  - National investment dialogue (February) and an investment conference (March) to address obstacles to investment and encourage joint ventures with foreign investors.
  - Submission of "a new land law to Parliament" expected to be approved in 2005 to broaden access to credit and stimulate rural growth.
- Privatization plans: intensify steps to finalize privatization of the telecommunications company and prepare for the sale of "Primeholdings’ hotel projects."

### PRSP implementation and social objectives
- PRSP progress: "the second annual progress report" completed; aims include reducing the poverty line from "60 percent to 25 percent" and raising per capita income from "$250 to above $1000."
- Report role: "presents a candid analysis of achievements to date" and is a policy document with full stakeholder participation.
- Areas of progress: reform of public finance management, human resource development (education and health).
- Infrastructure emphasis: economic infrastructure (productive capacities, transport, energy, water and ICT) seen as critical for poverty reduction.
- Financial access: regulatory framework for micro-finance established; policy to strengthen banking supervision developed.
- Capacity building: a clear policy covering "the needs, budget, management and assessment of capacity building programs" to address institutional weaknesses in PRSP implementation.
- Authorities’ response: "Based on these recommendations, they will further improve the implementation of the PRSP."

### Macroeconomic outlook and 2005 policy objectives
- 2005 macro targets:
  - Growth: "4 percent" (objective).
  - Inflation: reduction "to 6 percent by end-year."
  - Domestic fiscal deficit (excluding demobilization): "4.5 percent of GDP."
- Policy priorities to reach targets:
  - Increase capital and labor productivity.
  - Increase spending in critical PRSP sectors.
  - Deepen structural reforms to foster private sector development.
  - Continue productivity-enhancing strategies in agriculture, energy, water, health and education.
  - Strengthen public finance management for efficient resource allocation.
  - Intensify privatization of remaining public enterprises.
- Regional stability: authorities emphasize importance of stability in the Great Lakes region and commit to contributing to peace building efforts.

### Debt sustainability and borrowing stance
- Borrowing policy: intend to "strictly limit the external borrowing and rely mostly on grants."
- Interim borrowing: "new borrowing during the interim period were kept at the level less that the cap set."
- HIPC and debt relief: by reaching the completion point and receiving additional HIPC debt relief, "Rwanda’s external debt will be substantially reduced."
- Staff scenarios: authorities "take good note of the Staff’s three scenarios analyzing Rwanda’s debt sustainability" and agree that "a higher and sustained level of grant financing, strong export growth and a focus on further revenue mobilization will be key to improving Rwanda’s debt situation."

### Policy recommendations and planned actions (summarized)
- Fiscal:
  - Consolidate improvements in tax laws and administration in 2005.
  - Develop new revenue measures for the 2006 budget.
  - Submit an action plan to reduce tax incentives and exemptions by end-September 2005.
  - Improve quality of spending and increase contingency priority allocations for agriculture, export promotion, rural roads and water.
  - Adopt a single account for Treasury and apply budgeting and accounting standards to local governments; integrate recurrent and development budgets.
- Monetary/Financial:
  - Use broad-money as nominal anchor; reserve money as operational target.
  - Preserve market determination of the exchange rate; increase foreign exchange auction flexibility (study to be finalized by end-March 2005).
  - Strengthen banking supervision and oversight, especially for non-bank rural financial institutions; implement FSAP action plan.
- Structural:
  - Intensify legal and regulatory reforms to improve business environment.
  - Accelerate privatization of telecommunications and other public enterprises.
  - Finalize land law to improve access to credit in rural areas.
  - Continue civil service and public financial management reforms to improve transparency and efficiency.
- PRSP and poverty reduction:
  - Continue implementation and mainstreaming of PRSP priorities; improve capacity building and implementation based on stakeholder and staff recommendations.

*Source: IMF staff report text (content unit _cr05171 - 0.9 percent in 2003, thanks to strong activity in the construction, transport and, communication sectors).*

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