## _cr05174 - Sections 1 and 2

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---

### Overview
- PRSP timeline and documents:
  - PRSP completed in June 2002; discussed by the Boards of the Bank and the Fund in July 2002.
  - First PRSP progress report of June 2003 was submitted to the Boards in May 2004.
  - Second APR completed in November 2004; supplemented by an update of March 10, 2005 reporting implementation during July-December of 2004.
- Purpose of the JSAN:
  - Evaluates strengths and weaknesses of the PRSP/IPRSP and whether it provides a sound basis for concessional assistance and HIPC debt relief.
- Key achievements noted in the APR:
  - Milestones in political and administrative governance: local and legislative elections completed; new Constitution in 2003; judiciary independent and a Supreme Court established.
  - Improvements in planning and budgeting processes; an organic budget law submitted to Parliament; an action plan to create a modern public financial management system adopted.
  - Demobilization advanced; strong social sector results:
    - Primary school net enrollment rate is now 91 percent.
    - Vaccine coverage rate for all antigens varies between 80 and 95 percent in most provinces.
    - Percentage of births attended by health personnel increased by 3 percentage points.
    - Immunization rates at 96 percent (WHO/UNICEF data).
- Constraints and setbacks:
  - Modernization of agriculture lagging; use of productivity-enhancing fertilizers declined in 2003.
  - Fiscal decentralization and development of monitoring/reporting systems advancing more slowly than expected.
  - Temporary slippage in policy implementation in 2003: spending overruns (mainly elections and goods/services) led to higher-than-expected domestic borrowing and difficulties in monetary policy.
  - In 2004, macroeconomic management broadly sound; priority spending increased to 8.5 percent (an increase of 1.6 percent of GDP over the 2003 level).
- Staff recommendation for upcoming PRSP update—focus on three areas:
  - Develop a macroeconomic framework linking PRSP priorities with the MTEF through costing and prioritization, and include a debt sustainability analysis.
  - Strengthen environment for private sector development through rehabilitating infrastructure and implementing growth-enhancing sectoral strategies, particularly in agriculture and export promotion.
  - Better gear public service delivery toward poverty reduction, including through decentralization and enhanced analyses linking policies to poverty outcomes.

### Macroeconomic and financial management
- Need to revise the medium-term macroeconomic framework to be more forward looking:
  - Manage potentially large donor inflows; ensure tradables sector copes with possible real appreciation; promote gradual mobilization of domestic revenue in anticipation of reduction in inflows.
  - First APR assumed a flat growth rate of 6 percent per year over the medium term; recent slowdown suggests Rwanda may not attain these targets without strong policies.
  - Staffs encourage using more conservative growth projections and further work on sources of growth and productivity, using inputs from the Country Economic Memorandum and DTIS.
  - Framework should be updated to incorporate recent developments (including in inflation and the current account).
- Debt sustainability and export promotion:
  - Staffs urge inclusion of a debt sustainability analysis in the framework.
  - Rwanda’s net present value of debt-to-exports ratio has deteriorated substantially and is now higher and well above thresholds under the enhanced HIPC Initiative (relative to decision point projections).
  - PRSP update should acknowledge that financing to advance toward the MDGs will have to be mostly in the form of grants.
  - Authorities should expeditiously implement specific actions identified in their export promotion strategy and ensure the sector receives sufficient budgetary resources.
- Fiscal prioritization and MTEF linkage:
  - Authorities emphasize better identifying priorities and linking them to the annual fiscal budget and the MTEF.
  - Substantial progress in costing/prioritization in education and health (supported by the PRSC); progress also in energy, water, and infrastructure.
  - Further work needed to consolidate sector strategies through costing and prioritization.
  - Example: planned large investments in electricity sector rehabilitation are not detailed in the APR (size of proposed investments and justification relative to other priorities not provided).

### Policies to promote growth and reduce poverty
- Private sector development and sectoral strategies:
  - Private sector must become the engine of growth in the medium term.
  - Government actions to improve private sector environment:
    - Legislation for regulation of the telecommunication sector in 2001.
    - Establishment of a multi-sector regulatory agency in October 2002.
    - Establishment of commercial chambers in 2004.
    - Two banks privatized in 2004; bids to privatize Rwandatel launched.
  - Government involvement in the economy remains significant; sectoral strategies needed especially for infrastructure, energy, and agriculture.
- Infrastructure and transport:
  - Efficient domestic and international transportation links are crucial for commerce and diversification; Rwanda is landlocked and faces high transportation costs.
  - Poor rural road network is a major constraint for farmers accessing markets.
  - Progress limited; government lacks a strategy to build basic infrastructure for domestic and international trade.
  - Staffs urge development of specific actions in the PRSP update based on DTIS findings.
- Electricity and energy:
  - Staffs welcome Urgent Electricity Rehabilitation Project to promote improved carbonization practices, use of improved stoves, and investments in high-priority micro hydro-based grids for rural electrification.
  - Staffs welcome exploration of alternative low-cost electricity generation, including a methane gas project from Lake Kivu, but note need for transparency on possible fiscal implications.
  - Staffs urge necessary institutional and regulatory reforms to encourage private investment in energy.
- Agriculture:
  - PRSP identifies agriculture as key, but budgetary allocations to the sector have been low and specific actions need development.
  - Some encouraging results in agricultural productivity, including in the export sector, but much more progress required.
  - Budgetary allocations to agriculture have been decreasing as a share of GDP; declining use of fertilizer and low utilization rates for improved seeds persist.
  - Staffs fully support planned increase in the 2005 budgetary allocation for agriculture but note more resources will be needed.
  - Without major investments—rural infrastructure for marketing and trade, capacity building of farmers, improved extension services—production will remain flat, compromising food security in rural areas.
  - Credit to agriculture is very low despite financial sector reform; increased access to microfinance could help.
  - New land law could open access to credit by enhancing land as collateral.
  - Staffs recommend the government take advantage of available donor support in agriculture.
- Regional context:
  - Regional instability remains an obstacle to growth.
  - Lasting peace in the region could open large markets in the eastern DRC and increase investor attractiveness.

### Governance and public sector management
- Public service delivery and capacity constraints:
  - Public service delivery must be more geared toward reducing poverty; capacity building and pay reform are pressing problems.
  - Expenditure management must be enhanced to transparently account for public resources and improve the link between policies and poverty reduction, including better targeting through decentralization.
- Capacity building initiatives:
  - Government, supported by the World Bank and the Africa Capacity Building Foundation, developed the Multi Sector Capacity Building Program (MSCBP) and created the Human Resource and Institutional Capacity Development Agency (HIDA).
  - Concerted efforts needed to ensure effective functioning of HIDA and sound implementation of MSCBP.
- Pay reform:
  - Vigorously pursue pay reform to attract, retain, and motivate scarce technical and managerial experts.
  - Across-the-board salary increases are neither advisable nor affordable.
  - Public sector salaries should be carefully calibrated to private sector pay scales for scarce/particular skills; promote transparency in pay scales and keep salary allowances to a minimum.
- Public expenditure management reforms:
  - Progress made in budget execution and treasury management; monitoring and tracking of debt relief satisfactory.
  - Staffs urge acceleration of reforms.
  - Budget preparation needs clearer links to the MTEF and the poverty reduction strategy.
  - Lack of integration of recurrent and development budgets remains a key constraint for an effective MTEF.
- Poverty monitoring, analysis, and decentralization:
  - PRSP update should provide more analyses of poverty trends and outcomes, especially on the MDGs.
  - Future progress reports could include information on poverty trends/dynamics using census and QUIBB surveys (2001 and 2003) and other surveys.
  - Need to strengthen link between data collection, analysis (integrating qualitative and quantitative approaches), and policymaking.
  - Analytical work and indicators on vulnerability could inform social protection strategy.
  - PRSP update should include detailed tables of key poverty indicators with medium to long-term targets to prioritize PRSP sectors.
  - Soon-to-be-established Statistics Institute and donor support for PSIAs should help.
  - Decentralization facing challenges: inadequate funding, delayed disbursement of central government grants, weak supervision, and insufficient information flow.
  - Effective decentralization requires implementation at local government level and capacity building to identify meaningful indicators and generate/analyze/use data.
  - PRSP monitoring unit (Poverty Observatoire) proposes training and data collection in 8 districts, expected to be extended to all districts under a PRS trust fund (financed by Japan, the Netherlands, and Switzerland; administered through the World Bank).
  - Financing from UNICEF and other donors being channeled toward PRS monitoring.

### Assessment of PRSP second-year implementation
- Bank and Fund staffs believe that the APR provides a fair and candid assessment of the second year implementation of the PRSP.
- The APR is comprehensive, points out risks for the future, and identifies areas for further improvement.
- Significant progress has been achieved in political and administrative governance.
- There has been substantial improvement in outcome indicators in the health and education sectors.
- Economic growth has slowed down.
- Further efforts are needed in decentralization.
- Further efforts are needed in putting in place appropriate monitoring and reporting systems.

### Staff recommendations (over the next twelve months)
- Develop an overarching macroeconomic framework, which clearly links the PRSP’s priorities with the MTEF.
- Strengthen the emphasis on private sector development through rehabilitating infrastructure and implementing growth-enhancing sectoral strategies, particularly in agriculture and export promotion.
- Better gear public service delivery toward poverty reduction, including through decentralization and enhanced analyses linking policies to poverty outcomes.

### Support modalities
- Support from the Bank and the Fund will be forthcoming in the context of the PRSC and a PRGF arrangement.

*Prepared by the Staffs of the International Monetary Fund and The International Development Association; approved March 22, 2005.*

### Section 1

### _cr05174 - Section 1

### Overview
- PRSP timeline and documents:
  - PRSP completed in June 2002; discussed by the Boards of the Bank and the Fund in July 2002.
  - First PRSP progress report of June 2003 was submitted to the Boards in May 2004.
  - Second APR completed in November 2004; supplemented by an update of March 10, 2005 reporting implementation during July-December of 2004.
- Purpose of the JSAN:
  - Evaluates strengths and weaknesses of the PRSP/IPRSP and whether it provides a sound basis for concessional assistance and HIPC debt relief.
- Key achievements noted in the APR:
  - Milestones in political and administrative governance: local and legislative elections completed; new Constitution in 2003; judiciary independent and a Supreme Court established.
  - Improvements in planning and budgeting processes; an organic budget law submitted to Parliament; an action plan to create a modern public financial management system adopted.
  - Demobilization advanced; strong social sector results:
    - Primary school net enrollment rate is now 91 percent.
    - Vaccine coverage rate for all antigens varies between 80 and 95 percent in most provinces.
    - Percentage of births attended by health personnel increased by 3 percentage points.
    - Immunization rates at 96 percent (WHO/UNICEF data).
- Constraints and setbacks:
  - Modernization of agriculture lagging; use of productivity-enhancing fertilizers declined in 2003.
  - Fiscal decentralization and development of monitoring/reporting systems advancing more slowly than expected.
  - Temporary slippage in policy implementation in 2003: spending overruns (mainly elections and goods/services) led to higher-than-expected domestic borrowing and difficulties in monetary policy.
  - In 2004, macroeconomic management broadly sound; priority spending increased to 8.5 percent (an increase of 1.6 percent of GDP over the 2003 level).
- Staff recommendation for upcoming PRSP update—focus on three areas:
  - Develop a macroeconomic framework linking PRSP priorities with the MTEF through costing and prioritization, and include a debt sustainability analysis.
  - Strengthen environment for private sector development through rehabilitating infrastructure and implementing growth-enhancing sectoral strategies, particularly in agriculture and export promotion.
  - Better gear public service delivery toward poverty reduction, including through decentralization and enhanced analyses linking policies to poverty outcomes.

### Macroeconomic and financial management
- Need to revise the medium-term macroeconomic framework to be more forward looking:
  - Manage potentially large donor inflows; ensure tradables sector copes with possible real appreciation; promote gradual mobilization of domestic revenue in anticipation of reduction in inflows.
  - First APR assumed a flat growth rate of 6 percent per year over the medium term; recent slowdown suggests Rwanda may not attain these targets without strong policies.
  - Staffs encourage using more conservative growth projections and further work on sources of growth and productivity, using inputs from the Country Economic Memorandum and DTIS.
  - Framework should be updated to incorporate recent developments (including in inflation and the current account).
- Debt sustainability and export promotion:
  - Staffs urge inclusion of a debt sustainability analysis in the framework.
  - Rwanda’s net present value of debt-to-exports ratio has deteriorated substantially and is now higher and well above thresholds under the enhanced HIPC Initiative (relative to decision point projections).
  - PRSP update should acknowledge that financing to advance toward the MDGs will have to be mostly in the form of grants.
  - Authorities should expeditiously implement specific actions identified in their export promotion strategy and ensure the sector receives sufficient budgetary resources.
- Fiscal prioritization and MTEF linkage:
  - Authorities emphasize better identifying priorities and linking them to the annual fiscal budget and the MTEF.
  - Substantial progress in costing/prioritization in education and health (supported by the PRSC); progress also in energy, water, and infrastructure.
  - Further work needed to consolidate sector strategies through costing and prioritization.
  - Example: planned large investments in electricity sector rehabilitation are not detailed in the APR (size of proposed investments and justification relative to other priorities not provided).

### Policies to promote growth and reduce poverty
- Private sector development and sectoral strategies:
  - Private sector must become the engine of growth in the medium term.
  - Government actions to improve private sector environment:
    - Legislation for regulation of the telecommunication sector in 2001.
    - Establishment of a multi-sector regulatory agency in October 2002.
    - Establishment of commercial chambers in 2004.
    - Two banks privatized in 2004; bids to privatize Rwandatel launched.
  - Government involvement in the economy remains significant; sectoral strategies needed especially for infrastructure, energy, and agriculture.
- Infrastructure and transport:
  - Efficient domestic and international transportation links are crucial for commerce and diversification; Rwanda is landlocked and faces high transportation costs.
  - Poor rural road network is a major constraint for farmers accessing markets.
  - Progress limited; government lacks a strategy to build basic infrastructure for domestic and international trade.
  - Staffs urge development of specific actions in the PRSP update based on DTIS findings.
- Electricity and energy:
  - Staffs welcome Urgent Electricity Rehabilitation Project to promote improved carbonization practices, use of improved stoves, and investments in high-priority micro hydro-based grids for rural electrification.
  - Staffs welcome exploration of alternative low-cost electricity generation, including a methane gas project from Lake Kivu, but note need for transparency on possible fiscal implications.
  - Staffs urge necessary institutional and regulatory reforms to encourage private investment in energy.
- Agriculture:
  - PRSP identifies agriculture as key, but budgetary allocations to the sector have been low and specific actions need development.
  - Some encouraging results in agricultural productivity, including in the export sector, but much more progress required.
  - Budgetary allocations to agriculture have been decreasing as a share of GDP; declining use of fertilizer and low utilization rates for improved seeds persist.
  - Staffs fully support planned increase in the 2005 budgetary allocation for agriculture but note more resources will be needed.
  - Without major investments—rural infrastructure for marketing and trade, capacity building of farmers, improved extension services—production will remain flat, compromising food security in rural areas.
  - Credit to agriculture is very low despite financial sector reform; increased access to microfinance could help.
  - New land law could open access to credit by enhancing land as collateral.
  - Staffs recommend the government take advantage of available donor support in agriculture.
- Regional context:
  - Regional instability remains an obstacle to growth.
  - Lasting peace in the region could open large markets in the eastern DRC and increase investor attractiveness.

### Governance and public sector management
- Public service delivery and capacity constraints:
  - Public service delivery must be more geared toward reducing poverty; capacity building and pay reform are pressing problems.
  - Expenditure management must be enhanced to transparently account for public resources and improve the link between policies and poverty reduction, including better targeting through decentralization.
- Capacity building initiatives:
  - Government, supported by the World Bank and the Africa Capacity Building Foundation, developed the Multi Sector Capacity Building Program (MSCBP) and created the Human Resource and Institutional Capacity Development Agency (HIDA).
  - Concerted efforts needed to ensure effective functioning of HIDA and sound implementation of MSCBP.
- Pay reform:
  - Vigorously pursue pay reform to attract, retain, and motivate scarce technical and managerial experts.
  - Across-the-board salary increases are neither advisable nor affordable.
  - Public sector salaries should be carefully calibrated to private sector pay scales for scarce/particular skills; promote transparency in pay scales and keep salary allowances to a minimum.
- Public expenditure management reforms:
  - Progress made in budget execution and treasury management; monitoring and tracking of debt relief satisfactory.
  - Staffs urge acceleration of reforms.
  - Budget preparation needs clearer links to the MTEF and the poverty reduction strategy.
  - Lack of integration of recurrent and development budgets remains a key constraint for an effective MTEF.
- Poverty monitoring, analysis, and decentralization:
  - PRSP update should provide more analyses of poverty trends and outcomes, especially on the MDGs.
  - Future progress reports could include information on poverty trends/dynamics using census and QUIBB surveys (2001 and 2003) and other surveys.
  - Need to strengthen link between data collection, analysis (integrating qualitative and quantitative approaches), and policymaking.
  - Analytical work and indicators on vulnerability could inform social protection strategy.
  - PRSP update should include detailed tables of key poverty indicators with medium to long-term targets to prioritize PRSP sectors.
  - Soon-to-be-established Statistics Institute and donor support for PSIAs should help.
  - Decentralization facing challenges: inadequate funding, delayed disbursement of central government grants, weak supervision, and insufficient information flow.
  - Effective decentralization requires implementation at local government level and capacity building to identify meaningful indicators and generate/analyze/use data.
  - PRSP monitoring unit (Poverty Observatoire) proposes training and data collection in 8 districts, expected to be extended to all districts under a PRS trust fund (financed by Japan, the Netherlands, and Switzerland; administered through the World Bank).
  - Financing from UNICEF and other donors being channeled toward PRS monitoring.

### Conclusion
- Staffs commend progress in governance and social sectors, note macroeconomic management improved in 2004 after 2003 slippage, and emphasize priorities for the PRSP update: robust macroeconomic framework with debt sustainability analysis, concrete strategies for private sector development and sectoral productivity (notably agriculture, infrastructure, energy, and export promotion), and strengthened public service delivery and monitoring targeted to poverty reduction.

*Prepared by the Staffs of the International Monetary Fund and The International Development Association; approved March 22, 2005.*

### Section 2

### _cr05174 - Section 2

### Assessment of PRSP second-year implementation
- Bank and Fund staffs believe that the APR provides a fair and candid assessment of the second year implementation of the PRSP.
- The APR is comprehensive, points out risks for the future, and identifies areas for further improvement.
- Significant progress has been achieved in political and administrative governance.
- There has been substantial improvement in outcome indicators in the health and education sectors.
- Economic growth has slowed down.
- Further efforts are needed in decentralization.
- Further efforts are needed in putting in place appropriate monitoring and reporting systems.

### Staff recommendations (over the next twelve months)
- Develop an overarching macroeconomic framework, which clearly links the PRSP’s priorities with the MTEF.
- Strengthen the emphasis on private sector development through rehabilitating infrastructure and implementing growth-enhancing sectoral strategies, particularly in agriculture and export promotion.
- Better gear public service delivery toward poverty reduction, including through decentralization and enhanced analyses linking policies to poverty outcomes.

### Support modalities
- Support from the Bank and the Fund will be forthcoming in the context of the PRSC and a PRGF arrangement.

*Source: _cr05174 - Section 2*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05174.pdf_