## _cr1215 ## Source details **Canonical URL:** [_cr1215](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1215.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1215.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1215.pdf.json) --- ### Executive Summary — Recent developments and program performance - Program performance: all end-June quantitative assessment criteria were met; structural benchmarks were partially met—one was met with delay and one was not met. - Growth and activity: - Real GDP growth is expected to reach 8.8 percent for 2011, up from 7.5 percent in 2010. - Activity driven by a strong harvest, robust exports, and strong domestic demand supported by an expansion of credit to the private sector. - Exports in 2011 are on track to grow by more than a third compared to 2010 and exceed PSI projections. - External sector and reserves: - Current account deficit expected to exceed 10 percent of GDP for 2011. - Overall balance expected to end the year in surplus. - International reserve coverage expected to stay above four months of prospective imports. - Exchange rate remained stable throughout 2011. - Fiscal performance: - Total revenue (excluding grants) exceeded program levels for the second half of FY 2010/11 by 0.4 percent of GDP. - Higher expenditure and net lending exceeded targets by about 0.3 percent of GDP, leaving overall fiscal deficit (excluding grants) for the fiscal year as a whole in line with the program. - Program monitoring and structural benchmarks: - Quarterly budget execution report starting with the third quarter of FY 2010/11 was not met due to technical difficulties shifting to the GFS 2001 framework; first quarterly report for FY2011/12 completed and posted by end-November. - Submission to Cabinet of draft legislation to transfer collection and audit functions of social security contributions to the RRA delayed and expected by end-March 2012. - Submission of the Medium-term Debt Strategy (MTDS) delayed to end-December (from end-October). - Staff recommendations: - Complete the third review. - Modify assessment criteria for end-December 2011. - Set end-June 2012 assessment criteria. - Approve additional structural benchmarks for FY 2011/12 under the PSI. ### Inflation, monetary policy, and liquidity - Inflation developments: - Headline inflation increased from 0.2 percent at end-2010 to 7.8 percent in October 2011. - Headline inflation projected to reach 8.7 percent by end-2011. - Core inflation rose from 0.2 percent at end-2010 to 8.9 percent in October 2011, lately exceeding headline inflation. - Five different measures of core inflation have trended upward since early 2011—markedly since July—indicating second-round effects of food and fuel price increases are embedded in the inflation process. - Monetary policy stance and implementation: - NBR was initially reluctant to raise interest rates earlier in 2011, prioritizing growth and viewing inflation as mainly exogenous. - Currency in circulation accounts for some 80 percent of total reserve money and increased rapidly; NBR liquidity forecasts did not account for several factors driving currency demand. - Meeting the end-June reserve money target required significant liquidity absorption; repo transactions at unchanged interest rates and allowing some banks not to meet mandatory reserve requirements (without penalties) were used, effectively loosening policy. - Since early October, the NBR increased its policy rate (Key Repo Rate or KRR) on two occasions by a cumulative 100 basis points; the KRR remains negative in real terms and reserve money continued to exceed programmed levels. - Staff advice: - Authorities have tightened monetary policy to contain inflation and should remain vigilant and tighten further if needed. - Enhance monetary policy effectiveness by (i) improved forecasting of domestic liquidity and (ii) an action plan to develop the interbank money market to allow fully market-determined interest rates consistent with the NBR’s inflation objective. ### Fiscal policy outlook and revenue mobilization - Fiscal consolidation for FY2011/12 and FY2012/13 remains on track and is expected to further anchor macroeconomic stability. - Authorities introduced additional revenue measures for FY2012/13 to preserve the revenue objective of the PSI. - Specific revenue developments: - Reduction in fuel taxes results in a permanent and previously unprogrammed loss in revenue of 0.4 percent of GDP. - Shortfall more than offset in FY2011/12 by a one-off non-tax receipt from a new telecom license of 0.7 percent of GDP (and elsewhere noted as 0.4 percent of GDP in the 2011/12 budget discussion). - Overall fiscal deficit (including grants) for FY2011/12 projected to decline to 1.9 percent from 3.5 percent of GDP in FY2010/11. - FY2012/13 measures: - Proposed revisions to the investment code to reduce exemptions (structural benchmark) and removal of specially negotiated lower tax rates for priority sectors. - Expected revenue impact: bolster domestic revenue by some 0.6 percent of GDP, keeping revenue at 14.2 percent of GDP in FY2012/13. - Overall fiscal deficit expected to decline to 1.1 percent of GDP in FY2012/13 in line with PSI objectives. - Authorities will finalize, by December 2011, a study to broaden the tax base (structural benchmark); study may include a proposal to introduce a flat tax starting as early as FY2012/13; any new tax policy measure should be, at a minimum, revenue neutral. ### Financial sector, SACCOs, and supervision - Banking sector soundness and outreach: - Banking system remained well capitalized; nonperforming loans declined from 11.3 percent at end-2010 to 9.3 percent at end-September 2011 (other passages report 10.8 percent to 9.2 percent at end-June 2011). - Profitability improving. - SACCOs and supervision: - Since March 2011, NBR licensed 381 of 416 newly created SACCOs to grant loans. - NBR hired and trained five bank supervisors and 60 inspectors for SACCOs. - NBR introduced Access to Finance Forums at district level and rolled out a nationwide financial sensitization campaign. - Emphasis that establishment of a transparent and sustainable institutional structure to supervise SACCOs needs to be fast-tracked given rapid rollout and attendant risks. - FSAP and technical assistance: - Authorities developing action plan to implement recommendations of the 2011 FSAP Update, with expected FIRST technical assistance by end-2011. - Consultant finalizing a report on sustainability and supervisory options for SACCOs. - Authorities intend to create a high-level steering committee and agree an action plan by end-March 2012 (structural benchmark). ### Medium-term outlook — growth, inflation, balance of payments, and reserves - Growth and inflation projections: - Real GDP growth projected to slow to 7.6 percent in 2012. - Inflation projected to decline to 7.5 percent in 2012 and return to authorities’ inflation objective of 5 percent over the medium term. - Balance of payments and reserves: - Balance of payments expected to be in deficit in the near term reflecting rising imports from large investment projects. - Reserve coverage would not fall below three months of prospective imports. - Selected projections from Text Table 1 (selected series preserved): - Real GDP: 11.2 (2008), 4.1 (2009), 7.5 (2010), 7.0 (2011), 8.8 (2011b?), 7.6 (2012), 7.0 (2013), 7.0 (2014), 6.8 (2015), 6.5 (2016). - Consumer prices (end of period): 22.3 (2008), 5.7 (2009), 0.2 (2010), 7.5 (2011), 8.7 (2011b?), 7.5 (2012), 6.0 (2013), 5.0 (2014), 5.0 (2015), 5.0 (2016). - Gross official reserves (months of imports): 4.7 (2008), 5.4 (2009), 4.5 (2010), 5.7 (2011), 4.6 (2011b?), 4.2 (2012), 3.7 (2013), 3.0 (2014), 3.0 (2015), 3.5 (2016). - Current account balance (incl. official transfers): -4.9 (2008), -7.3 (2009), -6.0 (2010), -5.2 (2011), -10.6 (2011b?), -12.7 (2012), -8.9 (2013), -5.3 (2014), -4.0 (2015), -2.7 (2016). - Revenues (percent of GDP): 12.6, 14.9, 12.6, 13.7, 13.9, 14.1, 14.2, 14.4, 14.7, 14.9 (2008–2016 series). - Grants (percent of GDP): 9.9, 9.3, 13.2, 10.8, 10.9, 11.1, 10.3, 9.2, 8.3, 6.9 (2008–2016 series). ### Risks, external spillovers, and staff caution - Channels for adverse global developments to affect Rwanda: - (i) slowdown in global demand for exports; - (ii) reduction in foreign direct investments; - (iii) slowdown in tourism receipts; - (iv) inward remittances; - (v) contraction of the aid envelope. - Estimated impact: - A further downward revision in global growth by one percentage point and maintaining crude oil and commodity prices at January 2011 levels could reduce domestic output growth by 2.3 percentage points in 2012. - Comparative vulnerability: - Rwanda’s estimated growth spillover higher than some neighboring EAC countries owing to a highly concentrated export base and dependence on aid. - Policy recommendations to reduce vulnerability: - Export diversification and lower dependence on aid over the medium to long term. - Proactive monetary policy to contain any second-round effects from spikes in commodity and crude oil prices. - Staff cautions: - Advise against using the central bank’s foreign assets as collateral for external borrowing. - Warning that encumbering foreign assets sets a worrisome precedent and program does not envisage similar bridge loans with encumbered reserve assets. ### Enhancing monetary policy framework, liquidity forecasting, and interbank market - Monetary policy targets and implementation: - Agreed slowdown in reserve money growth in 2012 to 17 percent compared with 19.6 percent in 2011. - Inflation target for 2012: 7.5 percent. - Credit to the private sector projected to grow by 16.6 percent in 2012. - Staff: more tightening may be needed if underlying inflationary pressures continue; NBR committed to remain vigilant and use all available instruments. - Liquidity forecasting (structural benchmark): - With IMF MCM technical assistance, NBR to put in place a consistent framework to forecast main components of domestic liquidity and extend forecast horizon. - Forecast outputs: weekly-updated 1–4 week forecasts and monthly-updated 3–6 month forecasts. - Action plan to develop interbank money market to be finalized by end-February 2012 and immediately implemented (structural benchmark). - NBR to intervene at a single point on the short end of the yield curve and allow interest rates on other maturities to be market determined. - Foreign exchange market operations: - NBR to gradually shift intervention method from price-maker to price-taker within the exchange rate corridor framework as intervention rates move in line with fundamentals. - Enhance interest rate and exchange rate corridors to improve monetary policy effectiveness. ### Securing financing for large investment projects and debt policy - Non-concessional borrowing (NCB) usage under PSI: - Authorities confirmed use of US$180 million of the US$240 million NCB ceiling allowed under the program (4 ½ percent of GDP). - Included loans: US$60 million from PTA bank signed in June 2011 for Rwandair; US$20 million from PTA bank secured in December 2010; bridge loan of US$100 million from Citibank signed in August 2011 for Kigali Convention Center. - Citibank bridge loan requires NBR to escrow 100 percent of disbursed amounts at Citibank. - Staff caution and recommendations: - Encumbering foreign assets is discouraged; program does not envisage similar bridge loans with encumbered reserve assets. - Authorities exploring financing options including PPPs for large projects such as a new international airport (plans preliminary). - Authorities welcomed upgrade to “higher” capacity for NCB under IMF debt limit policy and agreed to continue with current NCB limit under the PSI at least through the next review while implementing MTDS and DSA (structural benchmark). ### National accounts, statistics, and PFM improvements - National accounts and statistics: - 2011 GDP estimates based on more accurate food crop production statistics via ex-post crop assessment surveys. - Share of GDP estimated by population growth rates reduced from 19 to 7.4 percent. - Results of the Establishment Survey 2011 published on NISR website. - Upcoming Enterprise Survey planned for October 2012 (structural benchmark). - NISR staffing: 90 out of 100 permanent positions filled as of August 2011. - PFM and IFMIS: - Authorities on track to complete road map for IFMIS implementation for full set of fiscal accounts (structural benchmark — End-March 2012). - IFMIS Blueprint prepared; roadmap to be developed and completed by March 2012 (new structural benchmark). - Commitment to prepare and publish quarterly budget execution reports on the website within 45 days from the end of each quarter. ### Reporting requirements, program monitoring, and transparency - Data transmission frequency and deadlines: - Monthly data: transmitted within five weeks from the end of each month. - Weekly data: transmitted within seven days of the end of each week. - Specific reporting and targets: - Floor on domestic government revenue measured cumulatively for specified dates; detailed monthly reporting required. - Floor on priority expenditure measured cumulatively for specified dates; monthly reporting required. - Ceiling on net accumulation of domestic arrears and ceiling on new nonconcessional external debt of the public sector apply; detailed monthly reporting required. - Targets for monetary aggregates: floors/ceilings for NFA of NBR and reserve money with specific adjusters and reporting (weekly/daily breakdowns). - Notification requirement: - Authorities to inform IMF staff in writing at least ten business days prior to any policy changes that could affect program outcome. - Authorities to furnish official communication to IMF describing program performance of quantitative and structural assessment criteria and benchmarks within 8 weeks of a test date. ### Program risks, implementation risks, and staff appraisal - Implementation risk: - Stepped-up efforts needed to implement structural measures in a timely manner; further delays could postpone anticipated macroeconomic gains. - Balance of risks: - Rwanda’s 2011 performance poised for high growth but also high inflation; balance of risks to inflation is on the upside. - Staff appraisal: - Program performance broadly satisfactory: all end-June quantitative assessment criteria met; structural benchmarks partially met. - Staff supports authorities’ commitments on fiscal consolidation, revenue mobilization, liquidity forecasting, interbank market development, SACCO supervision, and prudent debt management. - Staff supports waiver request for a nonobservance of the continuous assessment criterion on new nonconcessional borrowing (BRD Euro 8 million loan) subject to remedial measures and strengthened reporting. *Source: IMF staff report excerpts and MEFP content from _cr1215 (Executive Summary and selected chapters).* ### Executive Summary ...................................................................................................... ### _cr1215 - Executive Summary ### Recent developments and program performance - Program performance was broadly satisfactory: all end-June quantitative assessment criteria were met; structural benchmarks were partially met—one was met with delay and one was not met. - Growth and activity: - Real GDP growth is expected to reach 8.8 percent for 2011, up from 7.5 percent in 2010. - Economic activity was driven by a strong harvest, robust exports, and strong domestic demand supported by an expansion of credit to the private sector. - Exports in 2011 are on track to grow by more than a third compared to 2010 and exceed PSI projections. - External sector and reserves: - The current account deficit is expected to exceed 10 percent of GDP for 2011. - The overall balance is expected to end the year in surplus. - International reserve coverage is expected to stay above four months of prospective imports. - The exchange rate has remained stable throughout 2011. - Fiscal performance: - Total revenue (excluding grants) exceeded program levels for the second half of FY 2010/11 by 0.4 percent of GDP, mainly from higher direct taxes and taxes on goods and services. - Higher expenditure and net lending exceeded targets by about 0.3 percent of GDP, leaving the overall fiscal deficit (excluding grants) for the fiscal year as a whole in line with the program. - Program monitoring: - One structural benchmark (preparation of quarterly budget execution report starting with the third quarter of FY 2010/11) was not met due to technical difficulties shifting to the GFS 2001 framework; the first quarterly report for FY2011/12 was completed and posted by end-November. - The submission to Cabinet of draft legislation to transfer collection and audit functions of social security contributions to the RRA was delayed and is now expected by end-March 2012. - Submission of the Medium-term Debt Strategy (MTDS) was delayed to end-December (from end-October). ### Inflation, monetary policy, and liquidity - Inflation developments: - Headline inflation increased from 0.2 percent at end-2010 to 7.8 percent in October 2011. - Headline inflation is projected to reach 8.7 percent by end-2011. - Core inflation has risen from 0.2 percent at end-2010 to 8.9 percent in October 2011, lately exceeding headline inflation. - Box 1 conclusion: five different measures of core inflation have trended upward since early 2011—markedly since July—indicating second-round effects of food and fuel price increases are embedded in the inflation process. - Monetary policy stance and implementation: - The NBR had been reluctant to raise interest rates earlier in 2011, prioritizing support for economic growth and viewing inflation as mainly exogenous. - Currency in circulation accounts for some 80 percent of total reserve money and increased rapidly; NBR liquidity forecasts did not account for several factors driving currency demand (rural economic activity, rising coffee prices, branch banking expansion, limited payment system development). - Meeting the end-June reserve money target required significant liquidity absorption; repo transactions at unchanged interest rates and allowing some banks not to meet mandatory reserve requirements (without penalties) were used, effectively loosening policy. - Since early October, the NBR increased its policy rate (key repo rate or KRR) on two occasions by a cumulative 100 basis points—the first rate increases since November 2010—but the KRR remains negative in real terms and reserve money continued to exceed programmed levels. - Staff advice: - The authorities have tightened monetary policy to contain inflation and should remain vigilant and tighten monetary policy further if needed. - Effectiveness of monetary policy (implementation of the reserve money program) will be enhanced through (i) improved forecasting of domestic liquidity and (ii) an action plan to develop the interbank money market to allow fully market-determined interest rates consistent with the NBR’s inflation objective. ### Fiscal policy outlook and revenue mobilization - Fiscal consolidation for FY2011/12 and FY2012/13 remains on track and is expected to further anchor macroeconomic stability. - The authorities introduced additional revenue measures for FY2012/13 to preserve the revenue objective of the Policy Support Instrument (PSI). ### Financial sector and SACCOs - Banking sector soundness: - The banking system remained well capitalized; nonperforming loans declined from 11.3 percent at end-2010 to 9.3 percent at end-September 2011. - Profitability is improving. - SACCOs and supervision: - Since March 2011, the NBR licensed 381 of the 416 newly created Savings and Credit Cooperatives (SACCOs) to grant loans. - The NBR has hired and trained new supervisors: five bank supervisors and 60 inspectors for SACCOs. - The NBR introduced Access to Finance Forums at the district level and rolled out a nationwide financial sensitization campaign. - The Executive Summary emphasizes that establishment of a transparent and sustainable institutional structure to supervise SACCOs needs to be fast-tracked; given rapid rollout of SACCOs as full-fledged lending institutions and attendant risks, the necessary institutional structure must be put in place without delay. ### Capacity building, statistics, and structural reforms - Further capacity-building measures planned: - Improvements in national account statistics. - Further Public Financial Management (PFM) improvements. - Development of the interbank money market and improved domestic liquidity forecasting (see Monetary policy). - Structural benchmark implementation: - Structural benchmarks were partially met; implementation pace has slowed due to technical difficulties or capacity bottlenecks. - Most structural benchmarks set for September and October have since been met, although some delays continued. ### Risks, contingent issues, and staff recommendations - Risks: - Rwanda’s 2011 performance is poised for high growth but also high inflation, with elevated risks for 2012. - Growth is expected to slow in 2012; risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation. - Staff recommendations and program actions: - Staff recommends completion of the third review. - Staff recommends modification of the assessment criteria for end-December 2011. - Staff recommends setting of end-June 2012 assessment criteria. - Staff recommends approval of additional structural benchmarks for FY 2011/12 under the PSI program. *Source: Executive Summary, _cr1215 - Executive Summary.* ### 8. The medium-term outlook remains positive, although staff’s and the authorities’ ### 8. The medium-term outlook remains positive, although staff’s and the authorities’ ### Medium-term growth and inflation outlook - Real GDP growth is projected to slow to 7.6 percent in 2012, as planned fiscal consolidation slows aggregate demand. - Inflation is projected to decline to 7.5 percent in 2012 and is expected to return to the authorities’ inflation objective of 5 percent over the medium term. - Staff versus authorities on inflation risks: - Authorities: saw little inflation risk and viewed recent inflation as solely exogenous. - Staff: cautioned that the recent trend in core inflation, combined with uncertainties in global food and fuel prices, could further pressure domestic inflation. - Balance of payments and reserves: - Balance of payments is expected to be in deficit in the near term, reflecting rising imports from large investment projects. - Reserve coverage, although lower than recent years, would not fall below three months of prospective imports. - Text Table 1 key projections and levels (selected): - Real GDP: 11.2 (2008), 4.1 (2009), 7.5 (2010), 7.0 (2011), 8.8 (2011b?), 7.6 (2012), 7.0 (2013), 7.0 (2014), 6.8 (2015), 6.5 (2016). - Consumer prices (end of period): 22.3 (2008), 5.7 (2009), 0.2 (2010), 7.5 (2011), 8.7 (2011b?), 7.5 (2012), 6.0 (2013), 5.0 (2014), 5.0 (2015), 5.0 (2016). - Gross official reserves (months of imports of G&S): 4.7 (2008), 5.4 (2009), 4.5 (2010), 5.7 (2011), 4.6 (2011b?), 4.2 (2012), 3.7 (2013), 3.0 (2014), 3.0 (2015), 3.5 (2016). - Current account balance (incl. official transfers): -4.9 (2008), -7.3 (2009), -6.0 (2010), -5.2 (2011), -10.6 (2011b?), -12.7 (2012), -8.9 (2013), -5.3 (2014), -4.0 (2015), -2.7 (2016). - Overall fiscal balance (incl. grants): -0.2 (2008), -2.2 (2009), -0.1 (2010), -4.2 (2011), -3.5 (2011b?), -1.9 (2012), -1.1 (2013), -0.3 (2014), -0.2 (2015), -0.7 (2016). - Overall fiscal balance (excl. grants): -10.0 (2008), -11.5 (2009), -13.3 (2010), -15.0 (2011), -14.4 (2011b?), -13.0 (2012), -11.3 (2013), -9.5 (2014), -8.6 (2015), -7.7 (2016). - Revenues (percent of GDP): 12.6, 14.9, 12.6, 13.7, 13.9, 14.1, 14.2, 14.4, 14.7, 14.9 (2008–2016 series). - Grants (percent of GDP): 9.9, 9.3, 13.2, 10.8, 10.9, 11.1, 10.3, 9.2, 8.3, 6.9 (2008–2016 series). ### Risks and potential external spillovers (Box 3) - Channels for adverse global developments to affect Rwanda: - (i) slowdown in global demand for exports; - (ii) reduction in foreign direct investments; - (iii) slowdown in tourism receipts; - (iv) inward remittances; - (v) contraction of the aid envelope. - Estimated impact: - A further downward revision in global growth by one percentage point and maintaining crude oil and commodity prices at January 2011 levels could result in a reduction of 2.3 percentage points in domestic output growth in 2012. - Comparative vulnerability: - Rwanda’s estimated growth spillover is higher than some neighboring EAC countries owing to a highly concentrated export base and dependence on aid. - Policy recommendations to reduce vulnerability: - Export diversification and lower dependence on aid over the medium to long term. - Proactive monetary policy to contain any second-round effects from spikes in commodity and crude oil prices. ### Enhancing revenue mobilization to support fiscal consolidation - FY2011/12 developments: - Reduction in fuel taxes results in a permanent and previously unprogrammed loss in revenue of 0.4 percent of GDP. - Shortfall more than offset in FY2011/12 by a one-off non-tax receipt from a new telecom license of 0.7 percent of GDP. - Overall fiscal deficit (including grants) for FY2011/12 projected to decline to 1.9 percent (in line with the original program) from 3.5 percent of GDP in FY2010/11. - Significant decline in net domestic financing owing to higher-than-programmed external borrowing from AFDB and bilateral donors. - FY2012/13 measures: - Authorities agreed to upfront revenue measures to preserve PSI's medium-term revenue targets and planned consolidation. - Proposed measures include revisions to the investment code to reduce exemptions (structural benchmark) and removal of specially negotiated lower tax rates for priority sectors. - Expected revenue impact: bolster domestic revenue by some 0.6 percent of GDP, keeping revenue at 14.2 percent of GDP in FY2012/13. - Overall fiscal deficit expected to decline to 1.1 percent of GDP in FY2012/13 in line with PSI objectives. - Authorities will finalize, by December 2011, a study to broaden the tax base (structural benchmark); the study may include a proposal to introduce a flat tax starting as early as FY2012/13. - Mission caution: any new tax policy measure should be, at a minimum, revenue neutral. ### Enhancing the monetary policy framework and implementation - Recent stance and targets: - Monetary policy tightened to contain inflation. - Agreed slowdown in reserve money growth in 2012 to 17 percent compared with 19.6 percent in 2011. - Inflation target for 2012: 7.5 percent—intended to balance containing inflation and supporting growth. - Credit to the private sector projected to grow by 16.6 percent in 2012. - Staff warning: - More tightening may be needed if underlying inflationary pressures continue. - NBR committed to remain vigilant and use all available instruments, including further changes in the policy rate as and when needed—the second and latest increase in the NBR’s policy rate took place at end-November, ahead of the regular December monetary policy committee meeting—to achieve the inflation objective for 2012. ### Improving liquidity forecasting and interbank market development - Liquidity forecasting: - With IMF MCM technical assistance, NBR will put in place a consistent framework to forecast main components of domestic liquidity (currency outside banks, cash in vault, bank reserves)—a structural benchmark to extend the forecast horizon. - Improved forecasts intended to provide early signals to take proactive measures, including changing the policy rate when needed. - Interbank market development (structural benchmark): - NBR will finalize a detailed time-bound action plan to develop the interbank money market, including enhancing repo operations to allow interest rates to respond more flexibly to fundamentals. - Action plan should be elaborated by end-February 2012 and immediately implemented. - NBR committed to intervening at a single point on the short end of the yield curve and allowing interest rates on other maturities to be market determined. - Foreign exchange market operations: - NBR to gradually shift its intervention method from a price-maker to a price-taker within the exchange rate corridor framework as intervention rates move in line with fundamentals. - Further enhancement of interest rate and exchange rate corridors expected to improve monetary policy effectiveness. ### Financial sector reforms and SACCO supervision - Authorities developing an action plan to implement recommendations of the 2011 FSAP Update, with expected FIRST technical assistance by end-2011. - Consultant finalizing a report on sustainability and supervisory options for SACCOs. - Authorities intend to create a high-level steering committee and agree on an action plan by end-March 2012 (structural benchmark) to provide the overall structure for SACCO supervision. ### Securing financing for large investment projects and debt policy - Non-concessional borrowing (NCB) usage: - Authorities confirmed use of US$180 million of the US$240 million (4 ½ percent of GDP) NCB ceiling allowed under the program. - Included loans: US$60 million from PTA bank signed in June 2011 for Rwandair; US$20 million from PTA bank secured in December 2010; bridge loan of US$100 million from Citibank signed in August 2011 for Kigali Convention Center. - Citibank bridge loan requires NBR to escrow 100 percent of disbursed amounts at Citibank. - Staff caution: - Encumbering foreign assets sets a worrisome precedent given downside global risks affecting exports and foreign currency availability and uncertainty about replacing bridge loan with longer-term financing. - Program does not envisage similar bridge loans with encumbered reserve assets to finance government projects. - Authorities exploring financing options including public-private partnerships (PPPs) for projects such as a new international airport near the capital (plans preliminary). - Debt policy stance: - Authorities welcomed upgrade to “higher” capacity for NCB under IMF’s debt limit policy. - Agreed to continue with current NCB limit under the PSI at least through the next review while gaining experience implementing MTDS and conducting their own DSA (structural benchmark). *Source: IMF staff and Rwandan authorities estimates and projections, from the chapter titled "8. The medium-term outlook remains positive, although staff’s and the authorities’" in the supplied PDF content.* ### 19. The quality of national account statistics continues to improve. The 2011 GDP ### 19. The quality of national account statistics continues to improve. The 2011 GDP ### National accounts and statistics improvements - The 2011 GDP estimates is based on more accurate statistics of food crop production, thanks to the recently introduced ex-post crop assessment surveys. - The share of GDP estimated by population growth rates has been reduced from 19 to 7.4 percent. - Further improvements will come from incorporating results of the recently completed Establishment Survey 2011, which has been officially published on the National Institute of Statistics Rwanda (NISR) website. - The upcoming Enterprise Survey is planned for October 2012 (structural benchmark). - NISR staffing: 90 out of 100 permanent positions at NISR have been filled as of August 2011, including economists for the Economic Statistics department. ### Public financial management (PFM) and related reforms - Authorities are on track to complete the road map for the implementation of the Integrated Financial Management Information Systems (IFMIS) for the full set of fiscal accounts (structural benchmark). - Text Table 2 — Additional Structural Benchmarks for 2011–12 (policy measure / target date / macroeconomic rationale): - Public financial management (PFM) - 1. Complete the road map for implementation of the IFMIS for a full set of fiscal accounts — End-March 2012 — To improve budget preparation, implementation, and reporting. - Revenue measures - 2. Submit to Cabinet revised investment code with a view to streamlining exemptions — End-June 2012 — To improve revenue performance. - Monetary policy - 3. Put in place a consistent framework to forecast the main components of domestic liquidity (including currency outside banks, cash in vault, and bank reserves) and extend the forecasting horizon to 2–4 weeks (to be updated weekly) and 3–6 months (to be updated monthly) — End-February 2012 — To improve the implementation of monetary policy. - 4. Finalize a detailed time-bound action plan to further develop the interbank money market, including enhancing repo operations and allowing fully market-determined interest rates — End-February 2012 — To allow fully market-determined interest rates and strengthen the signaling role of the policy rate (Key Repo Rate). - Financial sector - 5. Agree on the action plan for overall structure of the SACCOs and their supervision — End-March 2012 — To expedite supervision of the Umurenge SACCOs. - Statistics - 6. Complete the Enterprise Survey — End-October 2012 — To improve measurement of GDP. ### Risks to the program - Risks have increased amid growing uncertainties in the global outlook, and rising underlying inflationary pressures. - Specific downside risks identified: - Further weakening in global economy could lead to a slowdown in export demand. - Difficulties in securing financing for key public investments, or scaling back of donor support—in response to tightened aid envelopes—could jeopardize growth prospects. - Further increases in global food and fuel prices and increased regional demand for Rwanda’s food products—as a result of the impact of a more severe drought in the region—could further increase domestic inflationary pressures. - Failure to act promptly with proactive monetary policy risks further inflationary pressures. - Additional tax policy measures—to the extent that they result in lower revenue—could jeopardize meeting the program’s revenue objectives. - Although international reserves are expected to remain at comfortable levels, downside risks remain. ### Program issues, targets, and technical adjustments - Revised quantitative assessment criteria, indicative targets, and structural measures proposed for FY2011/12 are presented in the authorities’ MEFP (Attachment I of the Letter of Intent). - Adjustments to end-December 2011 quantitative assessment criteria include: - (i) Net foreign assets (NFA) of the central bank has been lowered to reflect the escrowing of part of foreign reserves and lower donor disbursements than originally projected. - (ii) Reserve money has been adjusted upward to account for higher-than-originally-programmed increase in demand for currency and the expected upgrading of two large microfinance institutions to commercial banks. - (iii) Net domestic financing (NDF) has been adjusted downward to reflect higher-than-originally-programmed external borrowing (MEFP Table 1). - The technical memorandum of understanding (TMU) has been updated: an adjuster has been introduced to the assessment of the NFA target to reflect the escrow of central bank foreign assets. - Structural conditionality continues to support capacity building in tax policy, the monetary policy framework, public financial management and national accounts statistics. ### Staff appraisal — performance, recommendations, and policy advice - Program performance was broadly satisfactory. - All end-June quantitative assessment criteria were met. - Structural benchmarks were partially met—one structural benchmark (preparation of a quarterly budget execution report) was not met owing to technical difficulties in shifting to the GFS 2001 fiscal reporting framework, and another (hiring bank supervisors) was met with a slight delay. - Submission to Cabinet of the MTDS has been delayed until end-December (from end-October). - Submission to Cabinet of the draft legislation to transfer collection and audit functions of social security contributions to RRA has been delayed until March 2012 (from September 2011) owing to ongoing difficulties of compatibility of information technology (IT) systems. - Implementation risk: Stepped-up efforts are needed to implement structural measures in a timely manner; further delays could postpone anticipated macroeconomic gains. - Macroeconomic outlook and policy stance: - Rwanda’s economy in 2011 is poised for higher growth but also higher inflation. A strong harvest and solid export performance are contributing to high real GDP growth, while aggregate demand pressures are building up, increasing underlying inflationary pressures that have already led to rising core inflation. - Uncertainties about further weakening of the global economy could jeopardize growth momentum and donor support. - Monetary policy should be proactive to contain inflation and prevent the erosion of recent gains in macroeconomic stability. Staff welcomes the authorities’ commitment in the program to tightening monetary policy and underscores the need to remain vigilant and take preemptive action if needed. - The balance of risks to inflation is on the upside. - Fiscal policy and revenue: - The fiscal program for FY2011/12 remains appropriate but greater effort is needed to stay the course with the PSI’s domestic revenue objectives. - Staff welcomes the authorities’ commitment to introducing additional revenue measures in FY2012/13 to begin closing the gap created by the recent permanent reduction in fuel taxes. - Authorities should avoid tax policy reforms that would endanger the revenue objective of the PSI; possible implementation of a flat tax for FY2012/13 should be at least revenue neutral. - Liquidity management and market development: - Staff welcomes the authorities’ commitment to enhancing liquidity forecasting to support the reserve money program and to finalize an action plan to further develop the interbank money market. - The plan would enhance NBR’s repo operations by allowing interest rates to respond more flexibly to changes in underlying economic fundamentals and NBR’s inflation objective. - Foreign exchange sales should be used to support the reserve money program; NBR is encouraged to allow the intervention rate in the foreign exchange market to move in line with underlying macroeconomic fundamentals and the inflation objective. - Financial sector supervision: - Establishment of a transparent and sustainable institutional structure for the supervision of SACCOs should be fast-tracked. - The hiring and training of 60 new inspectors for SACCOs is a step in the right direction, but there is a need for fast-tracked establishment of a transparent and sustainable institutional structure now that more than 80 percent of the SACCOs have been given provisional licenses to collect deposits and lend. - External assets and borrowing: - Staff advises against using the central bank’s foreign assets as collateral for external borrowing. - It will be important to secure financing upfront in the planning phase of investment projects and avoid any further encumbering of central bank’s foreign assets. *IMF staff report text.* ### 34. Staff agrees with the authorities’ decision to delay implementation of the move ### 34. Staff agrees with the authorities’ decision to delay implementation of the move ### Decision and rationale - Staff agrees with the authorities’ decision to delay implementation of the move towards greater flexibility in non-concessional borrowing following the recent upgrade of Rwanda’s capacity for macroeconomic and public finance management from low to high under the Fund’s debt limit policy. - The delay is intended to give the authorities time to assess the pros and cons of the flexibility while gaining experience in implementing their new MTDS and conducting their own DSA. ### Staff recommendations under the PSI program - Staff recommends completion of the third review. - Staff recommends modification of the assessment criteria for end-December 2011. - Staff recommends setting of end-June 2012 assessment criteria. - Staff recommends approval of additional structural benchmarks for FY 2011/12 based on Rwanda’s continued strong performance and commitment to the program. ### Selected macroeconomic projections and indicators (as presented) - Real GDP growth11.24.17.57.08.86.87.67.07.06.86.5 - Real GDP (per capita)8.92.05.34.86.64.65.44.84.84.64.3 - GDP deflator12.611.02.14.74.86.17.76.04.94.64.5 - Consumer prices (period average)15.410.32.33.96.06.58.16.85.55.05.0 - Consumer prices (end of period)22.35.70.27.58.75.57.56.05.05.05.0 - Export of goods, f.o.b (in U.S. dollars)51.4-12.226.526.336.19.54.27.79.23.710.2 - Imports of goods, f.o.b (in U.S. dollars)51.513.58.529.245.4-4.54.9-3.6-5.0-2.23.0 - Export volume 21.8-20.011.65.69.212.99.09.212.69.211.2 - Import volume 6.47.43.814.632.00.44.8-2.8-4.4-0.72.6 - Net domestic assets10.34.92.27.011.419.125.723.220.211.64.9 - Domestic credit20.53.89.44.710.823.124.124.320.712.05.3 - Broad money (M2)24.213.116.916.019.615.317.014.413.212.712.3 - National savings9.15.14.27.03.87.74.36.89.612.013.8 - Gross investment23.522.421.925.125.323.325.123.622.722.722.6 - Of which: private (including public enterprises)13.112.410.911.112.011.413.613.914.214.514.8 - Total revenue (excl. grants)12.614.912.613.713.913.914.114.214.414.714.9 - Total expenditure and net lending22.626.425.928.728.327.427.225.523.923.322.6 - Capital expenditure8.211.110.213.112.613.012.610.78.78.48.0 - Current expenditure15.114.514.814.915.114.414.614.314.714.414.4 - Primary fiscal balance-3.3-2.2-5.2-5.2-5.1-4.6-4.4-3.6-4.2-3.8-3.3 - Domestic fiscal balance-5.6-5.3-8.1-8.1-7.9-6.7-6.4-5.8-6.3-5.7-5.0 - Overall fiscal balance (payment order) After grants-0.2-2.2-0.1-4.2-3.5-1.8-1.9-1.1-0.3-0.2-0.7 - Overall fiscal balance (payment order) Before grants-10.0-11.5-13.3-15.0-14.4-13.5-13.0-11.3-9.5-8.6-7.7 - External current account balance Including official transfers-4.9-7.3-6.0-5.2-10.6-9.1-12.7-8.9-5.3-4.0-2.7 - External current account balance Excluding official transfers-14.4-17.3-17.7-18.1-21.7-15.7-21.4-17.4-13.5-10.9-9.1 - External debt (end of period)14.814.814.917.718.519.219.120.418.517.316.4 - Net present value of external debt (percent of exports of goods and services)......101.198.1100.5108.7118.9132.5114.9104.994.8 - Scheduled debt service ratio (percent of exports of goods and services)2.12.63.45.75.65.05.77.59.310.49.4 - Gross reserves (months of imports of goods and services)4.75.44.55.74.65.34.23.73.03.03.5 - Gross reserves596.4742.2814.2899.2894.2847.6786.6651.9534.6552.5705.4 - Memorandum item: Nominal GDP (billions of Rwanda francs)2,5652,9643,2533,6433,7094,1284,3004,8785,4756,1166,806 *Source: IMF staff report (Country Report No. 11/164) — data and projections as presented in the chapter.* ### 1. The attached Memorandum on Economic and Financial Policies (MEFP) reviews ### _cr1215 - 1. The attached Memorandum on Economic and Financial Policies (MEFP) reviews ### Overview and Program Status - The MEFP is an update of the previous MEFP and sets out policies and programs the Rwandan government intends to implement for the fiscal year 2011/12 and the medium term. - The three-year Policy Support Instrument (PSI) was approved by the IMF Executive Board on June 16, 2010, and is set to expire on June 29, 2013. - The government requests completion of the third review under the PSI and approval of modifications to assessment criteria for end-December 2011 and approval of end-June 2012 assessment criteria and structural benchmarks for FY2011/12. - The government expects the fourth review to take place before end-June 2012, and the fifth review before end-December 2012. ### Implementation under the PSI (Performance January–June 2011) - All quantitative assessment criteria and structural benchmarks for end-June 2011 were met, except: - Preparation of quarterly budget execution report (delayed due to technical difficulties shifting to the GFS 2001 fiscal reporting framework). The first quarterly budget execution report is planned to be completed by end-November 2011, covering the first quarter of FY2011/12. - Hiring of bank supervisors for the central bank planned for end-June 2011 met with slight delay. - Most structural benchmarks set for September and October 2011 were met; one was delayed and another postponed to March next year. - Medium-Term Debt Strategy (MTDS) is being finalized and will be submitted (with delay) to Cabinet by end-December 2011. - Draft legislation to transfer collection and audit functions of social security contributions to RRA delayed; new deadline for finalizing draft legislation is end-March 2012. ### Growth - Initial expectation for 2011 growth: decline marginally to 7 percent from 7.5percent in 2010. - Revised projection for 2011: projected to 8.8 percent, driven mainly by better performance in agriculture and industry. - Real GDP projection for 2012: projected at 7.6 percent. ### Inflation and Monetary Policy - Headline inflation developments: - 0.2 percent in December 2010. - 6.6 percent in September 2011. - Projected to reach 8.7 percent in December 2011 (against 7.5 percent initially projected). - Annual average headline inflation was 3.7 percent in September compared to 2.3 percent in December of last year. - Price dynamics: - Imported goods prices increased by 10.7 percent in September (annual basis). - Locally produced goods prices increased by 5.6 percent in the same period. - Monetary policy response: - NBR Monetary Policy Committee increased the Key Repo Rate to 6.5 percent on 7th October 2011 from 6 percent (in force since November 2010). - NBR maintained a flexible exchange rate regime; Rwanda franc depreciated by 0.9 percent against the US dollar during the first three quarters of 2011. - NBR introduced a standing deposit facility (Intraday Liquidity Facility—ILF) and maintained the corridor system. - NBR strengthened analytical capacity via partnerships and agreed joint research to develop a macroeconomic model and study money demand and transmission mechanism. ### Fiscal Performance and Policy - Second half FY 2010/11 (January–June) fiscal performance: - Total revenue (excluding grants) exceeded program by 0.4 percent of GDP (driven by higher direct taxes and taxes on goods and services). - Non-tax revenues fell short due to waiving of dividend payments by Bank the Kigali for IPO preparation. - Higher expenditure and net lending exceeded targets by about 0.3 percent of GDP, leaving overall fiscal deficit (excluding grants) in line with program. - Actual grants exceeded program target by 0.2 percent of GDP. - 2011/12 budget: - Reduction in fuel taxes expected to result in a permanent revenue loss of 0.4 percent of GDP (fuel tax rates reduced in two installments during FY2011/12). - Offsetting revenue measures total 0.2 percent of GDP from a newly-introduced gaming tax, improved VAT efficiency, and broadening of income tax base. - One-off non-tax receipt of 0.4 percent of GDP from a new telecom license (Airtel) not previously programmed. - Total revenues in 2011/12 expected to remain at about 14 percent of GDP. - Total expenditure and net lending projected to remain at 27.2 percent of GDP (including additional priority expenditures). - Overall budget deficit (including grants) remains at 1.9 percent of GDP, in line with the program. ### External Sector and Reserves - Trade and balance of payments: - Exports value increased by 52.3 percent in September 2011, led by coffee and minerals. - Imports increased by 21.2 percent in value in the same period, dominated by capital goods, intermediate goods and energy. - Capital inflows expected to allow the overall balance of payments to close with a surplus for 2011. - Reserve money and NFA developments: - End June Reserve Money target achieved: RWF 137.3 billion on quarterly average against PSI assessment criterion of RWF 137.5 billion. - End-September reserve money stood at Rwf 150.9 billion, exceeding the indicative target of Rwf 146.8 billion. - End December Reserve Money target revised upward from RWF 149.6 billion to RWF 156.3 billion. - End June NBR Net Foreign Assets estimated at RWF 372.51 billion at program exchange rate, exceeding the adjusted PSI target of RWF 343.64 billion (from initial NFA Program of RWF 391.2 billion). - End September indicative NFA target (Rwf 409.5 billion) was missed; actual NFA stood at RWF 404.2 billion (program exchange rate) due to escrowing reserves at Citibank as collateral for the loan to finance the Kigali Convention Center. - End December NFA target reviewed downward from RWF 463.2 billion to RWF 417.9 billion, taking into account recent developments in external budget support disbursements and projected further escrowing of part of NBR’s foreign reserves. - Note on PSI NFA calculation: For the purposes of the PSI program, the calculation of NFA excludes amounts of NBR’s escrowed foreign reserves. ### Monetary Aggregates and Credit - Between December 2010 and August 2011: - Broad Money increased by 18 percent (against 16 percent initially projected for the whole year). - Domestic assets increased by 130 percent, contributing 30.7 percent in total liquidity in the banking system by end August. - Net foreign assets accounted for 69.3 percent and declined by 2.7 percent following delays in external budget support disbursements. - Credit to the private sector increased by 21.5 percent by end August (compared to 19.2 percent initially projected for the whole year). - NBR policy stance: proactive monetary policy to support financing the economy while keeping real interest rates positive to support domestic savings mobilization and financial deepening. ### Financial Sector Developments and Supervision - Banking system indicators and outreach: - Nonperforming loans declined from 10.8 percent at end 2010 to 9.2 percent at end-June 2011. - Roll-out of 416 Savings and Credit Cooperatives (SACCOs); 60 inspectors hired and trained; as of 10th October 2011, 381 SACCOs authorized to grant loans including 17 fully licensed. - Bank of Kigali (BK) IPO and market developments: - BK IPO launched June 30th and closed July 29th 2011; it was 274.7 percent subscribed. - Total shares sold represent 45 percent of total shares (20 percent were for the Government and 25 percent were new shares to increase capital). - International investors took 40 percent of sold shares; domestic and EAC investors took 60 percent. - Since listing, price per share has ranged between RWF 130 and 190; offer price was RWF 125. - New entrants and payments infrastructure: - Equity Bank licensed in March 2011 and effectively started in October 2011 with 5 branches. - Rwanda Integrated Payments Processing System (RIPPS) components implemented: Automated Transfer System (ATS) operational since February 2011 and Central Securities Depository (CSD) launched in July 2011. - Payment cards increased from 41,377 in December 2010 to 126,654 by August 2011. - Number of ATMs increased from 84 in December 2010 to 133 by August 2011. - POS machines increased to 183 by August 2011 from 99 in December 2010. - Several banks and Telecoms now offer mobile payments/banking services. - Regulatory and supervisory enhancements: - NBR enhanced electronic systems for off-site and on-site surveillance for banks, insurance and microfinance. - Five regulations approved by the Board were published in the Official Gazette in Q3 2011; one regulation approved end September 2011 under translation for publication. - A guideline on agent banking was approved by the Board of Directors. - Training provided to treasurers and bank staff in securities trading following CSD implementation. ### Statistical Improvements - National accounts and surveys: - Revised 2010 GDP estimates released in the first week of October 2011 after incorporating livestock Work In Progress (WIP) estimates. - Share of GDP estimated by population growth rates reduced from 19 percent to 7.4 percent. - NISR conducting 2010-2011 household budget survey (EICV3) since November 2010 with 95 percent data collection coverage and 90 percent data processing coverage as of end September 2011. - Data collection for the 2010 National Demographic Health Survey completed; expected to improve GVA estimates for non-government health industry. - 2011 Establishment Census data collection completed and results published on 24th August 2011. - Capacity building: - NISR recruited new staff including economists; Economic Statistics department strengthened with a director and three Principal Statisticians (National Accounts, Prices, Agricultural/Industrial Statistics). - Recruitment for 21 permanent positions completed; as of end August 2011, 90 permanent positions filled out of 100 in NISR structure. - Metadata: - Metadata for the GDDS has been updated. ### Policy Commitments and Conditionality - The Government affirms commitment to achieving sustained broad based economic growth and poverty reduction as set out in EDPRS 2008–12 and Vision 2020. - The Government stands ready to take further measures as appropriate and will consult with the IMF before adoption of such measures or changes to policies described in the MEFP. - The Government will provide the Fund with requested information on progress in implementing policies and achieving program objectives. - The Government authorizes publication and distribution of the letter, its attachments, and all reports prepared by Fund staff. *Memorandum of Economic and Financial Policies (MEFP), Update, November 23, 2011* ### 26. Reflecting previously unprogrammed external budgetary loans (amounting to ### _cr1215 - 26. Reflecting previously unprogrammed external budgetary loans (amounting to ### Fiscal position and revenue administration measures (2011/12–2012/13) - Net domestic financing reflects a retirement of debt by 0.7 percent of GDP, after accounting for previously unprogrammed external budgetary loans amounting to 1.3 percent of GDP. - Total revenue collections for 2012/13 will remain at 14.2 percent of GDP, as initially envisaged in the PSI. - Progress on revenue administration measures in the 2011/12 approved budget: - Introduce Electronic Sales Register (ESR) (structural benchmark for end-January 2012); process at level of acquiring devices and consultant; installation projected for January 2012. - Conduct a study to identify potential areas to widen the tax base and estimate the tax gap (structural benchmark for end-December 2011); consultant identified; study to be completed by end December 2011. - Introduce e-filing and e-payment systems; tests ongoing and launching scheduled for November 2011. - Conduct a customer satisfaction survey; study concluded, first draft presented to RRA senior management, final report due mid-November 2011. - Introduce new tax compliance risk assessment system in the Domestic Taxes Department (DTD); risk management tools developed and used; plan for data warehouse and advanced risk management tools for audit planning. - Implement electronic single window system at customs; development commenced, data migrating from ASYCUDA++ to ASYCUDA World; business process re-engineering and staff training ongoing. - Establish One-Stop-Border concept at Kagitumba and Rusumo with 24-hour operations; feasibility studies concluded; construction to be embarked during the first half of 2012. - Operate electronic cargo tracking equipment; procurement at tendering stage. - Fully automate collection of pension funds and RAMA and bring those out of the PAYE net; full automation effective by July 2012 when RSSB and RRA systems are interfaced and databases merged. - New 2012/13 tax policy measures: - Increase in tax rates, starting July 2012, for imported construction materials by 5 percent on average on import duties, VAT and excise duties; expected to yield around RwF 12 billion (0.3 percent of GDP) during 2012/13. - Levy a VAT (18 percent) on rent paid by all occupants of RSSB buildings starting July 2012; expected to yield around RwF 2 billion (0.05 percent of GDP) in 2012/13. - Revision of the investment code by June 2012 (new structural benchmark); expected to yield additional RwF 8.9 billion (0.2 percent of GDP) for fiscal year 2012/13. - Publication and reporting: - Commitment to prepare and publish quarterly budget execution reports on the website within 45 days from the end of each quarter. - Full year 2010/11 budget execution report finalized and posted October 2011. - First quarter 2011/12 report delayed but completed and posted at end-November 2011. - Going forward, reports will be available 45 days after quarter end. ### Public Financial Management (PFM) and IFMIS - PFM Reforms mid-term review (PFMRS MTR) findings: - Reinforced PEFA 2010 assessment of improvements since 2007; strategy (2008–2012) and implementation modalities judged sound. - Major areas of concern: - Constraint in recruitment and retention of technical and professional staff; - Disconnect between strategic plans and budgets in MDAs; - Addressing PFM capacity constraints in the sub-national government unit; - Difficulties in ensuring reach to service delivery units; - Securing adequate funding for PFMRS implementation; - Difficulties in automating all public financial management operations. - Government focused on implementing PFMRS MTR recommendations, IFMIS Quality Assurance Mission recommendations, and the PFM Annual Independent Review (PFM AIR). - IFMIS (SmartFMIS / SmartFMS) reviews and action plan: - SmartFMIS subject to three external reviews by a Quality Assurance Group (QAG), most recent in May 2010; QAG recommended preparing an “IFMIS Blueprint.” - IFMIS Blueprint prepared; QAG August 2011 mission made three principal recommendations: - Stabilize current SmartFMS functionality (and performance) in the short term; - In the medium term, address prerequisites to successful IFMIS implementation; - In the longer term, design and choose the future IFMIS solution. - IFMIS blueprint and QAG August 2011 mission report to be submitted to PFM steering committee meeting planned mid November 2011; roadmap to be developed and completed by March 2012 (new structural benchmark). - SmartFMS reconfigured to integrate with new Government of Rwanda Chart of Accounts (CoA) consistent with GFS 2001 for 2011/12. - Donor integration and capacity building: - Consultations continue with donors to integrate donor project accounts into the single treasury account (TSA) where possible. - Consultant hired to refine the debt management procedures manual by January 2012. - First full Debt Sustainability Analysis (DSA) planned for March 2012; training in Tunis scheduled for January or February 2012. Macroeconomic Policy unit at MINECOFIN to coordinate DSA preparation and macro framework. ### External sector outlook and debt management - Balance of payments and reserves: - End 2011: overall BoP expected to end 2011 with a surplus due to substantial official and private capital inflows and higher export receipts; exports value increased by 36 percent led by coffee and minerals (export of stocks). - Gross official reserves projected at about 4.6 months of imports at end 2011. - 2012: exports value expected to increase by about 4 percent; imports projected to rise in value by about 5 percent; overall BoP expected to close with a deficit and reserves coverage projected to decline slightly to about 4 months of imports by end 2012. - Medium-term external sector projections: - Exports expected to grow on average by about 8 percent over the medium term, led by coffee, tea, minerals and nontraditional products. - Imports expected to decline slightly on average by about 3 percent per annum in value terms, though share of capital goods in imports expected to grow. - Current account deficit (excluding grants) expected to decline significantly in the medium term. - Central Bank will continue market driven exchange rate policy to keep gross external reserves at about 4 months of imports. - External borrowing and ceilings: - Government to explore concessional financing avenues but acknowledges necessity of some nonconcessional financing. - Agreed ceiling of US$240 million of non concessional borrowing during the PSI period for RwandAir and the Kigali Conference Center (KCC). - So far, US$180 million of the ceiling has been used (US$120 million for KCC and US$60 million for Rwandair). - For KCC: US$20 million borrowed from PTA (December 2010) and US$100 million from Citibank (August 2011). - Rwandair borrowed US$60 million from PTA (June 2011). - Despite upgrade of Rwanda’s macroeconomic and PFM capacity from low to high under flexible debt policy, government will stay within the existing NCB ceiling approved under the PSI pending further consideration. - Export promotion and coordination: - National Export Strategy (NES) elaborates priority sectors/clusters to improve export quantity, quality and diversification. - RDB engaging stakeholders to implement NES targets. - Industrial Development and Export Council (IDEC) created in October 2011 to provide oversight, coordination and guidance across ministries and public/private sectors. - Medium Term Debt Strategy (MTDS) and debt management committee: - Revised MTDS being re-drafted after IMF/WB recommendations (August 2011); expected submission for Cabinet approval by end of December 2011. - Debt Management Committee (DMC) chaired by the Macroeconomic Policy unit to conduct regular assessments of maturity, exchange rate, cash flow and roll-over risks of non concessional borrowing; Committee meets at least once per quarter. - Consultant hired to refine debt management procedures manual by January 2012. ### Monetary policy, liquidity forecasting, and financial sector development - Monetary policy stance and reserve money: - Monetary policy to be tightened in 2012 to avoid exacerbating inflationary exogenous shocks. - Reserve money programmed to increase by 17 percent in 2012, compared to 19.6 percent in 2011. - NBR to use all policy instruments, including the policy rate, to keep real interest rates positive and support domestic savings mobilization and financial sector deepening. - Liquidity forecasting and operational benchmarks: - With TA from MCM mission of November 2011, NBR to put in place by end-February 2012 a consistent framework for forecasting domestic liquidity (new structural benchmark). Framework to include: - judgmental forecasts of currency in circulation; - forecasting the main components of domestic liquidity (including currency outside banks, cash in vault, and bank reserves); - identifying underlying factors causing changes in demand. - Framework outputs: - Weekly-updated reports with forecasts for 1–4 weeks ahead; - Monthly-updated reports with forecasts for 3–6 months ahead. - Treasury to provide rolling detailed weekly cash flow forecasts and monthly aggregate cash flow forecasts to inform forecasts. - Liquidity forecasting analysis to inform quarterlization of annual reserve money programs and be basis for any revisions to reserve money targets. - NBR to allocate necessary additional resources for implementation; NBR has developed a methodology to compute a Monetary Condition Index (MCI) for Rwanda. - Interbank market development and action plan: - NBR to finalize a detailed time-bound action plan to develop the Interbank Money Market based on MCM Technical assistance report of November 2011, NBR research, and EAC discussions. - Action plan to specify measures to enhance repo operations by selecting one point on the short-end yield curve corresponding to the Key Repo Rate (KRR) and allow interest rates on other maturities to be market determined. - Action plan to be elaborated by end-February 2012 with a view to immediate implementation (new structural benchmark). - Monetary aggregates and banking sector credit: - In 2012, Broad Money projected to grow by 17.0 percent, driven by Net Domestic Assets by 113.4 percent while Net Foreign Assets projected to decline by 11.2 percent. - Banking system to increase credit to the private sector by 16.6 percent in 2012 (lower than 30.8 percent projected for 2011), supported by new entrants Equity Bank, Unguka and Agaseke. - Communication and market expectations: - NBR to enhance communication strategy, create interactive platform with stakeholders, focus on financial institutions and business community, and educate public on reforms (credit reporting bureau, Umurenge SACCO, capital market development, payment systems modernization). - NBR to start regular survey on market expectations of inflation. - Exchange rate policy and reserves: - NBR committed to a market driven exchange rate; will intervene to smooth volatility and ensure policy supports external competitiveness and export diversification. - NBR will enforce reserve requirements and penalize banks not meeting obligations; any allowance not to meet prudential reserve requirements must be documented as formal forbearance signed by NBR management and respective commercial bank with detailed reasons. *Source: Excerpt from IMF staff report content unit _cr1215 - 26. Reflecting previously unprogrammed external budgetary loans (amounting to* ### 51. The reserve requirement maintenance period is currently one week. Discussions are ### _cr1215 - 51. The reserve requirement maintenance period is currently one week. Discussions are ### Reserve requirement maintenance - The reserve requirement maintenance period is currently one week. - Discussions are underway at the EAC regional level to harmonize the reserve requirement maintenance period across the region. - Harmonization is expected to be implemented by end 2012. ### Financial sector reforms — capacity building and supervision - NBR planned further capacity building for 2011/12 to implement an action plan to improve the compensation scheme and professional development. - Staffing and training: - NBR recruited five staff in July 2011 (a slight delay from the end-June 2011 structural benchmark). The newly recruited five Inspectors are pursuing training courses. - Two principal inspectors were appointed to reinforce the banking supervision team. - Inspectors participated in various courses and 4 of them visited regional central banks under attachments. - NBR hired and trained 60 inspectors to supervise Umurenge SACCOs at the district level (end-September 2011 structural benchmark); the 60 Inspectors were hired and trained in May and August 2011. - On-site inspections: - NBR aims to conduct on-site inspections for each bank at least once in every 24 month cycle. - For 2011, NBR planned to conduct 9 on-site inspections (6 full scope inspections and 3 targeted scope). - As at end September2011, five on-site inspections were conducted (4 full scope and 1 targeted). - SACCO program and supervision: - NBR committed to follow Regulation on the Organization of Microfinance Activity (No. 02/2009) to ensure key managers and directors of all MFIs (including SACCOs) granted licenses possess minimum training and experience to manage risks. - The Government plan: strengthen SACCO capacity in governance, management and controls via the Technical Control Unit (TCU); consolidate SACCOs at district level with Access to Finance Forum (AFF); eventual national consolidation envisaged as a cooperative bank. - NBR will agree an Action Plan to provide overall structure for SACCO organization by end-March 2012 (new structural benchmark). - A High-level Steering Committee for SACCOs will be created by March 2012 to monitor and coordinate consolidation. - SACCO Sustainability Study: - NBR, with DFID funding, undertook a SACCO Sustainability Study. - Draft study discussed at stakeholders’ workshop on 3 October 2011. - Final report with recommendations and supervision cost implications to be submitted by end November 2011. - FSAP and technical assistance: - The FSAP final report became available in June 2011. - NBR formally requested First Initiative to provide TA to put in place an action plan to implement FSAP key recommendations by end December 2011. - NBR has started implementing FSAP recommendations, mainly on strengthening supervision and regulation of banks, MFIs and SACCOs. - Financial literacy: - A Financial Literacy Program will be launched beginning next year to cover access to finance, insurance, pension, capital market—investment in stocks and bonds, card based payment systems and credit reference bureau functioning and benefits. ### Consumer protection, pensions, and AML/CFT - Pensions: - MINECOFIN submitted a draft law on pension to Cabinet in May 2011; the draft was approved by Cabinet and submitted to Parliament for the legislative process. - The Board of Directors for RSSB was put in place in November 2011. - Investment guidelines on pension will be developed and approved by the RSSB Board of Directors by June 2012 (Structural benchmark). - AML/CFT: - NBR requested an IMF mission to assess progress and check compliance with the AML/CFT framework. - The Fund confirmed an onsite visit in June 2012. ### Payments systems and market infrastructure - Regional and domestic integration measures: - Rwanda Integrated Payments Processing System (RIPPS) will be connected to EAPS (East African payment System) and REPPS (COMESA Regional Payment and Processing System). - A Cheque truncation system will be implemented. - Foreign currency cheques will be cleared in RIPPS. - The CSD will be linked to the Automated Trading System. - Payment card use is expected to continue to increase during 2012 and 2013. - Plans underway to encourage mobile payment services usage and interoperability among mobile payments service providers. ### Statistics and national accounts - NISR will continue to improve economic statistics and national accounts per the improvement action plan. - Agricultural statistics review: - NISR preparing to hire a consultant to review agricultural statistics including sampling methodology. - The final report and recommendations are to be complete and published by end-March 2012 (structural benchmark). - Establishment Census and surveys: - Results of the Establishment Census 2011 will be used to develop the sampling frame for the planned 2011 Business Survey and Non Profit Institutions Survey. - These surveys are to be completed by end-October 2012 (new structural benchmark). - Data from the surveys, combined with other sources, will be used to develop detailed input-output (I-O) and supply-use tables (SUT) and to rebase GDP estimates in 2011 constant prices. ### Policy coordination and institutional commitments - NBR and MINECOFIN committed to continue improving collaboration at technical and policy levels to enhance the macroeconomic framework. - Key structural benchmarks and program dates referenced in the text include: - End-June 2011 (structural benchmark for hiring 5 bank supervisors; met with delay—recruited in July 2011). - End-September 2011 (hire and train 60 SACCO inspectors; met). - End-November 2011 (final SACCO Sustainability Study report submission). - End-March 2012 (NBR Action Plan for SACCO organization; High-level Steering Committee creation). - June 2012 (IMF AML/CFT onsite visit; RSSB pension investment guidelines approval). - 2012 and 2013 (increase in payment card usage). - End-March 2012 and end-October 2012 (statistics deliverables and surveys). *Source: _cr1215 - 51. The reserve requirement maintenance period is currently one week. Discussions are (IMF PDF).* ### 13. Reporting requirement. Data on NDF (showing separately treasury bills and ### _cr1215 - 13. Reporting requirement. Data on NDF (showing separately treasury bills and ### Reporting requirements (general) - Data transmission frequency and deadline: - Monthly data: transmitted on a monthly basis within five weeks from the end of each month. - Weekly data: transmitted on a weekly basis within seven days of the end of each week. - Specific separation requirements: - Deposits of the government with the NBR and with the commercial banks will be separated from the deposits of the public enterprises and autonomous public agencies and agencies that the government does not have any direct control over. - Foreign assets and foreign liabilities in U.S. dollars are converted to Rwanda francs by using the U.S. dollar/Rwanda franc program exchange rate. Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate. ### Floor on flow of domestic revenues - Coverage and measurement: - A floor applies to domestic revenue. - The floor for December 31, 2011 is cumulatively measured from December 31, 2010. - The floor for June 30, 2012 is cumulatively measured from December 31, 2011. - Other dates are indicative targets. - Definition: - The floor on domestic government revenue is defined as total government revenue (tax and non-tax revenues), per the central government fiscal operation table, but excluding external grants, and privatization receipts. - Reporting requirement: - Detailed data on domestic revenues will be transmitted on a monthly basis within five weeks of the end of each month. ### Floor on priority expenditure - Coverage and measurement: - A floor applies to priority spending of the government. - The floor for December 31, 2011 is cumulatively measured from December 31, 2010. - The floor for June 30, 2012 is cumulatively measured from December 31, 2011. - Other dates are indicative targets. - Definition: - Priority spending is defined as the sum of those recurrent expenditures, domestically-financed capital expenditures, and net lending that the government has identified as priority in line with the EDPRS. - Priority expenditures are monitored through the computerized SIBET expenditure management system which tracks priority spending of the annual budget at the program level. - Reporting requirement: - Data on priority expenditure will be transmitted on a monthly basis within five weeks of the end of each month. ### Net accumulation of domestic arrears of the government - Coverage and measurement: - A ceiling applies to net accumulation of domestic arrears of the government. - The ceiling for December 31, 2011 is cumulatively measured from December 31, 2010. - The ceiling for June 30, 2012 is cumulatively measured from December 31, 2011. - Other dates are indicative targets. - Definition: - The net accumulation of arrears is defined as the difference between the gross accumulation of new domestic arrears (measured as the difference between payment orders and actual payments related to payment orders issued) and gross repayment of any arrears outstanding since the beginning of the year under review (including repayment of float during the review year and the repayment of older arrears). - Reporting requirement: - Data on repayment of domestic arrears and the remaining previous-year stock of arrears will be transmitted on a monthly basis within five weeks of the end of each month. - Note: - "A negative target thus represents a floor on net repayment." (footnote reference present in source) ### Limit on new nonconcessional external debt of the public sector - Coverage: - A ceiling applies to the contracting and guaranteeing by the public sector of new nonconcessional borrowing debt with nonresidents. - The ceiling is given in Table 1 of the MEFP and applies continuously from end-June 2010 to end-June 2013. - The ceiling excludes the swap agreement of US$50 million signed in November 2009 between the NBR and the IFC and US$13.1 million for purchase of two air planes in 2009. - The ceiling excludes non concessional borrowing by the Bank of Kigali (assumed not to seek or be granted a government guarantee). - The ceiling applies to private debt for which official guarantees have been extended, including future swaps involving foreign currency loans guaranteed by the public sector. - Definition of public sector: - Comprises the general government (the central government, the NBR, local governments which include provinces and districts) and entities in which the government holds a controlling stake—owning more than 50 percent of the shares or the ability to determine general corporate policy. - This definition of public sector excludes the Bank of Kigali. - Definition of guarantees: - For program purposes, the guarantee of a debt arises from any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind), or from any implicit legal or contractual obligation of the public sector to finance partially or in full any shortfall incurred by the debtor. ### Definition of concessionality and debt - Concessionality: - A debt is concessional if it includes a grant element of at least 35 percent. - Grant element = (nominal value − present value) / nominal value, expressed as a percentage of nominal value. - The PV of debt at contracting is calculated by discounting the future stream of payments using currency-specific commercial interest reference rates (CIRRs) published by the OECD. - For debt with maturity of at least 15 years, the ten-year-average CIRR will be used. - For debt with maturity of less than 15 years, the six-month average CIRR will be used. - Margins for differing repayment periods to be added to both averages: 0.75 percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29 years, and 1.25 percent for 30 years or more. - "The calculation of concessionality will take into account all aspects of the loan agreement, including maturity, grace period, payment schedule, upfront commissions, and management fees." (footnote reference present in source) - Definition of debt (per Guidelines on Performance Criteria with Respect to External Debt, Point 9): - Debt = current liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the future to discharge principal and/or interest. - Forms include: - (i) loans (including deposits, bonds, debentures, commercial loans and buyers' credits), and temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements and official swap arrangements); - (ii) suppliers' credits (deferred payments after delivery of goods/services); - (iii) leases (debt = present value at inception of all lease payments expected, excluding payments covering operation, repair, or maintenance). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included as debt. ### Limit on the stock of external payment arrears - A continuous assessment criterion applies to the non-accumulation of payment arrears on external debt contracted or guaranteed by the public sector. - External payment arrears consist of external debt service obligations (principal and interest) not paid at the time they are due, as specified in contractual agreements, excluding arrears on obligations that are subject to rescheduling. ### Consolidated Domestic Debt of the Public Sector (DD) - Coverage and exclusions: - For program purposes, DD excludes treasury bills issued by the NBR for monetary policy purposes. - The ceiling on DD applies to domestic commitments contracted or guaranteed by the public sector. - Applies to private debt for which official guarantees have been extended either implicitly or explicitly. - Authorities would inform Fund staff of any changes in debt position of public sector entities. - Adjusters: - In the case of a shortfall in programmed budgetary loans and grants (per paragraph 12), the ceiling on consolidated domestic debt of public sector will be adjusted upward by the same amount as the increase in the ceiling in the NDF, but capped per paragraph 12. - The ceiling on the DD will be adjusted upward by the amount of expenditure for food imports in the case of a food emergency. - Reporting requirement: - Data on domestic debt of the public sector, including treasury bills issued by the NBR for monetary policy purposes, will be transmitted on a monthly basis within five weeks of the end of each month. ### Targets for monetary aggregates — Net foreign assets (NFA) of the NBR - Coverage: - A floor applies to the NFA of the NBR for December 31, 2011, and June 30, 2012 targets. - Definition: - NFA of the NBR in Rwanda francs are defined, consistent with the SDDS template, as external assets readily available to, or controlled by, the NBR net of its external liabilities. - Pledged or otherwise encumbered reserve assets (including swaps) are to be excluded. - Foreign liabilities include, inter alia, use of IMF resources (CCFF and post-conflict emergency assistance purchases and SAF/ESAF/ECF disbursements). - Adjusters: - The floor on NFA will be adjusted downward by the amount of any shortfall between actual and programmed budgetary loans and grants (per footnote 4). This adjustment will be capped at the equivalent of US$80 million, evaluated in Rwanda francs at the program exchange rate. - In the case of excess of actual over programmed budgetary loans and grants, the floor of the NFA remains unchanged for the first US$24 million. Subsequently, the floor will be adjusted upwards by any amount in excess of US$24 million, evaluated in RWF at the program exchange rate. - The floor on NFA will also be adjusted upward (downward) by the amount of shortfall (excess) between actual and programmed encumbered reserve assets, evaluated in Rwanda francs at the program exchange rate. - The programmed amounts of encumbered reserve assets, on a quarterly basis, stand at: US$26.9 million (September 2011); US$71.2 million (December 2011); US$85.8 million (March 2012); and US$100 million (June 2012). - The floor on NFA will be adjusted downward by the amount of expenditure for food imports in the case of a food emergency, evaluated in Rwanda francs at the program exchange rate. - Reporting requirement: - Data on foreign assets and foreign liabilities of the NBR will be transmitted on a weekly basis within seven days of the end of each week, including breakdown of assets that are pledged or encumbered. - Transmission will include daily and weekly data on the NBR’s foreign exchange liabilities to commercial banks (including required reserves with the NBR) and the exchange rate used for their conversion into Rwanda francs will be shown separately. ### Targets for monetary aggregates — Reserve money - Coverage: - A ceiling applies to the stock of reserve money for the December 31, 2011 and June 30, 2012 targets. - Calculation and definition: - The stock of reserve money target for a given quarter will be calculated as the arithmetic average of the stock of reserve money at the end of each calendar month in the quarter. - Daily average of all the three months in the quarter will constitute the actual reserve money to be compared with the target. - Reserve money is defined as the sum of currency in circulation, commercial banks’ reserves, and other nonbank deposits at the NBR. - Adjuster: - The ceiling on the stock of reserve money will be adjusted symmetrically for a change in the required reserve ratio of commercial banks. The adjustor will be calculated as (new reserve ratio minus program baseline reserve ratio) multiplied by actual amount of liabilities (Rwanda Franc plus foreign-currency denominated) in commercial banks. - Reporting requirement: - Data on reserve money will be transmitted on a weekly basis within seven days of the end of each week. - Transmission will include a daily and a weekly balance sheet of the NBR which will show all items listed above in the definitions of reserve money. ### Other data reporting requirements - For program monitoring, the Government of Rwanda will provide the data listed in Table 1 below: - Weekly data within seven days of the end of each week; - Monthly data within five weeks of the end of each month; - Annual data as available. *Source: _cr1215 - 13. Reporting requirement. Data on NDF (excerpt).* ### 39. The authorities will inform the IMF staff in writing at least ten business days ### _cr1215 - 39. The authorities will inform the IMF staff in writing at least ten business days ### Notification and Program Communication Requirements - The authorities will inform the IMF staff in writing at least ten business days (excluding legal holidays in Rwanda or in the United States) prior to making any changes in economic and financial policies that could affect the outcome of the financial program. - Policies covered include but are not limited to customs and tax laws (including tax rates, exemptions, allowances, and thresholds), wage policy, and financial support to public and private enterprises. - The authorities will similarly inform the IMF staff of any nonconcessional external debt contracted or guaranteed by the government, the NBR, or any statutory bodies, and any accumulation of new external payments arrears on the debt contracted or guaranteed by these entities. - The authorities will furnish an official communication to the IMF describing program performance of quantitative and structural assessment criteria and benchmarks within 8 weeks of a test date. - Regular submission of information to IMF staff is required with the frequency and submission time lag as indicated in Table 1. The information should be mailed electronically to the Fund (email: afrrwa@imf.org). ### Summary of Reporting Requirements (Table 1 — frequency codes preserved) - Frequency codes: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I). - Exchange Rates - Frequency of Data: 1 - Frequency of Reporting: D - Frequency of Publication: D / W / D (table layout preserved) - International Reserve Assets and Reserve Liabilities of the Monetary Authorities - Frequency of Data: 2 - Frequency of Reporting: W - Frequency of Publication: M - Reserve/Base Money - Frequency of Data: W - Frequency of Reporting: W - Frequency of Publication: M - Broad Money - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - Central Bank Balance Sheet - Frequency of Data: W - Frequency of Reporting: W - Frequency of Publication: M - Consolidated Balance Sheet of the Banking System - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - Interest Rates - Frequency of Data: 3 - Frequency of Reporting: M - Frequency of Publication: M - Volume of transactions in the interbank money market and foreign exchange markets and sales of foreign currencies by NBR to commercial banks - Frequency of Data: D - Frequency of Reporting: W - Frequency of Publication: W - Liquidity Forecast Report - Frequency of Data: 4 - Frequency of Reporting: W - Frequency of Publication: W - Consumer Price Index - Frequency of Data: 5 - Frequency of Reporting: M - Frequency of Publication: M - Composite Index of Economic Activity (CIEA) and sub-components compiled by the NBR - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - Revenue, Expenditure, Balance and Composition of Financing – General Government - Frequency of Data: 6 – General Government 7 - Frequency of Reporting: M - Frequency of Publication: M - Revenue, Expenditure, Balance and Composition of Financing – Central Government - Frequency of Data: 6 - Frequency of Reporting: M - Frequency of Publication: M - Comprehensive list of tax and non tax revenues - Frequency of Data: 8 - Frequency of Reporting: M - Frequency of Publication: M - Comprehensive list of domestic arrears of the government - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - The ten (10) largest components of transfers in the fiscal table - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - Social security contributions (RAMA and CSR) - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - Stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and NBR - Frequency of Data: 9 - Frequency of Reporting: A - Frequency of Publication: A - Privatization receipts - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: M - External Current Account Balance - Frequency of Data: A - Frequency of Reporting: SA - Frequency of Publication: A - Exports and Imports of Goods and subcomponents - Frequency of Data: M - Frequency of Reporting: M - Frequency of Publication: Q - Exports and Imports of Goods and Services and subcomponents - Frequency of Data: A - Frequency of Reporting: A - Frequency of Publication: A - GDP/GNP - Frequency of Data: A, Q - Frequency of Reporting: Q, SA - Frequency of Publication: Q ### Definitions, Notes, and Specific Reporting Details (preserved wording) - 1 Includes the official rate; Forex Bureau Associations rate; weighted average of the interbank money market rates; and weighted average of the intervention rate by the NBR. - 2 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. - 3 Both market-based and officially-determined, including discount rates, money market rates, interbank money market rate, rates on treasury bills, notes and bonds. - 4 One-week ahead forecasts of liquidity submitted on weekly basis. For example, in reporting data as of the last week of April, liquidity forecasts for the first week of May should be reported. The forecasted liquidity should be classified by net foreign assets, net credit to government, nongovernment credit, reserve money, currency in circulation, net credit to commercial banks broken down into discount window and money market (absorption or injection), and other item net. - 5 Includes General Index; Local Goods Index; Imported Goods Index; Fresh Products Index; Energy Index; General Index excluding Fresh Products and Energy; and their breakdowns as published by the NISR. - 6 Foreign, domestic bank, and domestic nonbank financing. - 7 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. - 8 Includes proceeds from privatization, accompanied by information on entities privatized, date of privatization, numbers and prices of equities sold to the private sector. - 9 Includes debts of the Bank of Kigali. Also Includes currency and maturity composition. - 10 Frequency codes: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I). ### Program-related Developments Noted in Supplementary Information - New information received by staff indicates nonobservance of the continuous assessment criterion (AC) on the contracting and guaranteeing by the public sector of new nonconcessional external debt. - On the basis of appropriate corrective action, staff supports the authorities’ request for a waiver for breaching the AC. - In other respects, the supplement does not alter the thrust of the staff appraisal; staff continues to recommend completion of the third review, modification of the assessment criteria for end-December 2011, setting the end-June 2012 assessment criteria, and approval of additional structural benchmarks for FY 2011/12 under the PSI-supported program. *International Monetary Fund — RWANDA: Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria — Informational Annex (excerpt).* ### 1. Staff learned last week that in September 2011 the Rwanda Development Bank ### Staff learned last week that in September 2011 the Rwanda Development Bank ### New nonconcessional loan: facts and technical assessment - The Rwanda Development Bank (BRD), a state-owned bank, contracted a nonconcessional loan from the European Investment Bank amounting to Euro 8 million (0.18 percent of GDP). - The loan was not discussed with Fund staff during the October mission; the authorities attributed the oversight to weaknesses in information flows within the government. - Under the TMU the definition of public sector includes the BRD. - The US$240 million nonconcessional debt limit set under the three-year PSI-supported program is tied to two projects (Kigali Convention Center and purchase of a new fleet of airplanes for Rwandair). The BRD credit line (Euro 8 million) was contracted outside those two projects. - To date the authorities have borrowed US$180 million under the ceiling. - Staff calculated the concessionality element of the loan is at most 17.13 percent (depending on the disbursement currency used in the calculation), below the minimum 35 percent threshold. - Loan terms (possible): disbursement currencies Euros, US$, and Rwandan Francs; repayment maturities varying from 4 to 10 years; grace period of a maximum of two years; semi-annual repayment frequencies. Interest rate: base rate (fixed or floating) plus a margin ranging from 1.36 percent for the Euro/U.S. dollar tranches to up to 5.7 percent for the tranches in Rwandan francs. ### Observance of program assessment criterion and waiver request - The loan results in nonobservance of the continuous quantitative assessment criterion on contracting and guaranteeing by the public sector of new nonconcessional external debt. - The authorities requested a waiver of the nonobservance of the continuous assessment criterion on nonconcessional borrowing. - Staff supports the authorities’ request for a waiver and recommends completion of the third review. - Staff also recommends: - modification of the assessment criteria for end-December 2011, - setting the end-June 2012 assessment criteria, - approval of the additional structural benchmarks for FY 2011/12 under the PSI program. ### Macroeconomic and debt sustainability assessment - The new debt is a liability of the BRD and not directly of the central government; if BRD fails to repay, the credit line would increase the external debt stock of the central government (which stood at 14.6 percent of GDP at end-2010) by 0.18 percent of GDP. - The BRD has a track record of non-concessional borrowing (contracted prior to the PSI program) and has repaid these loans without recourse to the government. - Given the modest size of the loan and efforts to upgrade debt management capacity, staff considers the loan does not significantly alter the macroeconomic framework and does not pose a risk to external debt sustainability. - The latest DSA puts Rwanda at a moderate risk of debt distress; this additional borrowing by itself would not change that assessment. - Rwanda was recently assessed as having stronger macroeconomic management capacity, resulting in recent upgrade to higher capacity category under the Fund’s debt limit policy. ### Authorities’ remedial measures and institutional actions - The BRD did not notify the government before contracting the line of credit. - Immediate steps taken by the authorities: - Communicated the terms of the PSI to all state-owned enterprises (SOEs) to ensure they understand PSI-related consequences. - Required all SOEs to seek prior approval of the Ministry of Finance before contracting any new nonconcessional loan. - Over the medium term, pledged to strengthen standardized reporting requirements for all SOEs. - The government created a debt management committee to conduct regular assessment of maturity and exchange rate risks and cash flow and roll-over risks of nonconcessional borrowing. ### Program performance, macroeconomic context, and policy directions - Program performance: - All quantitative assessment criteria for end-June 2011 were met. - All but one end-June structural benchmarks were met; several structural benchmarks for September and October 2011 were met, one with delay and another postponed to March next year. - Macro outcomes and projections: - Real GDP: expected to stand at 8.8 percent at end-2011, against 7.5 percent in 2010 and 4.1 percent in 2009. - Inflation and monetary policy: the NBR increased the central bank policy rate (Key Repo Rate) from 6 to 6.5 percent in October 2011. - External position: overall balance described as benign, with investment capital inflows offsetting the current account deficit. - Banking sector indicators: nonperforming loans declined from 10.8 percent at end-2010 to 9.2 percent at end-June 2011. - Fiscal policy and revenue measures: - Total revenue (excluding grants) exceeded program target by 0.4 percent of GDP in the first half of 2011. - The 2011/12 budget includes a fiscal package expected to yield 0.2 percent of GDP in increased revenue (measures include a gaming tax, VAT efficiency improvements, and tax base broadening from a study to be finalized by December 2011). - Revenue administration measures: Electronic Sales Register, e-filing and e-payment systems, and One-Stop-Border concept at Kagitumba and Rusumo with 24-hour operations. - Financial sector reforms and SACCOs: - Steps underway to design and fast-track a supervisory framework for Savings and Credit Cooperatives (SACCOs); hiring and training of 60 supervisors was undertaken. - Authorities have begun implementing FSAP recommendations; an action plan will be designed by year-end with assistance from First Initiative. ### Requests to the Fund and expected review timetable - The authorities request: - a waiver of the nonobservance of the continuous assessment criterion on contracting and guaranteeing by the public sector of new nonconcessional external debt, - completion of the third review under the PSI, - approval of modification of end-December 2011 assessment criteria (with respect to NFA of the central bank, reserve money, and NDF timing of donor disbursements), - approval of end-June 2012 assessment criteria and structural benchmarks for FY2011/12. - Expected timing: fourth review before end-June 2012, fifth review before end-December 2012. *Source: Supplementary Letter of Intent (Kigali, December 22, 2011), IMF staff report excerpts, and IMF Press Release No. 12/4 (January 9, 2012).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1215.pdf_