## Rwanda‘s Response to the 2010 Article IV Consultation‘s Key Recommendations ## Source details **Canonical URL:** [Rwanda‘s Response to the 2010 Article IV Consultation‘s Key Recommendations](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1377.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1377.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1377.pdf.json) --- ### The context and recent performance - Growth and social outcomes: - Average real GDP growth above 8 percent a year in the last decade. - Poverty declined from about 57 percent in 2005/06 to below 45 percent in 2010/11. - Income inequality declined notably. - Macro and structural strengths: - Fiscal and monetary policies centered on maintaining macroeconomic stability. - Improved public financial management (PFM), governance, and business environment reforms; high Doing Business ranking. - Deliberate focus on mobilizing and using foreign aid for development and poverty reduction. - Emphasis on homegrown interventions to enhance inclusiveness and rural social services. - Current challenge and vulnerabilities: - High uncertainty regarding donor assistance; delayed budget support disbursements for FY2012/13 estimated at about 3 percent of GDP. - Main medium-term vulnerabilities: low government revenue, high aid dependency, narrow export base, weak infrastructure. ### Progress on key recommendations from the 2010 Article IV Consultation - Fiscal policy: - Recommendation: unwind fiscal stimulus and embark on medium-term fiscal consolidation; complement revenue mobilization with tax policy reforms. - Progress: fiscal policy aligned with IMF-agreed macroeconomic framework; revenue mobilization initially focused on tax administration and followed by FAD tax policy recommendations. - Monetary policy: - Recommendation: review monetary stance regularly; use policy rate more actively; greater exchange rate flexibility. - Progress: monetary policy accommodative given low inflation; NBR raised the key repo rate in May (third time since October 2011). - Export diversification and access to finance: - Recommendation: improve business environment, broaden export base, enhance banking competition, strengthen microfinance supervision. - Progress: National Export Strategy (NES) developed; Industrial Development and Export Council (IDEC) established; 2011 FSAP update: banking system recovered and well capitalized; challenges remain for credit cooperative supervision. ### Positive economic developments (2012 highlights) - Growth: - Real GDP growth of 8.6 percent year-on-year in the first half of 2012. - Whole-of-2012 real GDP growth projected at about 7.7 percent. - Inflation: - Headline inflation declined to 5.6 percent in September 2012; core inflation down to 2.1 percent. - Inflation expected to pick up toward year-end to 7.5 percent due to domestic fresh food prices and lagged exchange rate depreciation effects. - External sector: - Current account deficit (including aid) projected about 11.3 percent of GDP in 2012. - Exports supported by rising mineral exports and higher tea prices; imports rose rapidly driven by capital goods and construction materials. - Fiscal performance: - FY2011/12 overall fiscal deficit (cash basis, after grants) was 0.7 percent of GDP lower than targeted. - Total revenue (excl. grants) in FY2011/12: 13.8 percent of GDP. - Capital expenditure in FY2011/12: 11.7 percent of GDP; current expenditure: 14.5 percent of GDP. - Monetary response and exchange rate: - NBR tightened policy since mid-2012; repo rate raised in May 2012 by 50 basis points to 7.5 percent. - As of end-October 2012, exchange rate depreciated by 3.7 percent since start of year. ### Program implementation and structural reforms - PSI performance: - All end-June QACs and indicative targets met except net domestic financing (NDF) missed by about 0.5 percent of GDP; staff supports waiver as minor. - Seven of 11 structural benchmarks met (two with delay); four SBs not met (MTDS submission, investment code revision, electronic tax registers, IFMIS technical specifications). - Structural benchmarks status (selected): - Medium-term debt management strategy: to be submitted to Cabinet in late November 2012 (delayed). - Introduction of electronic tax registers: postponed (expected January 2013). - Completion of IFMIS technical specifications: postponed to first half of 2013 (expected April 2013). ### Macroeconomic outlook and downside risk scenarios - Baseline assumptions and projections: - Budget support will resume in second half of FY2012/13. - Issuance of a US$350million eurobond before end-2012 to retire unfavorable debt and finance Kigali Convention Center (KCC). - Growth: 7.7 percent in 2012 and 7.6 percent in 2013; stabilize at around 7 percent over medium term. - Inflation: continued convergence toward authorities‘ medium-term target of 5 percent. - Downside risks from protracted aid delays (Box 2): - Baseline assumes delayed budget support of about 3 percent of GDP disbursed in second half of FY2012/13. - Scenario 1: - Government fully cuts domestically-financed capital spending; central bank refrains from FX intervention. - Direct hit to investment = 3 percent of GDP. - Direct impact on growth ≈ 1½ percentage points (assuming 50 percent import content of investment). - Imports decline; inflation would rise absent alternative external financing. - Scenario 2: - Government uses domestic financing to fill gap; smaller direct growth impact but larger inflation impact. - Caveats: scenarios exclude second-round effects which could be much larger; suspension of budget support for all of 2013 could have twice the direct effects. ### Simulations of the Public Investment–Growth Nexus (Box 4) - Model and purpose: - Dynamic general equilibrium (DGE) model calibrated for low-income country characteristics; public investment productive and complementary to private capital. - Model allows variable efficiency of public investment; government finances additional investment via taxes, spending cuts, or borrowing (domestic, concessional external, non-concessional external). - Key simulation findings: - Substantial scaling up of public investment in the order of 5 percentage points of GDP a year over 10 years required to generate significant growth boost (cumulative 10–20 percentage points). - Financing solely via additional tax revenue requires prohibitive taxation (more than double current rate) and sharply compresses consumption. - Exclusive external commercial borrowing rapidly undermines external debt sustainability. - Most promising approach: combination of realistic domestic resource mobilization increases, concessional financing, and judicious commercial borrowing. - Efficiency of public investment is paramount (broad proxy for institutional quality). - Fiscal context and eurobond implications: - Framework incorporates issuance before end-2012 of a US$350 million eurobond with proceeds on-lent to KCC and Rwandair: US$200 million to retire government-guaranteed loans and US$150million to finance KCC completion before end-2013. - Excluding eurobond impact: - Total revenue and grants expected at 25.3 percent of GDP. - Total spending and net lending projected at 32.4 percent of GDP (or 28 percent excluding eurobond transactions). - Overall deficit (including grants) projected at 7.1 percent of GDP (or 2.8 percent excluding net lending to KCC and Rwandair financed by eurobond). - Contingent spending items identified ≈ 0.4 percent of GDP not to be undertaken if specified committed budget support not disbursed. - Agaciro solidarity fund expected to contribute about RWF 2 billion (less than 0.05 percent of GDP) to domestic capital spending in FY2012/13. ### External stability assessment and exchange rate competitiveness (Section 33) - External outlook and reserves: - Current account deficit expected to decline to about 5.4 percent of GDP by 2017. - Key narrowing driver: declining need for capital imports as strategic EDPRS projects complete. - Exchange rate broadly in line with fundamentals; recommendation to allow greater market-determination of exchange rate. - Reserves described as comfortable. - Planned eurobond issuance (Box 7): - Planned issuance: US$350 million (about 5 percent of GDP) in December 2012 through a 10-year eurobond; proceeds to retire publicly-guaranteed debt and fund KCC. - All proceeds placed with central bank and fully disbursed by end-2013; net increase in debt = 2.2 percent of GDP after early repayment. - DSA implications: debt outlook improves slightly due to higher CPIA-based thresholds; external debt remains well below indicative thresholds under baseline and most stress tests; only PV of debt-to-exports ratio breached under one export shock with breach peaking at 18 percent (56 percent previously) and lasting two years (four years previously). - Exchange rate assessment (Box 8 — CGER results): - Macroeconomic balance: underlying current account -5.4; current account norm -5.0; exchange rate gap +0.9. - Equilibrium real exchange rate: exchange rate gap +7.5. - External sustainability: underlying current account -5.4; current account norm -0.7; exchange rate gap +10.2. - Interpretation: Rwandan franc broadly in line with fundamentals; allow greater market-determination; exchange rate should not be primary vehicle for competitiveness; structural impediments to export development identified (narrow export base, small set of markets, no seaport access, small industrial sector). - Disaggregated export dataset findings: perennial exports unusually volatile; share of new varieties extremely high but survival low (after 4 years cumulative survival probability <10 percent vs nearly 20 percent in other EAC countries). ### Monetary policy, financial sector, and financial access - Monetary framework and program targets: - NBR tightened stance mid-2012; program targets: reserve money and broad money growth about 16–17 percent at end-2012 and end-2013; credit to private sector growth to slow to about 18 percent by end-2013. - Move to a more flexible monetary targeting framework with a reserve money band ± 2 percent around central target; PSI QAC on reserve money set at upper limit. - Financial sector indicators and reforms: - Bank assets doubled 2006–2010 and grew another 37 percent by end-June 2012. - NPLs: 6 percent (end-September 2012) vs 11.3 percent (end-2010). - Private sector credit-to-GDP: 12 percent in 2010 rising to 13.5 percent in June 2012. - Banking concentration: three largest banks ≈ 50 percent of total bank assets at end-June 2012 (down from 60 percent end-2010). - SACCOs reform: consolidation plan to form a large cooperative bank by end-2014; Phase I consolidate at district level by end-December 2013. - Financial access and payment systems (selected 2012 outcomes): - Adult population with access to financial services: 71.8 percent in 2012 (up from 47.5 percent in 2008). - ATMs: 229 (end-June 2012) up from 135 (end-June 2011) — increase over 69.6 percent. - Points of Sale (POS): 385 (end-June 2012) up from 227 (end 2011). - Visa NNSS operational since March 1, 2012; six banks participating by end-June 2012. ### Fiscal framework, revenue mobilization, and PFM reforms - FY2011/12 outturns and FY2012/13 budget: - FY2011/12 fiscal deficit: 1.2 percent of GDP (smaller than projected 1.9 percent of GDP). - Domestic revenue collected: RWF 591.8 billion vs target RWF 565.1 billion. - Tax revenue: RWF 557 billion vs target RWF 530.2 billion (excess RWF 26.8 billion). - One-off arrears collections: RWF 6.5 billion (0.2 percent of GDP). - FY2012/13 budget projections: - Total revenue and grants: RWF 1211.1 billion (25.3 percent of GDP). - Domestic revenue: RWF 712.4 billion (14.9 percent of GDP). - Total expenditure and net lending: RWF 1541.5 billion (32.4 percent of GDP). - Overall cash deficit: RWF 338.5 billion (7.1 percent of GDP). - Net domestic financing: small build up of government deposits RWF 15.4 billion (0.3 percent of GDP) representing unused sovereign bond funds. - Contingent expenditure set aside: RWF 18 billion (0.4 percent of GDP) to be not spent if donor disbursements not made. - Revenue mobilization and tax policy: - Authorities recognize tax effort ~14 percent of GDP, financing about 60 percent of government spending. - FAD technical mission prepared recommendations to increase tax base; authorities studying incorporation for 2013/14 budget. - Implemented tax measures: import tax rate for construction materials increased to 10 percent from 5 percent (from July 2012); gaming tax effective September 2012. - Electronic Sales Register (ESR) preparatory work finalized; implementation delayed awaiting law and Ministerial order. - PFM reform priorities and structural benchmarks: - Complete IFMIS technical requirements by end-April 2013 (structural benchmark). - Publish quarterly budget execution reports within 45 days of quarter end (continuous). - Introduce electronic tax registers by end-January 2013. - Submit revised investment code to Cabinet by end-January 2013. - Elaborate EDPRS II 2013–2018 and align MTEF; build PFM capacity at decentralized level. ### Debt sustainability and program conditionality (TMU and DSA highlights) - Technical Memorandum of Understanding (TMU) key elements: - Quantitative assessment criteria (AC) for December 31, 2012: floor on NFA of NBR; ceiling on reserve money; ceiling on NDF (central government); ceiling on contracting/guaranteeing new non-concessional external debt; ceiling on external payment arrears. - Indicative targets (IT): domestic revenue floor; net accumulation of domestic arrears ceiling; consolidated domestic debt ceiling; priority spending floor. - Adjusters to NDF and NFA ceilings tied to deviations in budgetary loans and grants, sovereign bond proceeds shortfall relative to US$230 million, and food emergency spending. - Program exchange rate: Rwanda Franc (per US$) 604.1410. - Debt sustainability analysis (selected indicators and projections): - Public sector debt (percent of GDP): 2012: 38.9; 2013: 35.7; 2014: 33.0; 2015: 29.6; 2016: 28.1; 2017: 26.6. - PV of public sector debt (percent of GDP): 2012: 26.8; 2013: 36.7; 2014: 33.1; 2015: 30.2; 2016: 26.2; 2017: 24.4. - Gross financing need (percent of GDP): 2012: 9.8; 2013: 10.7; 2014: 10.5; 2015: 7.4; 2016: 5.9; 2017: 5.4. - Sensitivity analyses indicate vulnerability to export shocks and large depreciation; bound tests include a one-time 30 percent real depreciation in 2013 and other shocks (see Appendix Tables). - Eurobond DSA implications: - Planned US$350 million eurobond implies net increase in debt ≈ 2.2 percent of GDP after early repayment of existing debt. - DSA shows external debt remains below indicative thresholds under baseline and most stress tests; one export shock breached PV of debt-to-exports but with smaller magnitude and shorter duration than prior assessment. ### Selected numeric highlights (exact figures preserved from tables and text) - Real GDP growth (selected years): 2008 "13.4"; 2009 "6.2"; 2010 "7.2"; 2011 "8.3"; 2012 "7.7". - Consumer prices (period average): 2008 "15.4"; 2009 "10.3"; 2010 "2.3"; 2011 "5.7"; 2012 "7.9". - Overall fiscal balance (after grants, percent of GDP): 2008 "-0.2"; 2009 "-2.2"; 2010 "-0.1"; 2011 "-3.4"; 2012 "-1.9". - External current account balance (including official transfers, percent of GDP): 2008 "-4.9"; 2009 "-7.3"; 2010 "-5.9"; 2011 "-7.3"; 2012 "-10.0". - Gross official reserves (including SDR allocation, millions USD): 2008 "596.4"; 2009 "742.2"; 2010 "814.2"; 2011 "1,051.2"; 2012 "1,051.2". - Exports (f.o.b., US$ millions): 2008 "267.7"; 2009 "235.0"; 2010 "297.3"; 2011 "464.2"; 2012 "464.2". - Imports (f.o.b., US$ millions): 2008 "880.7"; 2009 "999.2"; 2010 "1,084.0"; 2011 "1,563.8"; 2012 "1,565.4". - Broad money (M2) annual growth examples: "13.1", "16.9", "26.8", "17.0", "16.5", "16.9", "16.3", "15.6", "13.7", "13.8". - Banking sector indicators (end-June 2012): - Capital to risk-weighted assets: "25.1 percent". - Non-performing loans ratio: "5.7 percent" (declined from "9.6 percent"). - Banks' exposure to real estate: "27.30 percent" of total loan portfolio. - Financial access (Finscope 2012): - Adult population with access to financial services: "71.8 percent" (2012) vs "47.5 percent" (2008). - Percentage without access: "28.1 percent" (2012) vs "52.4 percent" (2008). ### Staff appraisal, recommendations, and program status - Staff recommendation: - Conclude the 2012 Article IV Consultation and complete the fifth review under the PSI; next Article IV within 24 months. - Achievements noted: - Strong and inclusive growth; sharp poverty decline; strong PSI performance with minor deviation on NDF. - Authorities prudently postponed some spending and identified contingent cuts pending aid resolution; central bank tightened stance to slow reserve money growth. - Key staff recommendations: - Preserve macroeconomic stability amid uncertain aid prospects. - Minimize recourse to domestic bank financing; align spending with available financing. - Redouble efforts to raise revenue-to-GDP ratio via tax policy and revenue administration reforms (FAD recommendations). - Use eurobond proceeds primarily to retire shorter-term external debt and complete critical projects; follow through on debt retirement. - Continue strengthening monetary framework: use flexible reserve money targeting, indirect instruments, and allow greater exchange rate flexibility. - Strengthen financial sector supervision (including SACCO consolidation) and deepen financial access while managing real estate exposure risks. *Source: _cr1377 - IMF staff report excerpts and associated boxes and appendices provided in the supplied content.* ### 1. Rwanda‘s Response to the 2010 Article IV Consultation‘s Key Recommendations______________ 5 ### Rwanda‘s Response to the 2010 Article IV Consultation‘s Key Recommendations ### The context and recent performance - Rwanda achieved average real GDP growth above 8 percent a year in the last decade; inflation has been subdued since 2009; foreign reserves has been kept at adequate levels; poverty declined from about 57 percent in 2005/06 to below 45 percent in 2010/11, and income inequality declined notably. - Key policy strengths: - Fiscal and monetary policies centered on maintaining macroeconomic stability. - Improved public financial management (PFM), governance, and business environment reforms—placing Rwanda among the top African economies in the World Bank‘s Doing Business Index. - Deliberate focus on mobilizing and using foreign aid to support economic development and poverty reduction. - Economy increasingly open to new products and new markets. - Emphasis on homegrown and adapted interventions to enhance inclusiveness of growth and strengthen social services provision to the rural poor. - Current challenge: high uncertainty regarding donor assistance; a number of donors delayed budget support disbursements for FY2012/13. The delayed budget support envelope is estimated at about 3 percent of GDP. - Main medium-term vulnerabilities: low government revenue, high aid dependency, narrow export base, and weak infrastructure. ### Box 1 — Summary of key recommendations from the 2010 Article IV Consultation and Rwanda’s progress - Fiscal policy: unwind fiscal stimulus and embark on a medium-term path of fiscal consolidation; complement revenue mobilization efforts with tax policy reforms. - Progress: fiscal policy aligned with the macroeconomic framework agreed with the IMF. Revenue mobilization efforts initially focused on tax administration and are now being complemented by tax policy recommendations from a recent FAD technical assistance mission. - Monetary policy: review monetary stance regularly; use policy rate more actively; introduce reforms toward greater exchange rate flexibility. - Progress: monetary policy generally accommodative given low inflation. The National Bank of Rwanda (NBR) raised the key repo rate in May (third time since October 2011). - Export diversification: improve business environment and broaden the export base. - Progress: authorities developed a National Export Strategy (NES) and established the Industrial Development and Export Council (IDEC) to oversee implementation and identify priority expenditures within the existing budgetary envelope. - Access to finance: enhance banking sector competition, strengthen supervision of microfinance institutions, and improve access to finance. - Progress: 2011 FSAP update found the banking system recovered and is well capitalized; competition increased. Challenges remain in supervision frameworks for credit cooperatives. ### Positive economic developments (2012 highlights) - Growth: - Real GDP growth of 8.6 percent year-on-year in the first half of 2012, driven by construction and services. - For the whole of 2012, real GDP growth projected at about 7.7 percent, partly due to weaker agricultural output in the second half and lower-than-planned government spending from donor budget support delays. - Inflation: - Headline inflation declined to 5.6 percent in September 2012; core inflation down to 2.1 percent. - Inflation expected to pick up toward the end of the year to 7.5 percent due to increased domestic fresh food prices (poor weather) and lagged effects of higher exchange rate depreciation since mid-2012. - External sector: - Current account deficit (including aid inflows) projected to reach about 11.3 percent of GDP in 2012 due to strong import growth and delayed aid inflows. - Exports remained strong in 2012, supported by rising mineral exports and markedly higher tea prices offsetting lower prices for some traditional exports (including coffee). Imports rose rapidly driven by capital goods and construction materials. - Fiscal performance: - FY2011/12 overall fiscal deficit (cash basis, after grants) was 0.7 percent of GDP lower than targeted due to greater-than-projected revenue and lower spending. - Revenue gains reflected higher income tax revenue from clearance of arrears and higher taxes on goods and services and international trade. Higher current spending (wages and salaries) was offset by under-execution of domestically financed capital expenditures. - Monetary policy response: - NBR tightened policy since mid-2012 after a period of accommodation. NBR raised its key repo rate in May 2012 by 50 basis points (to 7.5 percent) and increased use of repo operations to mop up excess liquidity. - As of end-October 2012, the exchange rate depreciated by 3.7 percent since the beginning of the year. ### Program implementation and structural reforms - Performance under the PSI remains strong: with one exception, all end-June quantitative assessment criteria (QAC) and indicative targets were met. The quantitative assessment criterion on net domestic financing (NDF) was missed by about 0.5 percent of GDP (typographical error in the staff report for the 4th Review); staff supports granting a waiver as it is minor. - Structural benchmarks: seven of 11 structural benchmarks (SBs) have been met (two with delay). SBs on publication of quarterly budget execution reports (continuous) and preparation of own DSA were met with some delays due to capacity constraints. - Four SBs not met: submission of the medium-term debt management strategy to Cabinet (to be submitted in late November 2012), revision of the investment code, introduction of electronic tax registers, and completion of technical specifications for IFMIS (expected in first half of 2013). ### Macroeconomic outlook and risks - Baseline scenario assumptions: - Budget support will resume in the second half of FY 2012/13. - Issuance of a US$350million eurobond before end-2012 to retire unfavorable debt and to finance completion of the Kigali Convention Center (KCC). - Growth projections: 7.7 percent in 2012 and 7.6 percent in 2013; stabilize at around 7 percent over the medium term. - Inflation projection: continued convergence toward the authorities medium-term target of 5 percent (in line with the East African Community, EAC, convergence criterion on inflation), driven by lower import prices for food and fuel. - Downside risks: - Main risks from possible cutbacks in aid and a more challenging global environment. - Staff estimate that extended delays in budget support could lower growth in 2013 by 1½ percentage points and possibly more depending on second-round effects. ### Box 2 — Downside scenarios: impact of protracted delays in aid - Baseline assumes delayed budget support of about 3 percent of GDP will be disbursed in the second half of FY2012/13, minimizing macroeconomic impact. Two alternative scenarios illustrate larger adverse outcomes if delays persist: - Scenario 1: - Government fully adjusts to shortfall by cutting domestically-financed capital spending. - Central bank refrains from intervening in the foreign exchange market. - Direct hit to investment amounts to 3 percent of GDP. - Direct impact on growth estimated at about 1½ percentage points (assuming an import content of investment of 50 percent). - Imports decline and inflation would rise in the absence of alternative external financing. - Scenario 2: - Government resorts to domestic financing to fill the funding gap. - Direct impact on growth smaller than in Scenario 1, but impact on inflation larger. - Caveats: - Scenarios are based on a relatively limited delay in aid disbursements; suspension of budget support for all of 2013 would have twice as large direct effects. - Scenarios do not consider second-round effects on private sector investment, growth, exchange rate, and inflation which could be much larger, leading to sharper declines in real household incomes and consumption and rapid deterioration in social conditions—especially affecting the poor and vulnerable (including day laborers in construction). ### Policy discussions and recommendations - Overarching objectives: - Preserve macroeconomic stability amid uncertain aid prospects. - Raise competitiveness and growth potential. - Four policy themes for discussion and action: 1. Sustaining rapid, inclusive growth: - Government committed to Vision 2020 and EDPRS II; goal of poverty rate below 30 percent by 2017/18. - Acknowledged that achieving middle-income status by 2020 with average annual real growth of 11½ percent would require external financing currently not available. - For policy design, medium-term macroeconomic framework should be based on prudent growth assumptions: real GDP growth projected to moderate to about 7 percent a year consistent with declining public investment-to-GDP ratio as aid declines, gradual domestic resource mobilization, and limited external commercial borrowing for strategic projects. - Medium-term fiscal program anchored on limiting recourse to domestic financing (to avoid crowding out private credit) and preserving debt sustainability. 2. Fiscal policy and public investment: - Simulations using a dynamic general equilibrium model show scaled-up investment boosts growth but mobilizing resources is challenging. - Relying only on domestic resources would require unrealistic tax increases and induce excessive crowding out of consumption and private investment. - Relying solely on external commercial borrowing would lead to unsustainable external debt buildup. - Most realistic simulations combine increases in tax revenue, expenditure rationalization, and judicious external borrowing. - Importance of concessional loans and efficient public investment processes—maximizing conversion of investment into effective capital. 3. Monetary policy and financial sector reforms: - Continue regular review of monetary stance and active use of policy rate as needed. - Strengthen financial sector reforms to support financial deepening and greater access to credit. 4. External stability, exports, and competitiveness: - Underpin external stability through export diversification and improved competitiveness. - Implement National Export Strategy (NES) and utilize IDEC to prioritize expenditures within budget envelope. *Source: _cr1377 - 1. Rwanda‘s Response to the 2010 Article IV Consultation‘s Key Recommendations* ### Box 4. Rwanda: Simulations of the Public Investment-Growth Nexus ### Box 4. Rwanda: Simulations of the Public Investment-Growth Nexus ### Purpose and model design - Staff is collaborating with the authorities to estimate the impact of scaling up public investment on growth in Rwanda using a dynamic general equilibrium (DGE) model with low-income country characteristics. - The goal is to explore how Rwanda can sustain rapid growth going forward, in particular the role that public investment can play. - Key model features: - Public investment is productive and complementary to private capital. - Government faces a budget constraint and must finance additional investment through tax increases (or spending cuts) or borrowing (domestic, or external concessional or non-concessional). - Model allows for a variable efficiency of public investment—the rate at which investment is converted into productive capital. - Calibration to reflect data on the structure of the Rwandan economy to the extent possible. ### Baseline and medium-term framework - Rwanda has already seen a significant scaling up of public investment and enjoyed rapid economic growth in the last decade. - The medium-term macroeconomic framework assumes some scaling down of public investment along with a decline in inflows, with real GDP growth gradually easing to an annual rate of about 7 percent. - One set of simulations using the assumed paths for public investment and aid in the macroeconomic framework established a baseline and broadly confirms internal consistency. ### Scaled-up investment simulations and outcomes - Simulations focusing on scaled-up investment paths under different financing assumptions find: - A substantial scaling up of public investment (in the order of 5 percentage points of GDP a year over 10 years) is required to generate a significant boost to economic growth (a cumulative 10-20 percentage points during the simulation). - Financing and sustainability implications from simulations: - Covering the resource need solely through additional tax revenue requires a prohibitive rate of taxation (more than double the current rate) that sharply compresses consumption. - Drawing exclusively on external commercial borrowing rapidly undermines external debt sustainability. - The most promising approach combines: - a realistic increase in domestic resource mobilization over the medium term, - taking advantage of all available concessional financing, - and judicious resort to commercial borrowing. - The level of efficiency of public investment (a broad proxy for the quality of institutions and processes) is of paramount importance. ### Fiscal context and specific financing developments - The framework incorporates the issuance before end-2012 of a eurobond in the amount of US$350 million, the proceeds of which will be on-lent to the Kigali Convention Center (KCC) and Rwandair to retire government-guaranteed loans (US$200 million) as well as to finance the completion of the KCC project (US$150million) before end-2013. - Excluding the impact of the eurobond: - Total revenue and grants are expected to amount to 25.3 percent of GDP. - Total spending and net lending are projected at 32.4 percent of GDP (or 28 percent of GDP excluding transactions related to the eurobond). - The overall deficit (including grants) is projected at 7.1 percent of GDP (or 2.8 percent of GDP excluding net lending to KCC and Rwandair financed by the proceeds from the eurobond). - The government identified contingent spending items amounting to about 0.4 percent of GDP that will not be undertaken if specified components of committed budget support are not disbursed. - The government established the Agaciro solidarity fund; for FY2012/13 it is expected to contribute about RWF 2 billion (less than 0.05 percent of GDP) to domestic capital spending. ### Revenue mobilization and fiscal policy implications - The authorities recognize that Rwanda‘s tax effort—about 14 percent of GDP, financing only about 60 percent of government spending—makes Rwanda highly dependent on aid. - A FAD technical mission prepared recommendations to increase the government tax base and revenue mobilization; authorities are studying recommendations for incorporation into fiscal policy and the 2013/14 budget. - Simulation results imply that substantial scaling up of public investment must be paired with improved domestic resource mobilization and high efficiency of public investment to avoid prohibitive taxation or unsustainable external borrowing. ### Related monetary and financial sector context (relevant to financing environment) - The mission supported recent tightening of the monetary stance because of inflation risks from rapid credit growth and exchange rate pass-through. - Program targets: - Decline in the growth rates of reserve money and broad money to about 16–17 percent at end-2012 and end-2013. - Growth in credit to the private sector is set to slow to about 18 percent by end-2013. - Financial sector indicators and risks: - Bank assets doubled between 2006 and 2010, and grew by another 37 percent by end-June 2012. - NPLs stood at 6 percent (end-September 2012) compared with 11.3 percent (end-2010). - Financial depth: ratio of private sector credit-to-GDP stood at 12 percent in 2010, rising to 13.5 percent in June 2012. - The banking system is highly concentrated; the three largest banks accounted for about 50 percent of total bank assets at end-June 2012 (down from 60 percent as at end 2010). - The authorities plan continued supervision of banks and consolidation/supervision reforms for SACCOs, targeting consolidation into a large cooperative bank by end-2014. *Source: Box 4 and related sections, “Rwanda: Simulations of the Public Investment-Growth Nexus.”* ### 33. An external stability assessment ### 33. An external stability assessment ### External sector outlook and reserves - The external sector risks are manageable. - The current account deficit is expected to decline to about 5.4 percent of GDP by 2017. - Key reason for the narrowing deficit: declining need for capital imports because many of the large strategic investment projects included in the EDPRS have been, or soon will be, completed. - Authorities’ efforts to develop the export sector—both by diversifying into new markets, and improving the export base—are expected to support robust export growth and lower the trade gap. - The exchange rate appears to be broadly in line with fundamentals. - Reserves are comfortable (Appendix III). ### Article VIII status - Rwanda has accepted the obligations of Article VIII, Sections 2, 3, and 4. - Rwanda maintains a system free of restrictions on the making of payments and transfers for current international transactions. ### Box 7 — Planned Eurobond Issuance: Background and Implications for Debt Sustainability - Context: - Planned issuance: US$350 million (about 5 percent of GDP) in December 2012 through a 10-year eurobond. - Use of proceeds: retire existing publicly-guaranteed debt and fund completion of the KCC, a strategic investment project. - All proceeds will be placed with the central bank and fully disbursed by end-2013. - With early repayment of existing borrowing, the net increase in debt would amount to 2.2 percent of GDP. - Assumptions used in assessing debt sustainability: - Assessment used the latest debt sustainability template for low-income countries. - Template incorporates the 2011 CPIA scores, raising Rwanda‘s institutional capacity classification from “medium” to “strong”, and thus raising indicative thresholds for assessing debt distress. - Medium-term macroeconomic framework is the baseline described in the report, which critically assumes that aid flows resume in the first half of 2013, with no further delays thereafter. - Implications: - The analysis shows Rwanda‘s debt outlook improves slightly because of improvements in institutional capacity. - External debt remains well below indicative thresholds under the baseline and most stress test scenarios. - Only one indicator is breached (PV of debt-to-exports ratio) under one shock (export shock). - Because the net increase in borrowing is limited and most new borrowing retires less favorable existing debt, the magnitude and duration of the breach is smaller: - The breach peaks at 18 percent (56 percent previously). - The breach lasts only two years (four years previously). - Stress scenario note: - The extreme shock shown is a 1-standard deviation adverse shock to export growth in 2013-14. - Risks: - Assessment contingent on realization of the assumed macroeconomic framework, including full resumption of aid. - In a downside scenario, the macroeconomic framework underlying any DSA would be less favorable and could have adverse consequences. ### Box 8 — Exchange Rate Assessment and External Competitiveness - Methodology: - Exchange rate assessed using three CGER approaches: macroeconomic balance, equilibrium real exchange rate, and external sustainability. - Real exchange rate elasticity of the current account assumed to be 0.46 (based on Country Report No. 11/19 estimates). - Equilibrium real exchange rate assessed by comparing Rwanda‘s fundamentals—openness, aid flows, terms of trade, and fiscal position—relative to its 30 largest trade partners using a 5-year moving average of trade weights from 2007-11 (DOTS). - Results (percent of GDP / percent): - Macroeconomic balance: underlying current account -5.4; current account norm -5.0; exchange rate gap +0.9. - Equilibrium real exchange rate: n.a.; n.a.; exchange rate gap +7.5. - External sustainability: underlying current account -5.4; current account norm -0.7; exchange rate gap +10.2. - Interpretation: - Taken together, all three approaches suggest the Rwandan franc is broadly in line with fundamentals, with caution due to uncertainty of point estimates. - Recommendation: allow for a greater degree of market-determination of the exchange rate. - Note: rigid management of the exchange rate could impede development of a viable export sector, but the exchange rate should not be the primary vehicle for improving competitiveness. - Structural impediments to export development identified: - A narrow export base. - Dependence on a relatively small set of markets. - No access to the sea. - A small, albeit growing, industrial sector. - Findings from a novel disaggregated export dataset: - Rwanda‘s perennial exports are unusually volatile, even by regional standards, complicating building trade and supply networks. - The share of new varieties in exports is extremely high; too much variety implies high costs and suggests experiments are not succeeding. - New varieties are not long-lived: after 4 years, the cumulative survival probability is less than 10 percent compared to nearly 20 percent in other EAC countries. - As successful new varieties tend to exhibit high growth, Rwanda‘s low survival reduces cumulative growth from new products. - Policy-relevant initiatives: - The NES aims to develop the non-traditional export sector and explore new markets, particularly within sub-Saharan Africa. - Regional efforts to improve transport links within the EAC could improve connectivity and lower transport costs. ### Program issues and quantitative conditionality adjustments - Authorities propose, and staff supports, modifications of end-December 2012 QACs reflecting revised fiscal projections for FY2012/13, the revised monetary program, and the eurobond issuance: - Floor on net foreign assets (NFA) of the central bank will be revised upward to reflect increased foreign exchange sales by the NBR and the addition of the unused portion of eurobond proceeds. - Reserve money will be revised slightly downward in line with intended tightening of the monetary stance. - Ceiling on NDF will be revised downward to reflect greater domestic financing during the first half of FY2012/13 and deposit of unused eurobond proceeds at the NBR. - Ceiling on non-concessional borrowing will be raised from US$255 million to US$605 million to accommodate the gross impact of the eurobond. - Indicative targets for domestic revenue, priority expenditure, and consolidated domestic debt will be adjusted. - Structural conditionality under the PSI: - Medium-term debt management strategy to be submitted to cabinet in late November 2012. - Introduction of electronic tax registers and submission to cabinet of revised investment code postponed to January 2013. - Completion of technical specifications for IFMIS postponed to April 2013. ### Staff appraisal: achievements, risks, and policy recommendations - Achievements: - Notable economic achievements over the last decade: strong and inclusive growth, sharp poverty decline. - Government emphasis on inclusive policies in poverty reduction strategies is exemplary. - Strong performance under the PSI: all QACs for end-June met except the NDF (minor deviation); most structural benchmarks completed with some delays. - Authorities have prudently postponed some government spending and identified contingent spending cuts pending aid disbursement resolution. - The central bank tightened monetary stance to slow reserve money growth and mitigate exchange rate and inflation pressures. - Risks and fiscal execution: - The budgetary framework for the remainder of FY 2012/13 needs careful execution; government should align spending priorities with availability of financing. - Minimize recourse to domestic bank financing to preserve macroeconomic stability. - Delays in donor support, if prolonged, could be disruptive to growth and poverty reduction: - A shortfall in budget support of about 3 percent of GDP extending beyond the current fiscal year would be a decline in growth of at least 1½ percentage points. - Overall impact could be greater depending on the government‘s policy response. - Eurobond stance: - Staff supports the eurobond issuance on macroeconomic and debt management grounds. - Previous DSA update suggests Rwanda‘s debt sustainability outlook would remain largely unchanged because the net addition to outstanding debt would be relatively small. - Critical for authorities to follow through on retiring commercial debt and completing critical investment projects. - Revenue mobilization and tax policy: - Rwanda needs to redouble efforts to raise the revenue-to-GDP ratio. - Recent delays in aid highlight the need to reduce aid dependence via greater domestic resource mobilization. - Tax revenue is well below regional and sub-Saharan African norms. - Authorities should consider tax policy and revenue administration recommendations from the recent FAD technical assistance mission to design a medium-term strategy for significantly increasing the revenue-to-GDP ratio. - Monetary policy and exchange rate policy recommendations: - NBR should use the new flexible reserve money targeting framework to carry out tightening of the monetary stance more efficiently. - NBR should use the flexibility of the new reserve money band to better manage liquidity and signal monetary stance, and make full use of indirect monetary policy instruments. - Authorities should strengthen foreign exchange market reforms and allow greater exchange rate flexibility to ensure the exchange rate responds better to market forces and facilitates more efficient foreign exchange allocation. *Source: _cr1377 - 33. An external stability assessment* ### 45. Staff recommends the conclusion of ### _cr1377 - 45. Staff recommends the conclusion of ### Staff recommendation and program status - Staff recommends the conclusion of the 2012 Article IV Consultation and the completion of the fifth review under the PSI. - It is proposed that the next Article IV Consultation takes place within 24 months, subject to the provisions of the decision on consultation cycles in program countries. ### Recent performance — growth, external sector, and reserves - Real GDP growth: 2011 reported at "7.7" (Table 1, Real GDP growth: 7.7 for 2011). - Output growth has been robust with contributions from primary, secondary, and tertiary sectors (Figure 1). - Trade balance (percent of GDP) showed a widening trade deficit driven by fast-growing imports (Figure 1). - Gross reserves (excluding encumbered assets, months of imports): reported values include "4.7", "5.4", "4.5", "5.1", "5.0", "5.2", "4.4", "4.6", "4.6", "4.6", "4.2", "4.0" (Table 1 / Figure 6 / Table 2 memorandum). - Gross reserves (RF amounts): "596.4", "742.2", "814.2", "1,051.2", "1,042.0", "1,144.2", "950.4", "989.0", "978.8", "1,030.1", "1,006.2", "1,047.6" (Table 1 memo; units: RF millions). ### Inflation developments and outlook - Consumer prices (period average): 2011 "7.9" percent; projected 2012 "7.9" percent and subsequent years include "7.0", "6.3", "5.8", "5.3", "5.0" (Table 1). - Consumer prices (end of period): 2011 "7.5" percent; 2012 "7.5" percent; projections include "6.5", "5.5", "5.0" (Table 1). - Headline inflation has been declining and is well below other EAC countries (Figure 1 and Figure 4). - Headline inflation expected to rebound slightly but remain on the low end in the region (Figure 4). - Actual monthly inflation has been below the projected path this year (Figure 4: "Projected Headline" vs "Actual Headline"). ### Fiscal developments and priorities - Overall fiscal balance (including grants, payment order): 2011/12 narrowed but expected to widen in 2012/13 (Figure 3). - Total revenue (excl. grants) in FY2011/12: "13.8" percent of GDP (Table 3, percent of fiscal year GDP: 13.8). - Total expenditure and net lending in FY2011/12: "26.6" percent of GDP (Table 3 percent of GDP). - Capital expenditure outpaced current spending: capital expenditure in FY2011/12 "11.7" percent of GDP vs current expenditure "14.5" percent of GDP (Table 3 percent of GDP). - Priority spending on health, education, and social protection remains high and aligned with EDPRS priorities (Figure 3). - Domestic revenue remains low: Domestic revenue, 2011 (percent of GDP) shown as low relative to comparators (Figure 3). - External debt relatively low in 2011: "Rwanda External Debt, 2011 (Percent of GDP)" shown as lower than peers (Figure 3). ### Monetary developments and financial sector indicators - Policy rate: NBR raised the policy rate three times since October 2011 (Figure 5). - 91-day T-bill rate and nominal interest rates have increased gradually (Figure 5). - Real interest rates returned to positive territories (Figure 5). - Broad money (M2) growth: Table 1 shows "24.2" (2008), "13.1" (2009), "16.9" (2010), "26.8" (2011), and projections "17.0", "16.5", "16.9", "16.3", "15.6", "13.7", "13.7", "13.8". - Reserve money growth and program monitoring: reserve money values and program vs actual series shown (Figure 5 and Table 4). - Credit to the private sector remained high (Figure 5; Table 4 shows private sector credit levels and growth). ### Medium-term outlook and projections (2008–17) - Real GDP growth projected to return gradually to trend growth: Table 1 projections include 2012 "7.7", 2013 "7.7", 2014 "7.5", 2015 "7.6", 2016 "7.2", 2017 "7.0" (Table 1). - CPI inflation (period average) projections: Rwanda vs SSA and EAC show low and stable inflation in medium term (Figure 6; Table 1 consumer prices projections listed above). - Current account (including official transfers) projected to improve as large investment projects come to completion: Table 1 external current account balance including official transfers shows 2012 "-10.0" percent of GDP; projections for 2013 "-11.3", 2014 "-9.7", 2015 "-10.2", 2016 "-9.0", 2017 "-6.8" (Table 1). - Reserves coverage projected to remain at comfortable levels: Reserves (months of imports) projections in Figure 6 and Table 1 memo. ### Key fiscal and external numeric highlights (selected exact figures from tables) - Real GDP growth: 2008 "13.4", 2009 "6.2", 2010 "7.2", 2011 "8.3", 2012 "7.7" (Table 1). - Consumer prices (period average): 2008 "15.4", 2009 "10.3", 2010 "2.3", 2011 "5.7", 2012 "7.9" (Table 1). - Overall fiscal balance (after grants, percent of GDP): 2008 "-0.2", 2009 "-2.2", 2010 "-0.1", 2011 "-3.4", 2012 "-1.9" (Table 1). - External current account balance (including official transfers, percent of GDP): 2008 "-4.9", 2009 "-7.3", 2010 "-5.9", 2011 "-7.3", 2012 "-10.0" (Table 1). - Exports (f.o.b., U.S. dollars): 2008 "267.7", 2009 "235.0", 2010 "297.3", 2011 "464.2", 2012 "464.2" (Table 2). - Imports (f.o.b., U.S. dollars): 2008 "880.7", 2009 "999.2", 2010 "1,084.0", 2011 "1,563.8", 2012 "1,565.4" (Table 2). - Current transfers (net, millions USD): 2008 "518.6", 2009 "600.0", 2010 "745.4", 2011 "880.6", 2012 "880.6" (Table 2). - Current account balance (incl. official transfers, millions USD): 2008 "-230.1", 2009 "-382.7", 2010 "-331.7", 2011 "-463.0", 2012 "-463.1" (Table 2). - Gross official reserves (including SDR allocation, millions USD): 2008 "596.4", 2009 "742.2", 2010 "814.2", 2011 "1,051.2", 2012 "1,051.2" (Table 2 memorandum). - Broad money (M2) annual growth (Table 4 memorandum): examples include "13.1", "16.8", "26.8", "32.2", "29.9", "19.5", "23.3", "19.1", "17.0", "16.5", "18.2", "12.5", "16.4", "16.3". *Source: IMF staff and Rwandan authorities (extracted from the supplied IMF country report content).* ### APPENDIX I. LETTER OF INTENT ### APPENDIX I. LETTER OF INTENT ### Program status and requests - The MEFP reviews recent developments and implementation of Rwanda‘s program under the three-year Policy Support Instrument (PSI) approved June 16, 2010; the PSI expires on June 29, 2013. - Program implementation described as "strong"; growth robust and inflation in single digits. - All end-June 2012 quantitative assessment criteria were met except the net domestic financing (NDF) target, missed by "about 0.5 percent of GDP" due to a typographical error in the QAC table prepared at the time of the 4th review. - Two structural benchmarks (publication of the quarterly budget execution report for June and preparation of an own DSA) met with delay. - Four benchmarks (medium-term debt management strategy, revision to the investment code, specification of technical requirements for IFMIS, and introduction of electronic tax registers) have been delayed and reprogrammed for the sixth review; medium-term debt management strategy to be submitted to cabinet in late November. - Government requests: - Completion of the fifth review under the PSI. - Modification of end-December 2012 assessment criteria for (i) NFA of the central bank to reflect donor budget support delays and accrual of eurobond proceeds; and (ii) NDF to reflect fiscal revisions due to donor inflow delays and sovereign bond proceeds and their use. - Raise ceiling on continuous assessment criterion for untied non-concessional borrowing from US$255 million to US$605 million to allow additional borrowing for retiring short-term debt and completing priority projects; claim: "It does not materially affect our debt sustainability, as shown by the DSA." - Approval of end-December 2012 assessment criteria and structural benchmarks for that period. - Sixth and final review expected before end-June 2013. - Government authorizes publication and distribution of this letter and attachments. ### Macroeconomic developments — output - GDP growth: "9.9 percent" in Q2 2012 vs "7.5 percent" in Q1 2012. - Sectoral contributions Q2 2012: - Services grew by "14 percent". - Industry grew by "9 percent", led by construction with "17 percent" growth. - Interpretation: performance indicates resilience to challenging international environment. ### Macroeconomic developments — inflation - Headline inflation trend: fell from "8.3 percent" in December 2011 to "5.6 percent" in September 2012. - Imported inflation: from "7.9 percent" in January to "1.2 percent" in September 2012. - Domestic inflation: "6.7 percent" in September 2012 (from "9.7 percent" in May 2012). - Core inflation (excludes fresh foods and energy): "2.1 percent" in September 2012; previous points: "3.6 percent" in June 2012, "5.3 percent" in March 2012, and "8.3 percent" in December 2011. - Decline in core inflation attributed to monetary and exchange rate policies by the National Bank of Rwanda. ### Fiscal developments and budget outcomes (FY2011/12) - Fiscal deficit for FY2011/12: "1.2 percent of GDP" (smaller than projected "1.9 percent of GDP"). - Domestic revenue collected: "RWF 591.8 billion" vs target "RWF 565.1 billion". - Tax revenue: "RWF 557 billion" vs target "RWF 530.2 billion" (excess "RWF 26.8 billion"). - One-off arrears collections: "RWF 6.5 billion (0.2 percent of GDP)". - Direct taxes exceeded target by "RWF 17 billion". - Taxes on goods and services excess: "RWF 4.9 billion". - Non-tax revenue accrued: "RWF 34.7 billion" vs projected "RWF 35 billion". - Budget support grants accrued: "RWF 265.7 billion" vs projected "RWF 279.1 billion" (shortfall "RWF 14.4 billion"). - Capital grants accrued: "RWF 191.6 billion" vs projected "RWF 184.4 billion" (excess "RWF 7.2 billion"). - Budgetary loans accrued: "RWF 53.5 billion" vs expected "RWF 52.2 billion" (excess "RWF 1.3 billion"). - Total expenditure and net lending: "RWF 1098 billion" representing "99.3percent" of revised FY2011/12 budget projection "RWF 1105.6 billion". - Recurrent expenditure: "RWF 613.9 billion" vs revised estimate "RWF 614.1 billion". - Total capital spending: "RWF 482.9 billion" vs revised allocation "RWF 497.7 billion" (shortfall "RWF 14.8 billion"). - Budget closed with net domestic finance equivalent to negative "RWF 32.7 billion" (lower than projected negative "RWF 21.4 billion") and net foreign financing equivalent to "RWF 95.1 billion" (lower than projected "RWF 116.8 billion"). ### Tax policy measures and revenue administration (2012/13 and 2011/12 progress) - Implemented tax policy measures (2 of 4 announced): - Tax rate for imported construction materials increased to "10 percent" from "5 percent" (import duties, VAT and excise duties), starting July 2012. - Gaming tax effective since September 2012. - Revenue administration progress: - Electronic Sales Register (ESR): preparatory work finalized; implementation delayed due to law and Ministerial order not yet published in the official gazette (structural benchmark end-January 2012). - E-filing and e-payment: PAYE, VAT, Excise, income tax including withholding taxes are being filed online; e-payment used with few banks; social security contributions e-filing also used. - Customer satisfaction survey final report produced December 2011; several recommendations implemented (training for SMEs, awareness campaigns, SME involvement in tax policy). - Tax compliance risk assessment: risk management tools developed and used by Domestic Taxes Department; tender for advanced risk management tools and data warehouse at evaluation stage. - Electronic single window (ESW) at customs: development between RRA and four agencies finalized; pilot launched Feb 2012; rollout to other Kigali customs offices in April 2012; preparations for connecting other agencies advanced. - One-Stop-Border Posts (OSBP) at Kagitumba and Rusumo: Kagitumba final design and tender documents approved and tender launched end-September 2012; Rusumo construction started; project externally funded with direct payment. - Electronic cargo tracking: bid evaluation done Feb 2012; evaluation report submitted to World (non-objection) in August 2012 recommending re-tendering. - Automation of pension and health insurance contributions collection integrated in e-Tax system and now operational, removing them from PAYE net. ### Monetary and exchange rate developments - Broad money M3: annual increase of "16.2 percent" at end August 2012 (almost same as projected for 2012). - Credit to private sector: increased to "33 percent" by end August 2012 on an annual basis, outpacing initial projections. - Reserve money and NFA targets: achieved by end June 2012. - Nominal exchange rate: RWF depreciated by "3 percent" against the U.S. dollar as of end September 2012 (compared with "1.6 percent" in full year 2011); depreciation mainly due to high demand for foreign exchange driven by rapid import demand increase. - Credit allocation by borrower type (end June 2012): small and medium enterprises "62.4 percent" and firms "37.6 percent" of total outstanding credit. - Interest rates and money market: - Policy rate increased by "0.5 percentage points" in May to "7.5 percent". - Repo rate stabilized around "7.4 percent" between May and August 2012. - Interbank rate average "8.9 percent" between May and August (from "7.5 percent" between January and April 2012). - T-bills weighted average rate: "10.7 percent" in August 2012 from "8.3 percent" in May. - Lending rate stabilized between "16.3 percent" and "17.0 percent". - Deposit rate average "8.8 percent" between May and August (from "8.0 percent" during first four months of 2012). - Operational changes at NBR: - June 1, 2012: fixed repo maturity of seven days introduced. - Reserve requirements since June 1, 2012: constituted only in local currency; maintenance period extended to two weeks. - June 1, 2012: standing deposit and lending facilities introduced. - August 1, 2012: overall foreign exchange risk exposure for banks set at "± 10 percent" of core capital. ### Financial sector reforms and supervision - Legal/regulatory review: NBR Law and Banking Law under review for amendments responding to FSAP recommendations; draft Deposit Insurance Fund law prepared and pending stakeholder discussions. - Supervision capacity: continued in-house and external trainings planned; five inspectors recruited in August 2011. - Banking sector soundness indicators (end June 2012 vs June 2011): - Capital to risk-weighted assets: "25.1 percent" (end June 2012) from "24.4 percent" (June 2011). - Non-performing loans ratio: declined from "9.6 percent" to "5.7 percent". - Banks' exposure to real estate: "27.30 percent" of total loan portfolio. - Prudential measures: - 2011 regulation on loan classification and provisioning reduced mortgage collateral up to "50 percent" and limited loan restructuring to once; requires close monitoring of sectoral loan performance. - SACCO supervision and consolidation: - May 2011: NBR recruited "60 inspectors" located in "30 districts". - SACCO consolidation action plan: Phase I — consolidate at district level by "end-December 2013"; Phase II — consolidate into a Cooperative Bank at national level by "end-December 2014". - Harmonized credit policy for SACCOs operational since July 2012. - Capacity building: World Bank consultants provided training for NBR SACCO inspectors. - Second quarter 2012: Rwanda Cooperative Agency provided computers to all "416 Umurenge SACCOs" and configured CGAP management tools. *Source: APPENDIX I. LETTER OF INTENT and accompanying Memorandum of Economic and Financial Policies, November 20, 2012.* ### 25. The NBR undertook various initiatives to widen financial access such as mobile financial ### _cr1377 - 25. The NBR undertook various initiatives to widen financial access such as mobile financial ### Financial access and payment systems - NBR initiatives included mobile financial services and agent banking. - By end-June 2012: - Three banks started to work with agents and two banks are in the process of launching agent banking. - One new bank has eight branches across the country. - Two microfinance institutions were upgraded to microfinance banks with minimum capital of RWF 1.5 billion each. - Number of bank branches and outlets was 580. - ATMs grew from 135 (end June 2011) to 229 (end June 2012), an increase of over 69.6 percent. - Points of Sale (POS) increased from 227 (end 2011) to 385 (end-June 2012). - The Visa National Net Settlement System (NNSS) has been operational since March 1, 2012; by end-June 2012 six banks were participating in NNSS. - The RIPPS system was upgraded to enable linkage to East Africa Payment Systems (EAPS) and COMESA Regional Payment and Settlement System (REPSS). - 2012 Finscope Survey results: - Total adult population with access to financial services: 71.8 percent in 2012 (up from 47.5 percent in 2008). - Percentage of adult population without access: 28.1 percent in 2012 (down from 52.4 percent in 2008). ### External sector performance (first half of 2012 and through end-August 2012) - Balance of payments: - Overall balance of payments deficit in first half of 2012: USD 195.5 million (mainly due to higher-than-projected imports). - Current account and trade: - Current account deficit: US$ 500.3 million. - Trade deficit: USD 605.5 million. - Net income and services negative and at US$ 147.3 million accounted for around 45percent (of the projected amount for end-2012). - Remittances: - About 64 percent of private transfers were remittances, estimated at US$ 50.2 million in the first half of 2012; annual projection US$ 111.4 million. - Exports and imports: - Exports increased annually by 22.6 percent by end-August 2012 (compared to 0.6 percent initially projected for whole year 2012). - Coffee exports lower by 14.6 percent despite higher volume (12.6 percent). - Tea exports performed poorly in both value and volume. - Imports increased annually by 28 percent by end-August 2012 (compared to 13.7 percent projected for whole year 2012). - Capital, intermediate and energy imports accounted for 73 percent of total imports by end-August 2012. - Exchange rate: - Nominal depreciation of the RWF against U.S. dollar estimated at about 3 percent between December 2011 and September 2012. - Donor budget support: - About USD 200 million in bilateral and multilateral general budget support disbursements expected in July–December 2012 were reprogrammed for January-June 2013. ### Statistical developments - National accounts improvements: - NISR conducting an Integrated Enterprise Survey (IES) for reference year 2011 to compile a Supply and Use Table (SUT); data collection started in May 2012; results expected by end-December 2012. - NISR capacity: - NISR recruited 47 new staff including economists. - Economic Statistics Department now has a director and four principal statisticians. - Agricultural statistics: - Recruitment of key consultants complete; four missions by Agricultural Assessments International Corporation (AAIC); finalized paper published at end-March 2012 (structural benchmark). - Planned technical assistance: - NISR plans to hire international experts with NISR Basket fund support to advise on national accounts, balance of payments, government financial statistics, and SUT (for 2011). ### Program performance (as of end-June 2012) - Quantitative and structural benchmarks: - Only one quantitative assessment criterion not met: net domestic financing (NDF) missed by RWF 23.9 billion due to a typographical error in the QAC table at fourth review; would have been met if target set correctly. - Structural benchmarks broadly observed with exceptions and delays: - Submission to cabinet of public debt policy and medium-term debt strategy (MTDS) planned for end-June 2012 delayed; revised draft planned for submission to cabinet in late November 2012. - Specification of technical requirements for IFMIS delayed until April 2013. - Introduction of electronic tax registry to improve issuance of VAT invoices planned for end-May 2012 not met (awaiting law promulgation). - Revision of the investment code by June 2012: partial revision (increase in tax rates for imported construction material from 5 percent to 10 percent) effective since July 2012; broad revision expected by January 2013. ### Economic outlook and risks - Growth and inflation projections: - 2012 domestic economic activity expected to expand at 7.7 percent. - Medium-term output growth projected at 7 percent on average. - Inflation targets: 7.5 percent for end-2012; 6.5 percent for end-2013; stabilizing at 5 percent over the medium-term. - Risks: - Global economic slowdown risks could adversely affect Rwanda. - Delays in aid disbursements noted (see USD 200 million reprogramming above). ### Government objectives and poverty reduction - Household survey and poverty: - EICV 3 shows poverty reduced by 12 percentage points from 2005/6 to 2010/11 (nominally more than a million Rwandans lifted out of poverty). - By 2010/11, more than 85percent of EDPRS targets had been achieved. - Vision 2020 and EDPRS2: - GDP per capita target revised from US$ 900 to US$ 1,240. - EDPRS2 key goals: (i) reduce poverty headcount to less than 30 percent; (ii) ensure high and sustained growth to achieve average double-digit GDP growth over the decade. - EDPRS2 focuses on (i) economic transformation, (ii) rural development, (iii) productivity and youth employment, and (iv) accountable governance. - Macroeconomic framework: - Revised framework adopts a more conservative growth outlook due to external downside risks and donor uncertainty. ### Fiscal policy and budget revisions (FY2012/13) - Overall projections: - Total revenue and grants: RWF 1211.1 billion (25.3 percent of GDP). - Domestic revenue: RWF 712.4 billion (14.9 percent of GDP). - Grants: RWF 498.6 billion (10.4 percent of GDP). - Domestic tax revenue: RWF 641.2 billion (13.4 percent of GDP). - Non-tax revenue (including peace-keeping reimbursements and AgDF): RWF 71.2 billion (1.5 percent of GDP). - Total expenditure and net lending: RWF 1541.5 billion (32.4 percent of GDP). - Recurrent spending: RWF 668.3.2 billion (14 percent of GDP). - Capital expenditure: RWF 653 billion (13.7 percent of GDP). - Net lending: RWF 220.3 billion (4.6 percent of GDP). - Overall cash deficit: RWF 338.5 billion (7.1 percent of GDP). - Net domestic financing: small build up of government deposits of RWF 15.4 billion (0.3 percent of GDP) representing unused sovereign bond funds. - Sovereign bond and AgDF: - Interest payments on the sovereign bond in FY2012/13: RWF 7.9 billion. - Revised net lending of RWF 220.3 billion includes RWF 204.3 billion (4.3 percent of GDP) of sovereign bond proceeds allocated to strategic investment projects and early retirement of expensive debt. - AgDF: RWF 2 billion included under domestic capital expenditure from AgDF accruals; AgDF proceeds to be audited annually by the Auditor General. - Capital expenditure also includes RWF 7.8 billion grant from USAID for agriculture projects (foreign financed capital). - Contingent expenditure due to donor uncertainty: - RWF 18 billion (0.4 percent of GDP) set aside as contingent expenditure under domestically financed capital budget; will not be spent if donor disbursements are not made. Areas: agriculture, health, infrastructure (roads), justice. - Net domestic finance projection: - Revised FY2012/2013 budget projected to close with a net build up of deposits amounting to RWF 15.3 billion (0.3 percent of GDP). ### Medium-term fiscal outlook and revenue mobilization - Medium-term consolidation: - Domestic revenue (excluding peacekeeping payments) projected to increase by 0.3 percent of GDP annually and reach 15.2 percent of GDP by 2016/2017. - Total expenditure and net lending projected to go from 1541.5.4 billion (32.3 percent of GDP) in FY2012/13 to RWF 1808.9 billion (22.9 percent of GDP) by 2016/2017. - Overall deficit (including grants) projected to decline from 6.9 percent of GDP in FY2012/13 to 1.6 percent of GDP by 2016/2017. - Non-tax revenue contribution not expected to increase due to permanent loss of dividends from privatization. - Tax policy measures for FY2012/13: - Revision of the investment code to be completed by November 2012 (structural benchmark). - Introduction of the Electronic Sales Register (ERS) planned to start in January 2013 (structural benchmark) after VAT law promulgation. - FAD/IMF mission provided recommendations for revenue administration and tax policy reforms for government consideration. ### Public financial management (PFM) reforms and priorities for 2012/13 - Key PFM challenges identified: - Disconnect between planning and budgeting. - Difficulties in automating PFM operations. - Need for critical mass of professionals across PFM functional areas. - Building PFM capacity at decentralized level. - Priority measures for 2012/13: i. Complete design of detailed system and technical requirements of IFMIS (functional, technical requirements documents and quality review) by end of April 2013 (structural benchmark). ii. Elaborate EDPRS II 2013-2018 and sector and district strategic plans; recruitment of thematic experts ongoing. iii. Review program structure of the budget and revamp the Medium Term Expenditure Framework (MTEF) to align MDAs strategic plans with budget program structure. iv. Support implementation of the Fiscal Decentralization Strategy (FDS); full-scale implementation a major focus. v. Continue phase two of Electronic Tax Registers implementation to efficiently collect VAT and expand tax base. vi. Finalize updated law on state finances and property with IMF East AFRITAC support; law expected to be finalized next fiscal year. vii. Support Institute of Certified Public Accountants of Rwanda (ICPAR) to launch CPA-Rwanda professional qualification examination. viii. Build procurement capacity via SFB and International Training Centre of the ILO; second phase with short-term courses ongoing. ix. Develop a professional internal audit cadre and automate internal audit processes using electronic working papers software. x. Public Financial Management Reform Strategy set to expire on June 30, [text ends]. *Source: _cr1377 (IMF staff report excerpt provided).* ### 2013. The government, in conjunction with the contributing development partners, is ### _cr1377 - 2013. The government, in conjunction with the contributing development partners, is ### Monetary and Exchange Rate Policies - The NBR will implement policies to minimize risks of monetary inflation while supporting the government economic growth objective. - Inflation projections: - Rise to 7.5 percent by end 2012. - Recede to about 6.5 percent by end 2013. - Stabilize at about 5 percent over the medium term. - Money and credit projections for 2013: - Growth rates of reserve money and broad money projected to slow to 16.3 percent in 2013. - Growth in credit to the private sector projected to slow from 29 percent at end-2012 to about 18 percent in 2013. - Monetary framework changes: - Move to a more flexible monetary targeting framework with a reserve money band of ± 2 percent around a central reserve money target. - The NBR will target the center of the reserve money band; the PSI quantitative assessment criterion on reserve money will be set at its upper limit. - Capacity building and modeling: - NBR to strengthen capacity with support from Bank of England, IMF, IGC, MEFMI, among others. - Short-term completion of studies to build a small macroeconomic model for Rwanda supported by MEFMI. - Money market operations: - Change in use of the key repo rate—role shifted to a reference rate for central bank operations on money markets. - Repo and reverse repo transactions fixed at 7 days maturity. - Repo rate to remain within a new corridor with lower and upper limits respectively the rates on overnight deposit and lending standing facilities. - Exchange rate policy: - Exchange rate to remain market driven; NBR interventions only to smooth volatility. - Dealers‘ Association launched August 2012; capacity building plan in collaboration with partners including IFC. - Government and NBR to finalize MOU on conversion of existing claims on the government into marketable securities before December 2012. ### Financial Sector Reforms - NBR to pursue FSAP recommended reforms in pension, insurance, banking and microfinance to expand market access and deepen finance. - Action plans: - Financial Sector Development Plan II (FSDP II) outlining reforms and timeframes for next 5 years; FSAP recommendations to be in place by end December 2012. - SACCO consolidation in two phases: - Phase I: consolidate SACCOs at district level by end December 2013. - Phase II: consolidate to form a cooperative bank at national level by end December 2014. - Capacity building and automation: - Continuous capacity building for SACCO inspectors and managers. - Program to enhance institutional capacity and MIS including automation in 2013/14. - UNCDF‘s MicroLead Program approved a $2.4 million dollar investment for technical service provision for the UMURENGE SACCOs by WOCCU. ### External Sector Policies and Outlook - 2012 export and import performance: - Exports projected to increase by 16.2 percent in 2012; non-traditional exports contribute about 50 percent of total receipts. - Coffee yield in 2012 projected to be about 2 percent lower than in 2012 due to lower international prices (noting text phrasing). - Tea volume projected to increase by 1.5 percent in 2012; receipts expected to rise by 7.7 percent. - Minerals receipts projected to decline by about 13 percent due to sharp decline in cassiterite volume and prices despite wolfram and coltan gains. - Imports (f.o.b.) projected to rise by 20 percent in 2012. - Trade deficit projected to widen from US$ 1.1 billion in 2011 to US$ 1.3 billion in 2012. - Balance of payments and reserves 2012: - Current account deficit (including official transfers) expected to deteriorate from 7.3 percent of GDP to 11.3 percent of GDP in 2012. - Net capital and financial flows of US$ 879.7 million (including Sovereign bond receipts of USD 350 million and FDI of US$150 million) expected. - Overall balance of payments surplus of US$94 million projected for 2012. - Gross reserves projected to reach US$ 1,144.2 million at end-2012, equal to about 5.2 months of imports of goods and services. - 2013 outlook: - Exports value projected to increase by about 9 percent in 2013 due to recovery in coffee and minerals and improved non-traditional exports. - Imports (fob basis) projected to rise by about 8 percent in 2013. - Trade deficit expected to widen by about 7 percent in 2013. - Current account deficit (including official transfers) projected to narrow slightly from 11.3 percent of GDP in 2012 to 10.2 percent of GDP in 2013 due to expected disbursement of delayed donor budget support. - Overall balance of payments projected to close with a deficit of USD 153.5 billion in 2013, to be financed by draw down of reserves including unused sovereign bond funds carried over from 2012. - Gross official reserves at end-2013 projected to decline to USD 989 million, covering 4.6 months of imports of goods and services. - Medium-term projections: - Exports in value terms projected to increase on average by about 8.2 percent a year in the medium term. - Current account balance expected to decline gradually in the medium term reflecting projected decline in donor budget support grants. - Public and private capital flows and rising FDI expected to partly offset grant declines; official reserves expected to remain at levels covering four to five months of imports. ### Medium Term Debt Strategy (Debt Management and DSA) - Government objectives for the medium term debt strategy: - Meet financing needs and payment obligations at lowest possible cost over medium to long term consistent with prudent risk. - Establish a sustainable debt service profile consistent with medium term repayment capacity. - Promote maintenance and development of domestic government securities market and diversify funding sources by reducing external exposure while ensuring domestic debt sustainability is not compromised. - Borrowing plans: - Introduction of a longer maturity domestic currency bond targeting the regional market and use of non-concessional funding. - Rwanda to go to the international debt market before the end of this year to raise US$ 350 million for strategic projects. - Some funds to be used for early repayment of expensive non-concessional debt by end-December. - Remaining balance to be used for additional debt repayment and completion of one project in 2013. - With early repayment, stock of non-concessional borrowing will only increase by US$ 150 million. - GoR commits to ring fencing sovereign bond proceeds for identified purposes. - Debt sustainability: - A debt sustainability analysis including the eurobond reveals Rwanda‘s external debt level including the sovereign bonds debt remains sustainable although vulnerable to shocks to export growth. ### Statistics and Other Issues - NISR plans and activities: - Improve quality of economic statistics and national accounts per improvement action plan. - Recruitment of key consultants in agriculture statistics; consultants undertook four missions to assess situation, review agricultural statistics and sampling methodology, and start seasonal probability surveys implementation. - For period October 2012 to January 2014, experts to help NISR conduct and analyze the agriculture survey for the agricultural year 2013 using the new methodology. - Business and GDP data: - Establishment Census 2011 results used to select 950 establishments for 2011 Business Survey and Non Profit Institutions Survey; data collection completed by end-October 2012 (structural benchmark). - Data from benchmark surveys and other sources to develop detailed input-output (I-O) and supply-use tables (SUT) and to rebase GDP estimates in 2011 constant prices. - With IMF East AFRITAC help, NISR will rebase the CPI statistics using results of EICV3 by end of June 2013. - Rebasing of GDP estimates using 2011 constant prices expected to be finished by end of December 2013. ### Quantitative Assessment Criteria, Indicative Targets, and Structural Benchmarks (selected figures and statuses) - End-June 2012 assessment highlights (Table 1): - Net foreign assets of the NBR at program exchange rate: 421.3 406.8 421.5 — met (floor on stock). - Reserve money (ceiling on stock): 173.1 173.1 171.7 — met. - Net domestic financing (ceiling on flow): 106.8 121.3 145.2 — Not met. - New non-concessional and government guaranteed external debt (US$ millions) (ceiling on stock): 255.0 255.0 219.5 — met. - External payment arrears (US$ millions) (ceiling on stock): 0.0 0.0 0.0 — met. - Domestic revenue collection (floor on flow): 284.7 284.7 307.6 — met. - Net accumulation of domestic arrears (ceiling on flow): -4.0 -4.0 -5.8 — met. - Consolidated domestic debt of public sector (ceiling on stock, eop): 327.6 342.1 215.4 — met. - Total priority spending (floor on flow): 247.2 247.2 301.2 — met. - Memorandum items: Total budget support (US$ millions) 139.9 115.9; Budget support grants (US$ millions) 139.9 115.9; General budget grants (US$ millions) 53.6 49.0; Grants from Global Fund (US$ millions) 86.3 66.9; Encumbered reserve assets (US$ Millions) 40.0 40.0 40.0. - Status of selected structural benchmarks for 5th Review of PSI (Table 2): - 1. Submit revised public debt policy and MTDS to cabinet (End-June 2012): Not met. Submission expected in late November. - 2. Complete determination of detailed system and technical requirements for IFMIS (End-September 2012): Not met. Delayed until April 2013. - 3. MINECOFIN to publish quarterly budget execution reports starting mid-May 2011: Met with delay for June. - 4. Introduce electronic tax registers (End-May 2012): Not met. Rwanda Revenue Authority ready to launch, awaiting law; expected in January. - 5. Submit revised investment code to cabinet (End-June 2012): Not met. Partial revision implemented (construction imports for projects of US$ 1.8 million investment taxed at 10% from 5% since July 1, 2012); full revision expected January. - 6. Introduce fully collaterized standing short-term lending facility (End-June 2012): Met. - 7. Approval of investment guidelines by board of CSR/RAMA (End-June 2012): Met. - 8. Adopt harmonized credit policy for SACCOs (End-September 2012): Met. - 9. Conduct own DSA using World Bank/IMF DSA framework (End-July 2012): Met with delay. Own DSA finalized in October 2012. - 10. NBR study on exchange rate developments (End-September-2012): Met. - 11. Complete enterprise survey (End-October 2012): Met. - End-December 2012 assessment highlights (Table 3, selected): - Net foreign assets of the NBR at program exchange rate: 513.0 618.8 (floor on stock). - Of which unused Euro bond proceeds: 139.0. - Reserve money (ceiling on stock) (upper bound): ...188.4. - Reserve money (ceiling on stock): 185.4 184.7. - Reserve money (ceiling on stock) (lower bound): ...181.0. - Net domestic financing (ceiling on flow): 11.5 -60.0. - New nonconcessional and government guaranteed external debt (US$ millions) (ceiling on stock): 255.0 605.0. - External payment arrears (US$ millions) (ceiling on stock): 0.0 0.0. - Domestic revenue collection (floor on flow): 617.7 653.5. - Net accumulation of domestic arrears (ceiling on flow): -8.0 -9.8. - Consolidated domestic debt of public sector (ceiling on stock, eop): 232.3 189.3. - Total priority spending (floor on flow): 516.9 497.0. - Memorandum items: Total budget support (US$ millions) 422.9; Budget support grants (US $millions) 409.5; General budget grants (US$ millions) 279.5; Grants from Global Fund (US$ millions) 130.0; Budget support (loans) 13.4; Eurobond (US$ millions) 350.0; Encumbered reserve assets (US$ millions) 71.0 0.0. - All numbers are at program exchange rate of RWF 604.14 per U.S. dollar unless otherwise indicated. *Source: Rwandan authorities and IMF staff estimates and projections (content unit: _cr1377 - 2013).* ### 1. Complete the determination of the detailed system and technical ### _cr1377 - 1. Complete the determination of the detailed system and technical requirements for the Integrated Financial Management Information System ### Structural benchmarks and near-term actions - Benchmark: Complete the determination of the detailed system and technical requirements for the Integrated Financial Management Information System. - Timeline: End-April 2013 - Objective: To improve budget preparation, implementation, and reporting. - Benchmark: MINECOFIN to publish (and put on its website) quarterly reports of budget execution against annual fiscal policy objectives, within 45 days of end of each quarter. - Timeline: Continuous, starting mid-May 2011 - Note: Initially the quarterly budget execution reports will exclude foreign-financed projects. - Objective: To improve communication of fiscal performance to stakeholders. - Benchmark: Introduce electronic tax registers to improve issuance of VAT invoices by taxpayers. - Timeline: End-January 2013 - Objective: To improve VAT buoyancy. - Benchmark: Submit to cabinet revised investment code to streamline exemptions. - Timeline: End-January 2013 - Objective: To improve revenue performance. - Benchmark (Financial sector): Complete the rating of SACCOs and selection of those that qualify for consolidation at district level. - Timeline: End-December 2012 - Objective: To expedite supervision of the Umurenge SACCOs. - Benchmark (External sector): Submit to the Industrial Development and Export Council a financing plan for the National Export Strategy. - Timeline: End-December 2012 - Objective: To widen the export base of Rwanda. ### Technical Memorandum of Understanding (TMU): scope and program monitoring - Coverage period: Defines quantitative targets for the period June 30, 2010–June 29, 2013 under the IMF Policy Support Instrument (PSI). - Targets are assessed via: - Assessment criteria (AC) — apply for December 31, 2012 (test date) and, where indicated, continuously. - Indicative targets (IT) — apply on other specified dates. - AC indicators for December 31, 2012: - Floor on stock of net foreign assets (NFA) of the National Bank of Rwanda (NBR). - Ceiling on stock of reserve money. - Ceiling on flow of net domestic financing (NDF) of the central government. - Ceiling on contracting or guaranteeing of new non-concessional external debt by the public sector. - Ceiling on stock of external payment arrears of the public sector. - IT indicators: - Floor on flow of domestic revenue collection of the central government. - Ceiling on flow of net accumulation of domestic arrears of the central government. - Ceiling on stock of consolidated domestic debt of the public sector. - Floor on flow of priority spending. - Continuous applicability: Assessment criteria on contracting or guaranteeing of new non-concessional external debt by the public sector and stock of external payment arrears. ### Program exchange rates (end-December 2011 rates applied for 2012) - Rwanda Franc (per US$) 604.1410 - Euro 1.2866 - British Pound 1.5371 - Japanese Yen (per US$) 77.7899 - SDR 1.5348 ### Institutional coverage and fiscal definitions - Central government fiscal operations comprise the treasury and line ministries (the government unless specified otherwise). - Net domestic financing (NDF) of the government: - Ceiling applies; the ceiling for December 31, 2012 is cumulatively measured from December 31, 2011. - Definition: Change in the sum of (i) net banking sector credit to the government and (ii) non-bank holdings of government domestic debt. - Net banking sector credit to the government: - Consolidated credit to the government from the banking system (NBR and commercial banks), including credit to provinces and districts. - Excludes treasury bills issued by the NBR for monetary policy purposes whose proceeds are sterilized as other NBR liabilities. - Outstanding consolidated government debt held by the banking system includes government debt to the NBR amounting to RWF 38.6 billion incurred as a result of the overdraft to the prewar government and the 1995 devaluation, as well as the current overdraft with the NBR. - Non-bank holdings of government domestic debt: non-bank holdings of treasury bills, bonds (domestic and non-resident), old development bonds (pre-1994 debt), new development bonds, and other accounts receivable. - Grants: Global Fund grants under control of the central government programmed at US$200.2 million for 2012, corresponding to RWF 120.9 billion at the program exchange rate. - Reporting requirement for NDF: Monthly transmission within five weeks from the end of each month, showing separately treasury bills and government bonds outstanding, other government debt, and central government deposits; deposits at NBR and commercial banks to be separated from deposits of public enterprises and autonomous agencies. ### Adjusters to the NDF ceiling - Adjust upward by any shortfall between actual and programmed budgetary loans and grants, up to a maximum of US$80 million (evaluated in Rwandan francs at the program exchange rate). - Adjust downward by the amount of any excess of actual over programmed budgetary grants and loans above US$24 million (evaluated in Rwandan francs at the program exchange rate). - Adjust upward by the extent to which the proceeds of any sovereign bonds issued before December 31, 2012 less any amount used to retire government-guaranteed external loans of the Kigali Convention Center (KCC) fall short of US$230 million. - Adjust upward by the amount of expenditure for food imports in the case of a food emergency. ### Floor on flow of domestic revenues - Floor applies to domestic revenue for December 31, 2012, cumulatively measured from December 31, 2011. - Definition: Total government revenue (tax and non-tax), per the central government fiscal operation table, excluding external grants and privatization receipts. - Reporting requirement: Detailed monthly data within five weeks of the end of each month. ### Floor on priority expenditure - Floor applies to priority spending for December 31, 2012, cumulatively measured from December 31, 2011; other dates are indicative targets. - Definition: Sum of recurrent expenditures, domestically-financed capital expenditures, and net lending identified as priority in line with the EDPRS; monitored through the computerized SIBET expenditure management system. - Reporting requirement: Monthly data within five weeks of the end of each month. ### Ceiling on net accumulation of domestic arrears - A ceiling applies to net accumulation of domestic arrears for December 31, 2012, cumulatively measured from December 31, 2011. - Definition: Difference between gross accumulation of new domestic arrears (payment orders minus actual payments related to payment orders issued) and gross repayment of any arrears outstanding since the beginning of the year (including repayment of float and repayment of older arrears). - Reporting requirement: Monthly data on repayment of domestic arrears and remaining previous year‘s stock of arrears within five weeks of the end of each month. ### Limits on external debt and related definitions - Ceiling applies to contracting and guaranteeing by the public sector of new non-concessional external debt (ceiling in Table 3 for end-December 2012), continuous from end-June 2010 to end-June 2013. - Exclusions: swap agreement of US$50 million signed in November 2009 between the NBR and the IFC; a loan of US$13.1 million for two airplanes in 2009; euro 8 million loan by the BRD from the European Investment Bank in September 2011; non-concessional borrowing by the Bank of Kigali (assumed not to seek or be granted a government guarantee). - Applies to private debt with official guarantees and future swaps involving foreign currency loans guaranteed by the public sector. - Adjuster to ceiling on new non-concessional external debt: - Adjust downward to the extent proceeds of a sovereign bond issued before end-December 2012 fall short of US$350 million. - Adjust downward by any repayment of existing non-concessional external borrowing included under the ceiling, e.g., US$200 million earmarked for early repayment of guaranteed borrowing by the Kigali Convention Center (US$120 million) and RwandAir (US$80 million) in 2012 and 2013. - Definition of public sector: General government (central government, NBR, local governments) and entities where the government holds a controlling stake (more than 50 percent or ability to determine corporate policy); excludes Bank of Kigali. - Definition of guarantees: Any explicit legal obligation of the public sector to service a debt in the event of nonpayment, or any implicit legal or contractual obligation to finance shortfalls. - Concessionality definition: Debt is concessional if it includes a grant element of at least 35 percent; grant element calculated as (PV of debt subtracted from nominal value) / nominal value. PV uses OECD CIRRs with ten-year-average CIRR for maturity >=15 years and six-month-average CIRR for maturity <15 years; add margins for differing repayment periods: 0.75 percent (<15 years), 1 percent (15–19 years), 1.15 percent (20–29 years), 1.25 percent (30+ years). - Definition of "debt" (per Guidelines on Performance Criteria with Respect to External Debt, effective December 1, 2009): - Debt comprises current contractual liabilities requiring future payments in assets or services. - Forms include loans, suppliers' credits, and leases (with lease debt equal to PV of lease payments at inception excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make contractual payments that constitute debt are included. ### Limit on stock of external payment arrears - Continuous assessment criterion: Non-accumulation of payment arrears on external debt contracted or guaranteed by the public sector. - Definition: External debt service obligations (principal and interest) not paid at contractual due dates; excludes arrears on obligations subject to rescheduling. ### Consolidated Domestic Debt of the Public Sector (DD) - For program purposes, DD excludes treasury bills issued by the NBR for monetary policy purposes. - Ceiling applies to domestic commitments contracted or guaranteed by the public sector, including private debt with official guarantees. - Adjusters: - Upward adjustment in case of a shortfall in programmed budgetary loans and grants (per paragraph 12) matching the NDF adjustment, capped as specified. - Upward adjustment by the amount of expenditure for food imports in a food emergency. - Reporting requirement: Monthly transmission within five weeks of the end of each month on domestic debt, including treasury bills issued by the NBR for monetary policy purposes. ### Targets for monetary aggregates: Net foreign assets (NFA) of the NBR - A floor applies to NFA for December 31, 2012. - Definition: NFA in Rwandan francs is external assets readily available to, or controlled by, the NBR net of its external liabilities, consistent with the SDDS template; pledged/encumbered reserve assets (including swaps) are excluded. - Currency conversion rules: Foreign assets/liabilities in U.S. dollars converted to Rwandan francs using the US$/Rwanda franc program exchange rate; foreign assets/liabilities in other currencies converted to US$ at actual end-of-period US$/currency rates. - Adjusters to NFA floor: - Adjust downward by any shortfall between actual and programmed budgetary loans and grants, capped at US$80 million (evaluated in RWF at the program exchange rate). Excess of actual over programmed grants and loans: floor unchanged for the first US$24 million; subsequently adjusted upwards by any amount in excess of US$24 million (evaluated in RWF). - Adjust upward (downward) by shortfall (excess) between actual and programmed encumbered reserve assets (evaluated in RWF). - Adjust downward by extent proceeds of sovereign bonds issued before December 31, 2012 less amounts used to retire KCC-guaranteed loans fall short of US$230 million (evaluated in RWF). - Adjust downward by amount of expenditure for food imports in case of a food emergency (evaluated in RWF). *Source: Attachment II. Technical Memorandum of Understanding, November 20, 2012 (as reproduced in the provided content).* ### 33. Reporting requirement. Data on foreign assets and foreign liabilities of the NBR will be ### _cr1377 - 33. Reporting requirement. Data on foreign assets and foreign liabilities of the NBR will be ### Reporting requirements for foreign assets and liabilities - 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). - The exchange rate used for conversion into Rwanda francs will be shown separately. ### Reserve money: definitions, targets, calculation, and reporting - A ceiling applies to the stock of reserve money for December 31, 2012 as indicated in Table 3. The ceiling is the upper bound of a reserve money band (set at+/- 2 percent) around a central reserve money target). - The stock of reserve money 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. - The programmed amount of encumbered reserve assets stands at zero at December 2012. - 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. - This 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 and notification obligations - For program monitoring, the Government of Rwanda will provide the data listed in Table 1, with: - 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. - 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. Such policies 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. - Submission modality: The authorities will on a regular basis submit information to IMF staff 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). - Selected reporting frequencies from Table 1 (as listed in the source): - Exchange Rates: D W D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: W W M - Reserve/Base Money: W W M - Broad Money: M M M - Central Bank Balance Sheet: W W M - Consolidated Balance Sheet of the Banking System: M M M - Volume of transactions in the interbank money market and foreign exchange markets and sales of foreign currencies by NBR to commercial banks: D W W - Liquidity Forecast Report: W W -W- - Consumer Price Index: M M M - Revenue, Expenditure, Balance and Composition of Financing – General Government: M M M - Stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and NBR: A A A - Notes in Table 1 (selected): - Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. - One-week ahead forecasts of liquidity submitted on weekly basis; 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. - Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I). ### External stability assessment — key findings and policy priorities - Overall assessment: - The external position does not show immediate risks but medium-term challenges need to be addressed. - Rwanda remains vulnerable to external shocks, including aid shortfalls and commodity price fluctuations. - Strong program performance and improvements in capacity suggest there is greater capacity to assume greater non-concessional borrowing over the medium term. - Current account: - Background: Improvements in cash crop production have raised export volumes in recent years, but investment needs have led to a persistent deficit. The narrow export base makes Rwanda vulnerable to commodity price movements. Aid flows cover the bulk of the deficit. - Assessment: Structural reforms to improve export capacity are crucial. Investment projects need to be prioritized in order to manage risks. - Real exchange rate: - Background: Unlike elsewhere in the EAC, the NBR has kept the nominal USD-RWF rate relatively stable. - Assessment: The CGER assessment finds that the real exchange rate to be broadly in line with medium-term fundamentals, though there is some evidence that it may be overvalued. - Capital account and financial flows: - Background: Aid continues to form the bulk of capital flows, and the overall BOP expected to record a surplus in 2012. In recent weeks, major donors delayed part of their disbursements in light of a UN report examining Rwanda‘s role in the conflict in DR Congo. Thus far, donors have not withdrawn support. The authorities have provided guarantees for non-concessional foreign borrowing, though these remain well within agreed limits. - Assessment: Barring unexpected developments arising from the UN‘s investigations, near-term prospects for aid are unchanged. Support from traditional donors is likely to diminish in the future as Rwanda approaches middle-income status. Rwanda could tap funds from non-traditional donors, as well as accessing concessional resources from multilateral donors. - International reserves: - Background: Rwanda‘s reserves are projected to cover 5.1 months of imports and are expected to remain above 4 months over the medium term. - Assessment: The reserve levels appear adequate. A more flexible exchange rate setting could reduce the pressure on the NBR to maintain a relatively high level of reserves compared to its EAC peers. - Debt sustainability: - Background: With HPIC completion, Rwanda‘s debt position is sustainable. The most recent DSA update reaffirmed Rwanda as being at moderate risk of debt distress. The authorities have provided guarantees for non-concessional foreign borrowing, though these remain well within agreed limits. - Assessment: A preliminary DSA confirms that Rwanda remains vulnerable to export shocks. However, the thresholds used to assess debt distress have been raised due to an improvement in Rwanda‘s institutional capacity. As a result, both the magnitude and length of the breach is lower. - Policy priorities: - A gradual transition to a more market-determined exchange rate regime would be desirable, both to improve the conduct of monetary policy and support efforts to enhance export competitiveness. - While borrowing remains low and sustainable under most scenarios, the authorities should use their capacity to tap non-concessional resources prudently. This would include a careful vetting of projects, with priority placed on necessary improvements where public sector involvement would yield the greatest benefit. ### Debt sustainability analysis (selected projections and indicators) - Appendix Table 1 — Selected baseline and projection highlights (2009-2032) as presented: - External debt (nominal) 1/: 15.0 17.9 21.7 21.6 20.7 20.7 20.5 20.0 19.2 22.8 26.3 - o/w public and publicly guaranteed (PPG): 14.9 14.8 18.4 21.3 20.4 20.3 20.1 19.5 18.7 21.9 24.2 - Change in external debt: 0.3 2.9 3.8 -0.2 -0.9 0.0 -0.2 -0.5 -0.8 0.6 -0.7 - Identified net debt-creating flows: 3.5 4.2 3.5 7.6 7.2 5.9 3.5 2.6 2.0 0.9 -3.6 - Non-interest current account deficit: 6.5 5.7 7.1 2.2 4.0 10.7 9.4 8.4 6.2 5.4 5.0 4.4 0.0 3.1 - Deficit in balance of goods and services: 18.0 18.4 20.2 21.8 20.1 16.8 13.5 12.2 11.3 9.3 5.3 - Exports: 11.0 10.8 14.0 13.9 13.8 13.7 14.0 14.3 14.6 16.3 19.8 - Imports: 29.0 29.2 34.3 35.7 33.9 30.5 27.5 26.5 25.9 25.7 25.2 - Net current transfers (negative = inflow): -11.4 -13.3 -13.8 -12.5 1.5 -11.5 -11.3 -9.0 -7.9 -7.3 -6.7 -5.4 -5.8 -5.5 - Net FDI (negative = inflow): -2.3 -0.8 -1.7 -1.1 0.9 -2.2 -1.6 -1.8 -1.9 -2.0 -2.1 -2.4 -2.4 -2.4 - Endogenous debt dynamics: -0.8 -0.8 -1.9 -0.9 -0.7 -0.7 -0.8 -0.8 -0.8 -1.0 -1.2 - PV of external debt 4/: ......18.6 19.4 18.1 17.8 17.1 16.3 15.3 17.6 20.8 - In percent of exports: ......132.2 138.9 131.8 130.3 122.0 113.7 105.4 107.6 105.1 - PV of PPG external debt: ......15.3 19.1 18.1 17.5 16.7 15.8 14.8 16.7 18.7 - In percent of exports: ......108.6 136.8 129.5 127.6 119.1 110.6 102.0 102.6 94.4 - Debt service-to-exports ratio (in percent): 8.5 3.5 4.9 25.9 14.9 12.5 12.2 11.4 10.7 10.6 15.5 - Total gross financing need (Billions of U.S. dollars): 0.3 0.3 0.4 0.9 0.8 0.7 0.6 0.5 0.5 0.8 1.0 - Key macroeconomic assumptions (selected rows as presented): - Real GDP growth (in percent): 6.2 7.2 8.3 8.2 3.4 7.7 7.6 7.2 7.0 7.0 7.2 7.0 7.0 7.0 - GDP deflator in US dollar terms (change in percent): 5.4 -0.1 4.7 5.9 7.5 1.3 3.8 1.8 1.9 2.0 2.4 2.2 2.0 2.0 - Effective interest rate (percent) 5/: 6.1 1.4 1.3 3.4 2.3 2.9 4.1 3.2 3.0 2.8 2.5 3.1 1.9 2.1 2.0 - Growth of exports of G&S (US dollar terms, in percent): -16.2 5.5 47.3 18.7 25.9 8.3 10.2 8.7 11.6 11.3 11.5 10.3 11.5 11.1 11.4 - Growth of imports of G&S (US dollar terms, in percent): 8.6 7.8 33.1 18.9 14.7 13.7 6.0 -1.7 -1.7 5.2 6.9 4.8 8.9 8.9 8.9 - Grant element of new public sector borrowing (in percent): ...............-9.1 20.3 21.7 35.0 36.7 35.7 23.4 24.1 20.4 23.1 - Government revenues (excluding grants, in percent of GDP): 13.3 13.5 14.6 14.7 14.6 15.1 15.1 15.4 15.6 16.3 17.3 16.6 - Aid flows (in Billions of US dollars) 7/: 0.7 0.8 0.8 0.9 0.8 0.8 0.9 0.9 0.8 1.1 2.0 - o/w Grants: 0.6 0.8 0.8 0.9 0.8 0.7 0.8 0.7 0.7 0.8 1.6 - Grant-equivalent financing (in percent of GDP) 8/: .........12.0 11.0 9.1 9.1 7.9 6.8 5.2 4.3 5.0 - Memorandum items: - Nominal GDP (Billions of US dollars): 5.3 5.6 6.4 7.0 7.8 8.5 9.2 10.1 11.0 17.1 41.0 - PV of PPG external debt (in Billions of US dollars): 0.9 1.2 1.3 1.4 1.5 1.5 1.6 2.7 7.3 ### Sensitivity analysis (selected) - Appendix Table 2 and 3 display numerous alternative scenarios and bound tests for PV of debt-to-exports, PV of debt-to-revenue, PV of debt-to-GDP, and debt-service ratios under shocks including: - A1: Key variables at their historical averages in 2012-2032. - A2: New public sector loans on less favorable terms in 2012-2032. - B1–B6: Bound tests including shocks to real GDP growth, export value growth, US dollar GDP deflator, net non-debt creating flows, combination half-standard-deviation shocks, and a one-time 30 percent nominal depreciation in 2013. - Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) = 14 across stress scenarios (14 14 14 14 14 14 14 14 14 14 14 14). *Source: IMF staff report text provided in the content unit.* ### Appendix Table 4. Public Sector Debt Sustainability Framework, ### Appendix Table 4. Public Sector Debt Sustainability Framework, Baseline Scenario, 2009–32 ### Public sector debt levels and composition - Public sector debt 1/ (percent of GDP) - 2009: 27.0 - 2010: 28.2 - 2011: 30.0 - 2012: 38.9 - 2013: 35.7 - 2014: 33.0 - 2015: 29.6 - 2016: 28.1 - 2017: 26.6 - 2018: 28.6 - 2019: 28.6 - 2022-2032 average: 29.5 - Of which foreign-currency denominated (percent of GDP) - 2009: 14.9 - 2010: 14.8 - 2011: 18.4 - 2012: 21.3 - 2013: 20.4 - 2014: 20.3 - 2015: 20.1 - 2016: 19.5 - 2017: 18.7 - 2018: 21.9 - 2019: 24.2 ### Change in public sector debt and identified debt-creating flows - Change in public sector debt (percent of GDP) - 2009: 5.7 - 2010: 1.2 - 2011: 1.8 - 2012: 8.9 - 2013: -3.3 - 2014: -2.6 - 2015: -3.5 - 2016: -1.5 - 2017: -1.4 - 2018: 0.3 - 2019: -0.9 - Identified debt-creating flows (percent of GDP) - 2009: -0.5 - 2010: -1.4 - 2011: -4.5 - 2012: 1.3 - 2013: -1.3 - 2014: 0.7 - 2015: -1.5 - 2016: -1.1 - 2017: -1.2 - 2018: 0.2 - 2019: -0.4 - Primary deficit (percent of GDP) - 2009: 0.7 - 2010: 0.0 - 2011: -0.3 - 2012: 0.6 - 2013: 1.4 - 2014: 3.0 - 2015: 2.9 - 2016: 3.3 - 2017: 1.2 - 2018: 1.0 - 2019: 0.9 - 2022-2032 average entries in table: 2.0, 2.2, 1.7, 2.0 (present in table across columns) - Revenue and grants (percent of GDP) - 2009: 25.2 - 2010: 27.3 - 2011: 26.4 - 2012: 27.3 - 2013: 25.1 - 2014: 23.7 - 2015: 23.4 - 2016: 22.6 - 2017: 21.9 - 2018: 20.8 - 2019: 21.2 - Of which: grants (percent of GDP) - 2009: 12.0 - 2010: 13.9 - 2011: 11.8 - 2012: 12.6 - 2013: 10.5 - 2014: 8.6 - 2015: 8.3 - 2016: 7.2 - 2017: 6.3 - 2018: 4.5 - 2019: 3.9 - Primary (noninterest) expenditure (percent of GDP) - 2009: 25.9 - 2010: 27.3 - 2011: 26.1 - 2012: 30.3 - 2013: 28.0 - 2014: 27.0 - 2015: 24.6 - 2016: 23.6 - 2017: 22.8 - 2018: 23.0 - 2019: 22.9 ### Automatic debt dynamics and contributions - Automatic debt dynamics (percent of GDP) - 2009: -1.6 - 2010: -1.8 - 2011: -3.3 - 2012: -1.7 - 2013: -4.4 - 2014: -2.6 - 2015: -2.7 - 2016: -2.1 - 2017: -2.1 - 2018: -2.0 - 2019: -2.1 - Contribution from interest rate/growth differential (percent of GDP) - 2009: -1.3 - 2010: -1.9 - 2011: -2.9 - 2012: -2.1 - 2013: -3.7 - 2014: -2.5 - 2015: -2.4 - 2016: -2.0 - 2017: -2.0 - 2018: -2.0 - 2019: -2.1 - Of which: contribution from average real interest rate (percent of GDP) - 2009: -0.1 - 2010: -0.1 - 2011: -0.7 - 2012: 0.0 - 2013: -1.0 - 2014: -0.1 - 2015: -0.2 - 2016: 0.0 - 2017: -0.2 - 2018: -0.2 - 2019: -0.1 - Of which: contribution from real GDP growth (percent of GDP) - 2009: -1.3 - 2010: -1.8 - 2011: -2.2 - 2012: -2.1 - 2013: -2.7 - 2014: -2.4 - 2015: -2.2 - 2016: -1.9 - 2017: -1.8 - 2018: -1.8 - 2019: -2.0 - Contribution from real exchange rate depreciation (percent of GDP) - 2009: -0.3 - 2010: 0.2 - 2011: -0.5 - 2012: 0.5 - 2013: -0.6 - 2014: -0.2 - 2015: -0.3 - 2016: -0.2 - 2017: -0.1 - 2018+: (ellipsis in source) ### Other identified debt-creating flows and residual - Other identified debt-creating flows (percent of GDP) - 2009: 0.4 - 2010: 0.4 - 2011: -0.9 - 2012: 0.0 - 2013: 0.2 - 2014: 0.1 - 2015: 0.0 - 2016: 0.0 - 2017: 0.0 - 2018: 0.0 - 2019: 0.0 - Privatization receipts (negative) - 2010: 0.0 - 2011: -1.2 - 2012–2019: 0.0 - Recognition of implicit or contingent liabilities: all years shown 0.0 - Debt relief (HIPC and other): all years shown 0.0 - Other (e.g., bank recapitalization) (percent of GDP) - 2009: 0.4 - 2010: 0.4 - 2011: 0.3 - 2012: 0.0 - 2013: 0.2 - 2014: 0.1 - 2015–2019: 0.0 - Residual, including asset changes (percent of GDP) - 2009: 6.2 - 2010: 2.6 - 2011: 6.3 - 2012: 7.6 - 2013: -1.9 - 2014: -3.3 - 2015: -2.0 - 2016: -0.4 - 2017: -0.3 - 2018: 0.1 - 2019: -0.5 ### Other sustainability indicators (levels and ratios) - PV of public sector debt (percent of GDP) - 2012: 26.8 - 2013: 36.7 - 2014: 33.1 - 2015: 30.2 - 2016: 26.2 - 2017: 24.4 - 2018: 22.8 - 2019: 23.4 - 2022-2032 average entries: 24.0 (from table) - PV of public sector debt, of which foreign-currency denominated (percent of GDP) - 2012: 15.3 - 2013: 19.1 - 2014: 17.8 - 2015: 17.5 - 2016: 16.7 - 2017: 15.8 - 2018: 14.8 - 2019: 16.7 - 2022-2032 average entry: 18.7 - PV of external (percent of GDP) — same entries as foreign-currency denominated above - Gross financing need 2/ (percent of GDP) - 2009: 1.2 - 2010: 3.5 - 2011: 4.1 - 2012: 9.8 - 2013: 10.7 - 2014: 10.5 - 2015: 7.4 - 2016: 5.9 - 2017: 5.4 - 2018: 6.1 - 2019: 5.4 - PV of public sector debt-to-revenue and grants ratio (percent) - 2012: 101.5 - 2013: 134.4 - 2014: 132.0 - 2015: 127.7 - 2016: 112.2 - 2017: 108.1 - 2018: 104.2 - 2019: 112.4 - 2022-2032 entry: 113.0 - PV of public sector debt-to-revenue ratio (percent) - 2012: 183.8 - 2013: 249.6 - 2014: 227.0 - 2015: 200.5 - 2016: 173.6 - 2017: 158.6 - 2018: 145.9 - 2019: 143.5 - 2022-2032 entry: 138.7 - Of which: external (percent) (PV of debt-to-revenue) - 2012: 104.7 - 2013: 129.7 - 2014: 122.0 - 2015: 116.0 - 2016: 110.5 - 2017: 102.9 - 2018: 94.9 - 2019: 102.9 - 2022-2032 entry: 108.0 - Debt service-to-revenue and grants ratio (percent) 4/ - 2009: 2.1 - 2010: 2.3 - 2011: 2.4 - 2012: 12.3 - 2013: 6.8 - 2014: 6.6 - 2015: 6.5 - 2016: 6.2 - 2017: 5.9 - 2018: 6.5 - 2019: 6.4 - Debt service-to-revenue ratio (percent) 4/ - 2009: 4.0 - 2010: 4.7 - 2011: 4.4 - 2012: 22.8 - 2013: 11.8 - 2014: 10.4 - 2015: 10.1 - 2016: 9.2 - 2017: 8.3 - 2018: 7.1 - 2019: 7.8 - Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP) - 2009: -5.0 - 2010: -1.2 - 2011: -2.0 - 2012: -6.0 - 2013: 6.2 - 2014: 5.9 - 2015: 4.6 - 2016: 2.5 - 2017: 2.4 - 2018: 1.9 - 2019: 2.6 ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (percent) - 2009: 6.2 - 2010: 7.2 - 2011: 8.3 - 2012: 8.2 - 2013: 3.4 - 2014: 7.7 - 2015: 7.6 - 2016: 7.2 - 2017: 7.0 - 2018: 7.0 - 2019: 7.0 - 2022-2032 entries: 7.2, 7.0, 7.0 - Average nominal interest rate on forex debt (percent) - 2009: 1.1 - 2010: 1.0 - 2011: 1.0 - 2012: 1.1 - 2013: 0.2 - 2014: 2.6 - 2015: 3.1 - 2016: 2.3 - 2017: 2.2 - 2018: 2.0 - 2019: 1.8 - Additional entries: 2.3, 1.5, 1.7, 1.6 - Average real interest rate on domestic debt (percent) - 2009: -1.1 - 2010: -1.0 - 2011: -4.7 - 2012: -3.5 - 2013: 2.8 - 2014: -2.6 - 2015: -8.6 - 2016: -2.3 - 2017: -3.2 - 2018: -1.5 - 2019: -1.6 - 2022-2032 entries include: -3.3, -1.6, -1.1, -1.5 - Real exchange rate depreciation (percent, + indicates depreciation) - 2009: -1.9 - 2010: 1.3 - 2011: -3.3 - 2012: -4.0 - 2013: 8.8 - 2014: 2.7 - 2015+: (ellipsis in source) - Inflation rate (GDP deflator, percent) - 2009: 5.3 - 2010: 3.8 - 2011: 7.4 - 2012: 10.1 - 2013: 7.0 - 2014: 4.3 - 2015: 10.4 - 2016: 5.1 - 2017: 6.5 - 2018: 5.4 - 2019: 5.7 - 2022-2032 entries: 6.2, 5.0, 5.0, 5.0 - Growth of real primary spending (deflated by GDP deflator, percent) - 2009: 0.1 - 2010: 0.1 - 2011: 0.0 - 2012: 0.1 - 2013: 0.1 - 2014: 0.2 - 2015–2019 and 2022-2032 entries: 0.0, 0.0, 0.0, 0.0, 0.0, 0.1, 0.1, 0.1, 0.1 - Grant element of new external borrowing (percent) - 2015 onward entries include: -9.1, 20.3, 21.7, 35.0, 36.7, 35.7, 23.4, 24.1, 20.4 (ellipsis elsewhere) ### Appendix Table 5 — Sensitivity Analysis for Key Indicators of Public Debt, 2012–32 (selected outcomes) - PV of Debt-to-GDP Ratio (projections in table) - Baseline: 2012: 37, 2013: 33, 2014: 30, 2015: 26, 2016: 24, 2017: 23, 2022: 23, 2032: 24 (row entries) - Alternative scenarios (PV of Debt-to-GDP Ratio) - A1. Real GDP growth and primary balance are at historical averages: 2012: 37, 2013: 31, 2014: 26, 2015: 21, 2016: 19, 2017: 18, 2022: 13, 2032: 10 - A2. Primary balance is unchanged from 2012: 37, 33, 30, 28, 27, 27, 30, 35 (year sequence shown) - A3. Permanently lower GDP growth 1/: 37, 33, 31, 27, 26, 25, 30, 44 (year sequence shown) - Bound tests (PV of Debt-to-GDP Ratio) - B1. Real GDP growth at historical average minus one standard deviation in 2013-2014: 37, 34, 33, 32, 29, 28, 27, 33 - B2. Primary balance at historical average minus one standard deviation in 2013-2014: 37, 32, 28, 25, 23, 21, 22, 23 - B3. Combination of B1-B2 using one half standard deviation shocks: 37, 32, 28, 24, 23, 23, 26 - B4. One-time 30 percent real depreciation in 2013: 37, 41, 38, 33, 30, 30, 28, 27 - B5. 10 percent of GDP increase in other debt-creating flows in 2013: 37, 42, 38, 34, 31, 32, 29, 26 - PV of Debt-to-Revenue Ratio 2/ (projections in table) - Baseline: 2012: 134, 2013: 132, 2014: 128, 2015: 112, 2016: 108, 2017: 104, 2022: 112, 2032: 113 - A1: 134, 124, 109, 92, 86, 81, 66, 47 - A2: 134, 132, 128, 112, 111, 125, 145, 164 - A3: 134, 133, 130, 116, 114, 113, 140, 200 - Bound tests B1–B5 provide elevated ratios (year sequences shown in table) - Debt Service-to-Revenue Ratio 2/ (projections in table) - Baseline and alternative scenario rows display year-by-year series such as Baseline: 127, 77, 76, 66, 66, 6 (table formatted in source) - Alternative and bound-test rows show variations including spikes under depreciation and other shocks ### Appendix Figures (high-level indicators under alternative scenarios) - Appendix Figure 1 and Appendix Figure 2 present indicators of public and publicly guaranteed external debt and public debt under alternative scenarios, 2012–32, including: - Debt accumulation, PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, debt service-to-exports ratio, debt service-to-revenue ratio, rate of debt accumulation, grant-equivalent financing (% of GDP), and grant element of new borrowing (percent, right scale). - Figure legends note: - "The most extreme stress test is the test that yields the highest ratio in 2022." - Revenues are defined inclusive of grants. *Sources: Country authorities; and staff estimates and projections.* ### APPENDIX IV. RWANDA: MILLENNIUM DEVELOPMENT GOALS ### APPENDIX IV. RWANDA: MILLENNIUM DEVELOPMENT GOALS ### Overview - Time series columns in the source: 1990, 1995, 2000, 2005, 2010. - Source table heading: "Source: World Development Indicators." ### Goal 1: Eradicate extreme poverty and hunger - Employment to population ratio, 15+, total (%): 87 88 84 84 85 - Employment to population ratio, ages 15-24, total (%): 79 80 73 73 - Income share held by lowest 20%: ....5.. - Malnutrition prevalence, weight for age (% of children under 5): 24..20 18 11 - Poverty gap at $1.25 a day (PPP) (%): ....38.. - Poverty headcount ratio at $1.25 a day (PPP) (% of population): ..78 75 57 45 ### Goal 2: Achieve universal primary education - Literacy rate, youth female (% of females ages 15-24): ....77.. .. - Literacy rate, youth male (% of males ages 15-24): ....79.. .. - Primary completion rate, total (% of relevant age group): 0..22 40 70 - Total enrollment, primary (% net): 66 70 76 82 99 ### Goal 3: Promote gender equality and empower women - Proportion of seats held by women in national parliaments (%): 17 17 17 49 56 - Ratio of female to male primary enrollment (%): 97..97 103 102 - Ratio of female to male secondary enrollment (%): 71..94 88 102 - Ratio of female to male tertiary enrollment (%): 22..48 62 77 ### Goal 4: Reduce child mortality - Immunization, measles (% of children ages 12-23 months): 83 84 74 89 82 - Mortality rate, infant (per 1,000 live births): 103 122 68 46 42 - Mortality rate, under-5 (per 1,000): 171 241 180 108 60 ### Goal 5: Improve maternal health - Births attended by skilled health staff (% of total): 26..31 39 69 - Contraceptive prevalence (% of women ages 15-49): 21 14 13 17 52 - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,100 1,400 1,100 720 476 - Pregnant women receiving prenatal care (%): 94..92 94 98 ### Goal 6: Combat HIV/AIDS, malaria, and other diseases - Children with fever receiving antimalarial drugs (% of children under age 5 with fever): ....13 12 11 - Incidence of tuberculosis (per 100,000 people): 170 240 350 420 106 - Prevalence of HIV, total (% of population ages 15-49): 9 7 5 3 .. - Tuberculosis case detection rate (all forms): 54 23 22 19 .. ### Goal 7: Ensure environmental sustainability - Forest area (% of land area): 13 13 14 20 18 - Improved sanitation facilities (% of population with access): 23 32 40 49 55 - Improved water source (% of population with access): 68 67 67 66 75 - Terrestrial protected areas (% of total surface area): ......8 10 ### Goal 8: Develop a global partnership for development - Net ODA received per capita (current US$): 40 12 84 064 97 - Debt service (PPG and IMF only, % of exports, excluding workers' remittances): 10 20 25 4 3 - Internet users (per 100 people): 0 0 0 1 8 - Mobile cellular subscriptions (per 100 people): 0 0 0 2 33 ### Other key indicators (selected) - Fertility rate, total (births per woman): 7 6 6 6 5 - GNI per capita, Atlas method (current US$): 360 230 250 250 520 - GNI, Atlas method (current US$) (billions): 3 1 22 .. - Life expectancy at birth, total (years): 33 29 43 48 55 - Literacy rate, adult total (% of people ages 15 and above): 58..65.. .. - Trade (% of GDP): 20 31 34 37 41 *Source: World Development Indicators* ### 3.7 percent since the beginning of the year. ### _cr1377 - 3.7 percent since the beginning of the year. ### Macroeconomic outlook and projections - Real GDP growth - For the whole of 2012: projected at about 7.7 percent. - 2013: expected at 7.6 percent. - Medium term: expected to stabilize at around 7 percent. - Inflation - Projected to continue convergence toward the authorities’ medium-term target of 5 percent per year. - Consumer prices (period average) projections: 2012: 7.9; 2013: 7.0; 2014: 6.3; 2015: 5.8; 2016: 5.3; 2017: 5.0. - Consumer prices (end of period) projections: 2012: 7.5; 2013: 6.5; 2014: 6.0; 2015: 5.5; 2016: 5.0; 2017: 5.0. - Risks - Main downside risks: possible cutbacks in aid and a more challenging global environment. - Staff estimate: a prolonged delay in the delivery of budget support could lower growth in 2013 by 1½ percentage points and possibly more, depending on second-round effects. - Recent developments - Growth eased in 2012 relative to the first half due to weaker agricultural output and lower-than-planned government spending caused by delays in some budget support disbursements. - Aid disbursements from a number of bilateral and multilateral donors, estimated at about 3 percent of GDP, have been delayed. ### Fiscal policy and public finances - Overall fiscal stance - Directors considered the overall stance of fiscal policy to be appropriate. - Urged cautious execution of fiscal policy to take into account available financing. - Emphasized prioritizing spending and minimizing recourse to domestic bank financing. - Revenue mobilization and dependence on aid - Directors called for stepped-up efforts to strengthen the domestic revenue base and reduce aid dependence. - Encouraged reform of tax policy and revenue administration in line with a recent IMF technical assistance mission's recommendations. - Government finances (selected projections and indicators) - Total revenue (excl. grants) projections: 2012: 13.8; 2013: 14.0; 2014: 14.9; 2015: 14.9; 2016: 15.1; 2017: 14.9/15.2 (table shows 2016: 14.9 and 2017: 15.2). - Total expenditure and net lending projections: 2012: 26.9; 2013: 28.0; 2014: 32.3; 2015: 28.4; 2016: 24.4; 2017: 23.3. - Overall fiscal balance (After grants) projections: 2012: -1.9; 2013: -2.6; 2014: -6.9; 2015: -2.9; 2016: -2.3; 2017: -1.6. - Overall fiscal balance (Before grants) projections: 2012: -13.2; 2013: -14.0; 2014: -17.4; 2015: -13.5; 2016: -9.3; 2017: -8.5/-7.8 (table shows 2016: -8.5 and 2017: -7.8). - Specific fiscal measures and timing - For FY 2012/13, measures already implemented: increase in tax rate for imported construction materials from 5 to 10 percent (since July 2012); gaming tax effective since September 2012. - Other revenue administration measures in final preparation: Electronic Sales Register; e-filing and e-payment systems; establishing One-Stop-Border Post at Kagitumba and Rusumo with 24-hour operations. - Debt management and financing operations - Directors noted planned issuance of a euro bond before end-2012; they agreed that the bulk of proceeds should be used to retire shorter term external debt to help preserve debt sustainability. - The euro bond launch was subsequently postponed. - Authorities intended to issue in December 2012 a 10-year Eurobond worth US$ 350 million (authorities’ statement), with proceeds to retire existing publicly-guaranteed debt and fund completion of the Kigali Convention Center. Staff assessment: this one-off operation will not change the conclusions of the last DSA update, nor materially affect Rwanda’s debt sustainability. ### Monetary policy, financial sector, and liquidity - Monetary stance and framework - Directors supported maintenance of a tight monetary stance to contain inflationary pressures. - Welcomed the central bank’s adoption of a more flexible reserve money targeting framework to improve liquidity management and the effectiveness of monetary policy. - Encouraged greater exchange rate flexibility to protect against external shocks. - Financial sector developments and supervision - Authorities’ efforts to increase financial inclusion by strengthening financial intermediation in rural areas were welcomed. - Risks noted from rapid expansion of local savings and credit cooperatives and growing bank exposure to the real estate sector; called for strong financial sector regulation and supervision. - Banking sector described by authorities as healthy, well-capitalized and competitive; NBR to monitor compliance and improve laws in line with FSAP recommendations. - Money and credit (selected projections) - Broad money (M2) projections: 2012: 17.0; 2013: 16.9; 2014: 16.3; 2015: 15.6; 2016: 13.7; 2017: 13.7/13.8 (table shows 2016: 13.7 and 2017: 13.8). - Reserve money projections: 2012: 17.0; 2013: 16.9; 2014: 16.3; 2015: 15.6; 2016: 13.7; 2017: 13.7/13.8. ### External sector and reserves - Current account - External current account balance including official transfers projections: 2012: -10.0; 2013: -9.7; 2014: -10.2; 2015: -9.0; 2016: -6.8; 2017: -5.9/-5.4 (table shows 2016: -5.9 and 2017: -5.4). - Excluding official transfers projections: 2012: -21.5; 2013: -19.0; 2014: -20.9; 2015: -19.7; 2016: -16.3; 2017: -13.0/-11.5/-10.6 (table shows a declining path). - External debt and debt-service indicators - External debt (end of period) projections: 2012: 18.7; 2013: 19.1; 2014: 21.3; 2015: 20.4; 2016: 20.3; 2017: 20.1/19.5/18.7 (table shows 2016: 19.5 and 2017: 18.7). - Scheduled debt service ratio (Percent of exports of goods and services): 2012: 13.0; 2013: 13.1; 2014: 22.9; 2015: 11.5; 2016: 8.9; 2017: 8.5/7.6/6.8 (table shows a peak in 2012–2013 then decline). - Reserves - Gross reserves (months of imports of goods and services) projections: 2012: 5.0; 2013: 4.4; 2014: 4.6; 2015: 4.6; 2016: 4.2; 2017: 4.0. - Gross reserves (levels) projections (in the table): 2012: 1,042.0; 2013: 950.4; 2014: 1,144.2; 2015: 989.0; 2016: 978.8; 2017: 1,030.1/1,006.2/1,047.6 (table shows series across estimates and projections). ### Structural reform agenda and policy recommendations - Directors’ recommendations and emphasis - Maintain sound economic management and the momentum of structural reform. - Strengthen domestic revenue mobilization and reform tax policy and revenue administration. - Strengthen public financial management and debt management capacity. - Maximize use of concessional financing and use eurobond proceeds primarily to retire shorter-term external debt. - Improve business environment, strengthen competitiveness, and broaden the economic base. - Ensure EDPRS 2 targets are realistic and consistent with available financing. - Authorities’ reform priorities (from authorities’ statement) - Continue structural transformation away from agriculture toward industry and services under Vision 2020 and EDPRS. - EDPRS 2 to address: (i) economic transformation, (ii) rural development, (iii) productivity and youth employment, and (iv) accountable governance. - Implement tax policy measures and revenue administration reforms; reduce aid dependency; complete medium-term debt management strategy; strengthen public financial management and investment climate reforms. - Enhance monetary policy framework and instruments to improve transmission. - Promote financial inclusion while putting SACCOs on a sound footing and strengthening supervision. ### Program implementation and governance - Policy Support Instrument (PSI) - Rwanda’s macroeconomic policies are supported by the IMF’s Policy Support Instrument (PSI), approved in June 2010. - The 5th review under the PSI was completed in conjunction with the conclusion of the 2012 Article IV consultation. - The Executive Board approved a waiver of nonobservance of the quantitative assessment criterion on net domestic financing for the review. - Performance under the PSI - Authorities reported that all but one end-June quantitative assessment criteria and all indicative targets were met. - Structural reforms proceeding, though some delays due to capacity constraints and heavy workload. - Homegrown DSA completed and medium-term debt management strategy to be submitted to Cabinet in late November 2012. *Source: _cr1377 - 3.7 percent since the beginning of the year.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1377.pdf_