## 1. Performance Contracts in Rwanda

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### Recent developments
- Real GDP grew by 7 percent in 2014, compared to 4.7 percent in 2013; pickup driven by construction and services (information and communication, real estate, wholesale and retail trade) and strong agricultural performance.
- High frequency coincident indicators suggest economic activity maintained momentum in Q1 2015.
- Headline inflation declined; domestic fuel prices declined by about 20 percent since end-June 2014.
- Year-on-year headline inflation: 2.1 percent in December 2014; inflation remained subdued at 0.8 percent in March 2015.
- Current account deficit widened in 2014; imports increased sharply driven by capital, intermediate and consumer goods; exports grew modestly as weak prices reduced tea and mineral receipts, partially offset by rising coffee and non-traditional exports.
- Fiscal deficit smaller-than-expected in first half of fiscal year (second half of 2014) due to lower capital expenditures and net lending; revenues were lower-than-expected owing to weaker VAT receipts and lower budgetary grants.
- Delayed government payments equivalent to 0.6 percent of GDP were registered in the second half of 2014.
- Tax revenue ratio expected to remain flat in FY14/15 at about 15 percent of GDP.
- Donor financial support expected to fall to its lowest level in a decade this year, slightly above 12 percent of GDP; shift from grants to loan financing noted.
- National Bank of Rwanda policy rate maintained at 6.5 percent since June 2014.
- Broad money growth at 19 percent in December 2014; reserve money evolved in line with program.
- Credit to the private sector expanded by nearly 20 percent in 2014 (11 percent in 2013); real lending rates remained at 16 percent.
- Rwandan franc depreciated by 3½ percent against the dollar in 2014 (after cumulative 12 percent depreciation in previous two years).
- Financial sector indicators improved; NPLs returned to 2012 levels; profitability affected by high operational costs and inefficiency.

### Program performance
- Compliance with end-December quantitative criteria and structural benchmarks was satisfactory; all QACs were met.
- Indicative target on revenue mobilization narrowly missed due to weaker usage of electronic billing machines for VAT.
- Government consolidated expenditure in response to delays in donor disbursements and project implementation; some domestic payments delayed but clearance underway.
- Two structural benchmarks missed: delayed publication of quarterly fiscal execution report (late data from central bank) and mining tax proposal preparation still at technical level.

### Outlook and risks
- Central growth projection for 2015: 6.5 percent; growth expected to remain broad-based.
- Inflation expected to remain subdued at 3.5 percent by December 2015, below NBR medium-term target of 5 percent.
- Main risks: adverse weather, lower-than-expected exports, further delays in project implementation; these could reduce medium-term growth potential of 7.5 percent.
- Delays in donor disbursements pose short-lived growth risks.

### Policy discussions — overarching objectives
- Key challenge: support growth while preventing imbalances and strengthening resilience to shocks.
- Fiscal policy aims: sustain revenue mobilization, adjust current spending to available resources, minimize domestic financing, protect priority spending.
- Monetary policy aims: minimize inflationary risks and prevent buildup of pressures in foreign exchange market.
- Medium-term investment program to be implemented in line with available financing; authorities committed to fully exploring concessional financing and engaging private sector and development partners.

### Fiscal policy (detailed)
- Government targeting an increase of 0.7 percent of GDP in the revenue ratio for FY15/16 via:
  - increase in the road fund levy and introduction of an excise tax on petroleum to fund a strategic oil reserve (about 0.2 percent of GDP);
  - higher excise taxes on tobacco, introduction of an import tax on imports sourced outside the EAC, and increased usage of electronic billing machines through closer monitoring and increased tax audits (0.3 percent of GDP);
  - increased local government fees (0.2 percent of GDP).
- These measures expected to more than offset prospective revenue drop from falling import prices and rising share of EAC-sourced goods not taxed.
- Overall fiscal deficit projected to decline to 4.6 percent of GDP in FY 15/16.
- Projected decline in grants of -1.5 percentage points of GDP to the lowest level this decade.
- Medium-term overall deficit projected to level off at about 4 percent of GDP to help stabilize debt ratio near current levels.
- Net domestic financing projected to level off to ensure credit availability to private sector.
- Authorities will continue strengthening public financial management, including implementing “imihigo” (performance) contracts to strengthen accountability and service delivery.

### Investment, export prospects, and debt sustainability
- Need for adequate phasing and implementation of pipeline projects in line with financing and capacity.
- Medium-term projects under consideration include regional railway and oil pipeline, and new airport; financing not yet identified and authorities seek private sector participation.
- Staff recommended cautious prioritization given limited debt space to maintain low risk of external debt distress; authorities concurred.
- Finalization of started strategic projects (e.g., convention center) needs acceleration to facilitate structural transformation.
- Government exploring PPPs in sanitation, water provision, and cement as part of infrastructure financing strategy.
- Authorities aiming to expand export base and promote diversification; recent export performance strong but from low base and concentrated in commodities.
- Rwanda remains at low risk of external debt distress.
- Non-concessional borrowing ceiling for end-June raised to US$500 million to accommodate financing of two new airplanes in addition to US$250 million already identified as part of previous review.
  - DSA baseline assumptions consistent with medium-term macroeconomic framework; alternative scenario assumes additional non-concessional financing of US$250 million, consistent with new non-concessional borrowing limit of US$500 million.

### Box 1 — Performance Contracts (Imihigo)
- Imihigo used for planning, increasing accountability, and improving speed and quality of execution of government programs.
- President signs binding performance contracts annually with government institutions and line ministries; contracts also at Ministries, Districts, and sub-District levels.
- Program effectiveness measured against agreed governance, economic, and social performance indicators.
- Contracts focused on results; performance debated at annual evaluation meetings chaired by the President.
- Local governments use Imihigo to set priorities, annual targets, and activities; best performers recognized nationally; below-average performers receive remedial training; consistent poor unjustified performance may lead to institutional reform or dismissal.
- Imihigo objectives aligned with national priorities (MDGs, Vision 2020, EDPRS, District Development Plans, Sector Development Plans); presented to public for accountability and transparency.
- Where earmarked resources absent, line ministries must identify how resources (financial or non-financial) can be mobilized; central government consolidates priorities emphasizing quick wins, synergy, and avoiding duplication.
- Performance contracts loosely linked to budgetary allocations; targets do not necessarily have direct links with the budget.
- Success in increasing accountability noted; persistent problems include monitoring agreed indicators, setting overly ambitious targets, and ensuring contracts are properly inserted into wider planning and budgeting processes.

### Box 2 — Sensitivity of Growth to Changes in Export Performance
- Exports critical for extending production possibilities and financing imports; EAC countries have large import bills and small but growing export sectors.
- Gradual decline in foreign aid has begun to pressure import coverage of foreign exchange reserves.
- Over medium term, aid projected to continue to decline while exports remain robust and help stabilize reserves coverage at 4 months of imports.
- Scenario: Annual export growth of 6 percent for 2017-20 compared to current projection of 9 percent would lead to a fall in imports of goods and services (assuming current reserves coverage target maintained), limiting finance for investment and reducing total factor productivity.
- Reduction in imports associated with weaker export growth would likely contribute to a reduction in economy-wide annual growth rate by up to 2 percentage points.
  - Labor force growth projected at 2.6 percent per annum.
  - Real capital stock grows at 5 percent per annum.
  - Factor content ratios: 0.6 (labor) and 0.4 (capital).
  - Import content of investment: 0.7.
  - With full adjustment through imports, growth rate from factor inputs would be 2 ½ percent.
  - Assuming 2½ percent per annum contribution from TFP, the economy would grow at about 5 percent per annum.

### Monetary stance and outlook
- The 2015 monetary program targets broad money growth of 15.6 percent.
- Private sector credit growth is expected to remain broadly at 2014 levels.
- Continued exchange rate flexibility will help preserve policy buffers and support economic diversification.
- The authorities will monitor developments closely with a view to reassess policies should growth disappoint and inflation expectations remain benign.
- Staff appraisal: "The current monetary policy stance remains appropriate." The economy has been operating in a low inflationary environment, an amply liquid banking system, and ample credit to the private sector.

### Transmission mechanism and financial sector development
- Measures to improve the transmission mechanism need to be strengthened.
- Significant progress has been achieved under the PSI, but scope for improvement remains, particularly for interbank and secondary markets.
- Transaction levels have increased from a low base, but transaction values remain low.
- A fundamental issue is bringing down inefficiencies at commercial banks to tackle rigidity in lending rates.
- The NBR has increased the maturity of its bonds issuance to both develop the financial sector and absorb excess liquidity.
- Policies aimed at bolstering financial inclusion are ongoing.

### Legal, supervisory, and institutional reforms
- Consolidation of the informal cooperatives (Umurenge SACCOs) into one cooperative bank has been initiated and is expected to be completed by end-2015.
- The NBR law, banking law, and the deposit insurance laws have already gone through Parliament; these laws will increase supervisory oversight of the central bank to the non-banks and bolster confidence in the financial system.
- Preparations of the insurance laws and pensions law remain in the initial stages.

### Financial inclusion (Box 3) — objectives and progress
- Fostering financial inclusion embodied in EDPRS2 and the FSDP2.
- Main measures: enhance financial literacy; improve access to services; increase number of products; raise quality of services; ensure inclusion does not lead to significant increase in risk.
- Cooperatives and MFIs, particularly SACCOs, have provided access to more than 1/3 of the population.
- Literacy program expanded to provide training to cashiers, clerks and loans officers.
- Regulatory framework supports mobile money transfers (MMT), mobile and internet banking, agent banking, micro insurance and micro leasing.
- Non-traditional players—mobile phone operators and new entrants—have driven innovation in agency banking models.
- Supervisory framework revamped to ensure greater financial access does not increase risk.
- Payments through mobile banking increased by 155 percent between 2013 and 2014; subscribers on mobile bank and internet banking increased by 60 percent and 369 percent respectively.
- Mobile phone users in December 2014: 7.7 million; mobile money subscribers: 6.5 million (84 percent).

### Aid effectiveness and donor coordination (Box 4)
- Facilities in place: formalized regular interactions between donors and government, Donor Performance Assessment Framework (DPAF), Development Assistance Database (DAD), and clear division of labor among donors.
- Development Partners Coordination Group (DPCG) meets quarterly, co-chaired by government and Development Partners.
- DPAF reviews donor performance against 22 indicators drawn from Paris Declaration indicators and country-level indicators; DAD is a single repository for official assistance and incorporates DPAF indicators.
- In September 2014, DPAF indicators and targets underwent a light revision taking into account changes in aid modalities (including suspension in provision of general budget support).
- As Rwanda moves away from donor aid toward increased trade, investment, and PPPs, additional frameworks will be developed to enhance mutual accountability with Development Partners.

### Staff appraisal — key findings and policy recommendations
- Rwanda’s performance under the PSI has been satisfactory; "The authorities are to be commended for meeting all QACs."
- Performance on indicative targets and structural benchmarks was more uneven; maintaining momentum of reforms, including on revenue mobilization while strengthening project implementation, is important.
- Growth in 2015 is expected to remain strong, while the outlook is stable.
- The cautious fiscal stance and monetary policy are consistent with the need to preserve policy buffers. Continued exchange rate flexibility will support these objectives and economic diversification.
- The FY2015/16 budget framework aligns with PSI objectives: prioritizes public investment program in line with available resources, includes measures to improve domestic revenue mobilization, protects priority spending, and limits crowding out of credit to the private sector.
- Sustaining progress on domestic revenue mobilization critical to sustaining investment. Adoption of electronic billing machines has yet to gain full traction; agricultural and property taxation agenda yet to be carried out.
- Accelerating efforts to broaden tax base and strengthen tax administration and compliance remain key.
- Carefully select and prioritize investments in line with available resources to maintain debt sustainability and safeguard low risk of debt distress.

### Staff recommendation
- Staff recommends the completion of the third review under the PSI.
- Staff supports the request for modification of the end-June QACs and setting of end-December 2015 QACs.

### Selected macroeconomic projections and key indicators (selected exact figures)
- Real GDP (annual percent change): 2013 4.7; 2014 7.0; 2015 6.5; 2016 7.0; 2017 7.5; 2018 7.5.
- CPI (period average): 2014 1.8; 2015 2.8; 2016 4.3; 2017 5.0; 2018 5.0.
- Broad money (M3): 2014 19.0; 2015 15.9; 2016 13.1; 2017 13.7; 2018 14.3.
- Credit to non-government sector: 2014 19.6; 2015 19.7; 2016 14.0; 2017 22.4; 2018 15.7.
- Policy Rate (end of period): 2014 6.5; 2015 6.5.
- Revenue and grants (Percent of GDP): 2014 25.2; 2015 22.5; 2016 21.0; 2017 22.2; 2018 22.1.
- Grants (Percent of GDP): 2014 7.4; 2015 7.4; 2016 5.7; 2017 4.2; 2018 4.0.
- Overall balance (Percent of GDP): 2014 -3.8; 2015 -4.6; 2016 -4.6; 2017 -4.0; 2018 -3.9.
- Public gross nominal debt (Percent of GDP): 2014 30.7; 2015 33.1; 2016 35.0; 2017 37.8; 2018 38.1.
- Exports (percent of GDP): 2014 16.5; 2015 16.6; 2016 16.9; 2017 17.0; 2018 17.1.
- Imports (percent of GDP): 2014 33.7; 2015 32.3; 2016 31.2; 2017 33.2; 2018 30.2.
- Gross international reserves (in billions of US$): 2014 1.0; 2015 0.9; 2016 1.2; 2017 1.1; 2018 1.3.
- Reserves in months of next year imports: 2014 4.5; 2015 3.7; 2016 4.0; 2017 4.1; 2018 4.2.

### Appendix I — Letter of Intent: program requests and performance through end-December 2014
- Government requests:
  - completion of the third review under the PSI;
  - modification of assessment criteria for end-June 2015 based on revised macroeconomic framework;
  - rephasing of agriculture benchmark into two separate benchmarks to allow time to hire a consultant and proceed with legislative measures.
- All end-December 2014 quantitative assessment criteria (QAC) were met.
- Indicative targets: three of the four indicative targets were not met.
  - Domestic revenue collection was under target by RWF 17 billion (two percent off-target).
  - Arrears of RWF 41.7 billion accumulated at end-December 2014 due to delays in donor disbursements; these arrears were cleared in January 2015.
  - Priority spending reached 95 percent of its target.
- Growth and sectoral performance (2014):
  - Real GDP growth: 7 percent.
  - Services growth: 9 percent; agriculture growth: 5 percent; construction growth: 8 percent; manufacturing growth: 1 percent.
  - Private sector credit growth in 2014: 19.6 percent; new authorized loans in 2014: RWF 652.9 billion (38.2 percent rise from 2013).
- Inflation:
  - Average inflation in 2014: 1.8 percent.
  - Headline inflation year-on-year in December 2014: 2.1 percent; core inflation in December 2014: 2.9 percent.
  - End-2015 inflation projection: 3.5 percent; medium-term objective: below 5 percent.
- External and fiscal details:
  - Trade deficit in 2014: about US$1.3 billion (16 percent of GDP).
  - Reserve coverage at end-2014: about 5 months of imports.
  - July–December 2014 overall fiscal outturn: deficit of RWF 67.9 billion (RWF 62.5 billion lower than projected RWF 130.4 billion).
  - Revised FY2014/15 projections: total revenue and grants RWF 1,355.5 billion; total expenditure and net lending RWF 1,647 billion; overall deficit RWF 301.5 billion.
- Debt:
  - Total Public and Publicly guaranteed debt at end-December 2014: 30.4 percent of GDP (23.2 percent external; 7.1 percent domestic).
  - External concessional debt: 56.7 percent of total debt; commercial debt: 16.7 percent of total debt; guaranteed debt: 3.1 percent of total debt.
  - Sovereign rating: Standard & Poor’s raised long-term foreign and local currency rating to 'B+' from 'B' in March 2015.

### Medium-term fiscal framework and revenue mobilization (selected measures and figures)
- Tax revenue collections: 14.9 percent of GDP in 2014/15; projected 15.4 percent of GDP in 2015/16; reach 16 percent of GDP by 2017/18.
- Specific measures for 2015/16 and expected yields:
  - Increased levy on fuel for Road Maintenance Fund: RWF 5.2 billion.
  - Introduction of a Levy on Fuel for Strategic Oil Reserves: RWF 8.6 billion.
  - Changing the Excise Tax for Tobacco: RWF 5 billion.
  - Introduction of the Infrastructure Levy on Imports: RWF 10.6 billion.
  - Administrative compliance and voluntary disclosure measures (RRA): RWF 11.5 billion.
- Property tax reform:
  - Buildings and other structures will pay 0.2 percent of their estimated market value.
  - Land taxed at specific rate per square meter between 50-80 RWF depending on factors.
  - Residential house of market value ≤ RWF 30 million exempted from property tax on structure; land still pays land fixed tax per square meter.
  - Expected increase in local government tax receipts (LGTR) from 13.5 billion in FY2014/15 to RWF 26.1 billion in FY2015/16.

### Public financial management (PFM), PIP, and program implementation
- IFMIS upgrade planned; QAG scheduled to guide sequencing.
- SEAS rolled out to 72 percent (300/416) of sectors as of mid-February 2015.
- E-Procurement contract signed; rollout underway.
- Public Investment Committee (PIC) actions: increased prioritization within constrained envelope; 2015/16 PIC extended to districts.
- Emphasis on improved monitoring, strengthening project implementation units, and rolling out IFMIS to include externally financed projects.

### Monetary policy, bond market, and liquidity management
- NBR prudent monetary policy in 2015 to anchor inflation expectations and contain currency pressures.
- Private sector credit expected to grow by 20 percent in 2015.
- Exchange rate to remain market driven; NBR to ensure reserve levels remain comfortable at a minimum level of 4 months of prospective imports (CIF).
- Regular issuance of T-bonds planned; a 10 year bond scheduled in May 2015 and a 15 year bond in fiscal year 2016/2017.
- Plan to introduce market makers for Government Debt Securities and widen investor base.
- Use of regular T-bond issuance and T-bills for monetary purposes to reduce short-term banking liquidity and activate secondary market.

### Program monitoring, QACs, and TMU highlights
- QACs and indicative targets include numeric ceilings and floors for:
  - Net foreign assets of the NBR (floor); Reserve money (ceiling); Net domestic financing (ceiling); New nonconcessional external debt contracted or guaranteed by the public sector (stock ceiling US$250.0; later US$500.0); External payment arrears (ceiling 0.0).
  - Indicative targets: domestic revenue collection (floor), net accumulation of domestic arrears (ceiling), consolidated domestic debt (ceiling), priority spending (floor).
- TMU defines assessment framework, definitions, adjusters, reporting requirements, and program exchange rates (e.g., Rwanda Franc per US$: 694.374186).
- Reserve money calculation: arithmetic average of end-of-month stocks in the quarter; daily average of all three months in the quarter constitutes actual reserve money to be compared with the target.

*Source: IMF staff report: “Performance Contracts in Rwanda” (content unit: _cr15141).*

### 1. Performance Contracts in Rwanda _______________________________________________________________8

### 1. Performance Contracts in Rwanda

### Recent developments
- Real GDP grew by 7 percent in 2014, compared to 4.7 percent in 2013; pickup driven by construction and services (information and communication, real estate, wholesale and retail trade) and strong agricultural performance.
- High frequency coincident indicators suggest economic activity maintained momentum in Q1 2015 (figure 3).
- Headline inflation declined due to falling food and oil prices; domestic fuel prices declined by about 20 percent since end-June 2014.
- Year-on-year headline inflation stood at 2.1 percent in December; core inflation was also low; inflation remained subdued at 0.8 percent in March.
- Current account deficit widened in 2014; imports increased sharply driven by capital, intermediate and consumer goods; exports grew modestly as weak prices reduced tea and mineral receipts, partially offset by rising coffee and non-traditional exports.
- Fiscal deficit smaller-than-expected in first half of fiscal year (second half of 2014) due to lower capital expenditures and net lending; revenues were lower-than-expected owing to weaker VAT receipts and lower budgetary grants.
- Delayed government payments equivalent to 0.6 percent of GDP were registered in the second half of 2014.
- Tax revenue ratio expected to remain flat in FY14/15 at about 15 percent of GDP due to: weak PAYE payments, spotty usage of electronic billing machines, and rising share of goods from EAC countries not taxed.
- Donor financial support (project and budgetary loans and grants) expected to fall to its lowest level in a decade this year, slightly above 12 percent of GDP; shift from grants to loan financing from AfDB and World Bank noted.
- National Bank of Rwanda policy rate maintained at 6.5 percent since June 2014.
- Broad money growth at 19 percent in December; reserve money evolved in line with program.
- Credit to the private sector expanded by nearly 20 percent in 2014 (11 percent in 2013); real lending rates remained at 16 percent.
- Rwandan franc depreciated by 3½ percent against the dollar in 2014 (after cumulative 12 percent depreciation in previous two years).
- Financial sector indicators improved; NPLs returned to 2012 levels; profitability affected by high operational costs and inefficiency.

### Program performance
- Compliance with end-December quantitative criteria and structural benchmarks was satisfactory; all QACs were met.
- Indicative target on revenue mobilization narrowly missed due to weaker usage of electronic billing machines for VAT.
- Government consolidated expenditure in response to delays in donor disbursements and project implementation; some domestic payments delayed but clearance underway.
- Two structural benchmarks missed: delayed publication of quarterly fiscal execution report (late data from central bank) and mining tax proposal preparation still at technical level.

### Outlook and risks
- Central growth projection for 2015: 6.5 percent; growth expected to remain broad-based.
- Inflation expected to remain subdued at 3.5 percent by December, below NBR medium-term target of 5 percent.
- Main risks: adverse weather, lower-than-expected exports, further delays in project implementation; these could reduce medium-term growth potential of 7.5 percent.
- Delays in donor disbursements pose short-lived growth risks.

### Policy discussions — overarching objectives
- Key challenge: support growth while preventing imbalances and strengthening resilience to shocks.
- Fiscal policy aims: sustain revenue mobilization, adjust current spending to available resources, minimize domestic financing, protect priority spending.
- Monetary policy aims: minimize inflationary risks and prevent buildup of pressures in foreign exchange market.
- Medium-term investment program to be implemented in line with available financing; authorities committed to fully exploring concessional financing and engaging private sector and development partners.

### Fiscal policy (detailed)
- Government targeting an increase of 0.7 percent of GDP in the revenue ratio for FY15/16 via:
  - increase in the road fund levy and introduction of an excise tax on petroleum to fund a strategic oil reserve (about 0.2 percent of GDP);
  - higher excise taxes on tobacco, introduction of an import tax on imports sourced outside the EAC, and increased usage of electronic billing machines through closer monitoring and increased tax audits (0.3 percent of GDP);
  - increased local government fees (0.2 percent of GDP).
- These measures expected to more than offset prospective revenue drop from falling import prices and rising share of EAC-sourced goods not taxed.
- Overall fiscal deficit projected to decline to 4.6 percent of GDP in FY 15/16.
- Projected decline in grants of -1.5 percentage points of GDP to the lowest level this decade.
- Medium-term overall deficit projected to level off at about 4 percent of GDP to help stabilize debt ratio near current levels.
- Net domestic financing projected to level off to ensure credit availability to private sector.
- Authorities will continue strengthening public financial management, including implementing “imihigo” (performance) contracts to strengthen accountability and service delivery.

### Investment, export prospects, and debt sustainability
- Need for adequate phasing and implementation of pipeline projects in line with financing and capacity.
- Medium-term projects under consideration include regional railway and oil pipeline, and new airport; financing not yet identified and authorities seek private sector participation.
- Staff recommended cautious prioritization given limited debt space to maintain low risk of external debt distress; authorities concurred.
- Finalization of started strategic projects (e.g., convention center) needs acceleration to facilitate structural transformation.
- Government exploring PPPs in sanitation, water provision, and cement as part of infrastructure financing strategy.
- Authorities aiming to expand export base and promote diversification; recent export performance strong but from low base and concentrated in commodities.
- Export diversification strategy: improve receipts from traditional exports, tap business and tourism markets, galvanize production for regional markets.
- Rwanda remains at low risk of external debt distress.
- Non-concessional borrowing ceiling for end-June raised to US$500 million to accommodate financing of two new airplanes in addition to US$250 million already identified as part of previous review.
  - DSA baseline assumptions consistent with medium-term macroeconomic framework; alternative scenario assumes additional non-concessional financing of US$250 million, consistent with new non-concessional borrowing limit of US$500 million.

### Box 1 — Performance Contracts (Imihigo)
- Imihigo used for planning, increasing accountability, and improving speed and quality of execution of government programs.
- President signs binding performance contracts annually with government institutions and line ministries; contracts also at Ministries, Districts, and sub-District levels.
- Program effectiveness measured against agreed governance, economic, and social performance indicators.
- Contracts focused on results; performance debated at annual evaluation meetings chaired by the President.
- Local governments use Imihigo to set priorities, annual targets, and activities; best performers recognized nationally; below-average performers receive remedial training; consistent poor unjustified performance may lead to institutional reform or dismissal.
- Imihigo objectives aligned with national priorities (MDGs, Vision 2020, EDPRS, District Development Plans, Sector Development Plans); presented to public for accountability and transparency.
- Where earmarked resources absent, line ministries must identify how resources (financial or non-financial) can be mobilized; central government consolidates priorities emphasizing quick wins, synergy, and avoiding duplication.
- Performance contracts loosely linked to budgetary allocations; targets do not necessarily have direct links with the budget.
- Success in increasing accountability noted; persistent problems include monitoring agreed indicators, setting overly ambitious targets, and ensuring contracts are properly inserted into wider planning and budgeting processes.

### Box 2 — Sensitivity of Growth to Changes in Export Performance
- Exports critical for extending production possibilities and financing imports; EAC countries have large import bills and small but growing export sectors.
- Gradual decline in foreign aid has begun to pressure import coverage of foreign exchange reserves.
- Over medium term, aid projected to continue to decline while exports remain robust and help stabilize reserves coverage at 4 months of imports.
- Scenario: Annual export growth of 6 percent for 2017-20 compared to current projection of 9 percent would lead to a fall in imports of goods and services (assuming current reserves coverage target maintained), limiting finance for investment and reducing total factor productivity.
- Reduction in imports associated with weaker export growth would likely contribute to a reduction in economy-wide annual growth rate by up to 2 percentage points.
  - This mirrors the growth response in 2013 following reduction in aid resources and is consistent with factor use calculations:
    - Labor force growth projected at 2.6 percent per annum.
    - Real capital stock grows at 5 percent per annum.
    - Factor content ratios: 0.6 (labor) and 0.4 (capital).
    - Import content of investment: 0.7.
    - With full adjustment through imports, growth rate from factor inputs would be 2 ½ percent.
    - Assuming 2½ percent per annum contribution from TFP, the economy would grow at about 5 percent per annum.
- DSA scenarios and graphical imports/exports projections presented (imports and exports left scale in millions of US dollars; reserves coverage right scale in months of imports).

*Source: IMF staff report: “Performance Contracts in Rwanda” (content unit: _cr15141 - 1. Performance Contracts in Rwanda).*

### 22.      In an environment of low inflation, the authorities and staff agreed that the current

### _cr15141 - 22.      In an environment of low inflation, the authorities and staff agreed that the current

### Monetary stance and outlook
- The 2015 monetary program targets broad money growth of 15.6 percent.
- Private sector credit growth is expected to remain broadly at 2014 levels.
- Continued exchange rate flexibility will help preserve policy buffers and support economic diversification.
- The authorities will monitor developments closely with a view to reassess policies should growth disappoint and inflation expectations remain benign.
- Staff appraisal: "The current monetary policy stance remains appropriate." The economy has been operating in a low inflationary environment, an amply liquid banking system, and ample credit to the private sector.

### Transmission mechanism and financial sector development
- Measures to improve the transmission mechanism need to be strengthened.
- Significant progress has been achieved under the PSI (see IMF SR14/343), but there remains considerable scope for improvement, particularly regarding development of the interbank and secondary markets.
- Transaction levels have increased from a low base, but the value of the transactions continues to be low.
- A more fundamental issue is bringing down inefficiencies at the level of commercial banks to tackle the rigidity in the lending rates.
- The NBR has increased the maturity of its bonds issuance to both develop the financial sector and absorb excess liquidity.
- Policies aimed at bolstering financial inclusion are ongoing (Box 3).

### Legal, supervisory, and institutional reforms
- Consolidation of the informal cooperatives (Umurenge SACCOs) into one cooperative bank has been initiated and is expected to be completed by end-2015.
- The NBR law, banking law, and the deposit insurance laws have already gone through Parliament. These laws will increase the supervisory oversight of the central bank to the non-banks and contribute to further bolster confidence in the financial system.
- Preparations of the insurance laws and pensions law remain in the initial stages.
- The consolidation of the SACCOs into one cooperative will further improve the supervisory oversight.

### Program issues, targets, and fiscal monitoring
- The MEFP Table 1 contains revised end-June QACs and indicative targets and new QACs for end-December under the PSI.
- The authorities propose, and the staff supports, modifications of end-June 2015 QACs. These are consistent with the macroeconomic framework described in the report and with understandings reached with Fund staff.
- The authorities’ request, and staff supports, the modification of the ceiling on non-concessional borrowing to allow for the implementation of already identified projects.
- The introduction of a fixed asset tax has been redesigned into a land tax with specific benchmarks for property to facilitate implementation (MEFP Table 2).
- The authorities are seeking to strengthen the monitoring of donor-financed government projects (Box 4). The number of accounts for donor financed projects is very large. Efforts by the government to better track these flows in real time are important to help improve monitoring of budget financing, which should help the authorities to better track fiscal developments.

### Financial inclusion (Box 3) — objectives and progress
- Fostering financial inclusion ranks high on the government’s agenda; main principles are embodied in the EDPRS2 and the FSDP2.
- Main measures aim to: enhance financial literacy; improve access to services; increase the number of products; raise the quality of services for households and firms, particularly small and medium enterprises; and ensure financial inclusion does not lead to a significant increase in risk.
- Cooperatives and microfinance institutions (MFIs), particularly savings and credit cooperative (SACCOs), have provided access to more than 1/3 of the population.
- The literacy program was expanded to provide training to cashiers, clerks and loans officers.
- A regulatory framework has been put in place to support new services, enabling mobile money transfers (MMT), mobile and internet banking, agent banking, micro insurance and micro leasing.
- Much innovation has come from non-traditional players—mobile phone operators, or new entrants to the Rwandan banking market rolling out agency banking models.
- The authorities have revamped their supervisory framework to adjust to the new environment and ensure the push for greater financial access does not lead to higher risk undertakings.
- "All these developments have contributed to Rwanda making significant advances as regards financial inclusion." (Table 1 and Box Figures summarized in source).

### Aid effectiveness and donor coordination (Box 4)
- Rwanda has facilities to manage and coordinate donor support: formalized regular interactions between donors and the government, the Donor Performance Assessment Framework (DPAF), the Development Assistance Database (DAD), and a clear division of labor among donors.
- The Development Partners Coordination Group (DPCG) meets quarterly, chaired and co-chaired by the government and the Development Partners (DPs).
- The DPAF, launched in 2009, reviews donor performance against 22 indicators drawn from the Paris Declaration indicators and country-level indicators; it is presented in aggregate and disaggregated by donor.
- The DAD, launched in March 2006, is a single repository for all official assistance and incorporates the DPAF indicators; it enables gaps analyses, planning, resource mobilization, and tracking of development assistance.
- In September 2014, the DPAF indicators and targets underwent a light revision taking into account changes in aid modalities to Rwanda (including the suspension in the provision of general budget support).
- As Rwanda moves away from donor aid toward increased trade, investment, and public-private partnerships, it plans to develop additional frameworks to enhance mutual accountability with the DPs.

### Staff appraisal — key findings and policy recommendations
- Rwanda’s performance under the PSI has been satisfactory; "The authorities are to be commended for meeting all QACs."
- Performance on indicative targets and structural benchmarks was more uneven; maintaining momentum of reforms, including on revenue mobilization while strengthening project implementation, is important.
- Growth in 2015 is expected to remain strong, while the outlook is stable.
- The cautious fiscal stance and monetary policy are consistent with the need to preserve policy buffers. Continued exchange rate flexibility will support these objectives and economic diversification.
- The framework for the FY2015/16 budget is in line with PSI objectives: prioritizes the public investment program in line with available resources, includes measures to improve domestic revenue mobilization, protects priority spending, and limits the crowding out of credit to the private sector.
- Sustaining progress on domestic revenue mobilization will be critical to sustaining investment. Recent efforts to adopt the electronic billing machines is yet to gain full traction and the agenda on agricultural and property taxation has yet be carried out.
- Accelerating efforts to broaden the tax base and strengthen tax administration and compliance remain key.
- The government’s ability to mobilize more of Rwanda’s own resources should help reduce reliance on donor resources, and coupled with rising exports, should help increase the resilience of the economy.
- Rwanda’s infrastructure investment needs remain significant; it will be critical to carefully select and prioritize investments in line with available resources to maintain debt sustainability.
- Safeguarding low risk of debt distress requires appropriate phasing of investment projects in line with available resources and administrative capacity, to prevent costly implementation delays.
- The pipeline of projects envisaged by the government should help foster structural transformation and remove impediments to private sector and export development, in light of the projected gradual decline in donor resources inflows, "already materializing this year."

*Source: MEFP ¶ 21-27 and Boxes 3–4 (extracted from the provided IMF content).*

### 33.      Staff recommends the completion of the third review under the PSI. Staff supports the

### _cr15141 - 33.      Staff recommends the completion of the third review under the PSI. Staff supports the

### Staff recommendation
- Staff recommends the completion of the third review under the PSI.
- Staff supports the request for modification of the end-June QACs and setting of end-December 2015 QACs.

### Economic developments across the EAC (Figure 1)
- Real GDP growth (percent) — series shown for 2009–2014 for Burundi, Kenya, Tanzania, Uganda, Rwanda.
- Gross Government debt (percent of GDP) — series shown for 2009–2014 for Burundi, Kenya, Tanzania, Uganda, Rwanda.
- Reserve assets (in months of Imports) — series shown for 2009–2014 for Burundi, Kenya, Tanzania, Uganda, Rwanda.
- Fiscal balance (percent of GDP) — series shown for 2009–2014 for Burundi, Kenya, Tanzania, Uganda, Rwanda.
- Current account balance (percent of GDP) — series shown for 2009–2014 for Burundi, Kenya, Tanzania, Uganda, Rwanda.
- Year-on-Year Change in Headline CPI (percent) — monthly series Mar-12 through Mar-15 for Burundi, Kenya, Rwanda, Tanzania, Uganda.
- Source: IMF staff estimates.

### Recent performance (Figure 2)
- Aid inflows; grants as a percent of GDP (right scale) and Percentage of budget financed by aid (left scale) — long series 2000–2014.
- Contributions to Real GDP, 2000 -13 (Percent) — primary, secondary, tertiary sector contributions; Real GDP growth 2008–2014.
- Headline/Core/Food inflation (y-o-y) — monthly series Jun-10–Mar-15 showing Rwanda vs EAC excl. Rwanda.
- Goods and services balance (Percent of GDP) — imports, exports, goods and services balance 2000–2014; trade deficit deteriorated in 2014.
- Gross Reserves (excluding encumbered assets, in months of imports) — 2000–2014.
- Nominal effective exchange rate, Real effective exchange rate, Exchange rate RF/US$ (RHS) (Index, 2005 average =100) — 2005–2015.
- Notes in text: "...while the Rwandan Franc continued to depreciate against the U.S. dollar." "...Growth bounced back in 2014..." "...while inflation continued to remain below that of other EAC countries." "...The trade deficit deteriorated in 2014 associated with higher imports..." "...and aid flows continued the projected decline." "International reserves remained adequate..."

### High-frequency indicators of economic activity (Figure 3)
- Real Composite Indicator of GDP (percent, y-o-y) — quarterly series Q1 2007–Q1 2015 and Real GDP series.
- Cement Production and Import (Thousand Tons) — series Jun-08–Feb-15.
- Electricity Production (GWH) — series Jun-08–Feb-15.
- VAT Receipts (Constant Price, 2009 Feb=100) — series Jun-08–Feb-15.
- Exports of Mining (Tons) — series Jun-08–Feb-15.
- Imports: Final Consumption (Constant Price, Rwf millions) — series Jun-08–Feb-15.
- Composite indicator shown.

### Fiscal developments (Figure 4 and Table excerpts)
- Overall balance including grants (right axis) and Expenditure and net lending (left axis) — fiscal years 2006/07–2014/15.
- Tax revenue, Non-tax revenue, Grants (Percent of GDP) — series 2008/09–2014/15.
- Text highlights:
  - "The fiscal deficit is projected to increase this fiscal year ..."
  - "...reflecting a slowdown in grants not matched by higher tax revenues."
  - "Priority spending on health, education, and social protection has been falling, ..."  
  - "...while capital spending continues to outpace current spending."
  - "External debt remains relatively low."
  - "Domestic revenue remains low compared to other countries."
- Domestic Revenue, 2014 (Percent of GDP) — Regional comparison: Sub-Saharan Africa, LICEA, EAC, Rwanda.
- External Debt, 2014 (Percent of GDP) — EAC, LICs, SAR, Rwanda.

### Inflation developments (Figure 5)
- Year-on-Year Change in CPI (Headline and Core (excl. fresh products and energy)) — monthly Jan-12–Mar-15.
- Year-on-Year Change in CPI components (Headline; Food and non-alcoholic beverages; Transport) — monthly Jan-12–Mar-15.
- Domestic pump price and international spot price (Y-o-Y change as a % of international price) — Jan-12–Mar-15 with Historical average.
- Contribution to Year-on-Year Change in Headline CPI by categories (Others, Transport, Housing, water, electricity, gas, and other fuels, Food and non-alcoholic beverages, Headline) — Jan-12–Mar-15.
- Year-on-Year Change in CPI: Local vs. Imported Goods — Jan-12–Jan-16 (projected) showing Domestic and Imported components.
- Year-on-Year Change in Imported Food prices (Domestic: imported food; International: food and beverage; International: cereals) — Jan-12–Jan-16 (projected).
- Text highlights:
  - "Headline inflation has continued to decline ..."
  - "...driven by low food and fuel prices."
  - "Domestic pump prices have followed the global downward trend, ..."
  - "... while inflationary pressures from other CPI components have been largely stable."
  - "Import prices have been declining, and are expected to continue through 2015, ...as global food prices are expected to continue to decline."
- Sources: IMF staff and Rwandan authorities' estimates.

### Monetary developments (Figure 6 and Table 4)
- Policy rate, Repo, Interbank (Nominal interest rates) — Jun-11–Mar-15.
- 91-day T-bill Rate — Jun-11–Mar-15 compared across Rwanda, Burundi, Kenya, Tanzania, Uganda.
- Real interest rates (Based on projected 12 months inflation) — Jun-11–Mar-15; "Real interest rates remain positive, even with consideration of expected inflation."
- Private sector credit growth — series indicates pickup.
- 91-day T-bill and policy narrative: "In response to moderating inflationary pressures, the NBR cut the policy rate in June 2014, ..."
- Reserve money growth and sources of growth in broad money and reserve money — series Jun-11–Feb-15 (percent and RWF billion).
- Bank required and excess reserves — Jun-11–Feb-15 (RWF billion).
- Market liquidity narrative: "... while markets remain amply liquid."
- Monetary survey highlights (Table 4, selected figures):
  - Net Foreign Assets (Monetary authorities) — e.g., 457.1634.3508.9597.9453.5512.9495.5524.0 (various Dec/June estimates and projections).
  - Reserve money — 189.3213.2243.7246.9261.8268.5275.0290.7.
  - Broad money — 889.91,028.21,175.11,223.91,262.51,330.91,325.81,418.0.
  - Contribution to broad money growth: Net foreign assets and Net domestic assets figures (annual growth and levels).
  - Currency/broad money ratio, Reserve money annual growth, Money multiplier, Velocity of broad money, Net open position of the NBR and commercial banks — detailed series included.

### Medium-term outlook (Figure 7 and Table 1 highlights)
- Current account and exports (Percent of GDP) — projected 2010–2019 series showing improvements.
- Reserve Assets (Months of imports of goods and services) — projected 2010–2019.
- Overall Fiscal Balance (Percent of GDP) excluding and including grants — projected 2009/10–2018/19.
- Domestic revenue, Expenditure and net lending (Percent of GDP) — projected 2009/10–2018/19.
- Projected contributions to Real GDP Growth by sector (Agriculture, Industry, Services) and Real GDP growth projections — 2009–2019.
- Period Average CPI inflation projections (Percent) — Rwanda, SSA, EAC 2010–2019; text: "GDP growth is projected to return gradually to the trend growth, ... with inflation expected to rise toward the authorities' target."
- Narrative:
  - "The current account is expected to improve as large investment projects are completed,..."
  - "... and reserve coverage is expected to remain adequate."
  - "The fiscal position is expected to improve, ... due to enhanced revenue mobilization."

### Selected economic and financial indicators (Table 1, key rows and exact figures)
- Real GDP: 2010 6.3; 2011 7.5; 2012 8.8; 2013 4.7; 2014 7.0; 2015 6.5; 2016 7.0; 2017 7.5; 2018 7.5 (Annual percentage change).
- CPI (period average): 2010 0.4; 2011 5.7; 2012 6.3; 2013 4.2; 2014 1.8; 2015 2.8; 2016 4.3; 2017 5.0; 2018 5.0.
- Broad money (M3): 2010 16.9; 2011 26.7; 2012 14.0; 2013 15.5; 2014 19.0; 2015 15.9; 2016 13.1; 2017 13.7; 2018 14.3.
- Credit to non-government sector: 2010 9.9; 2011 27.6; 2012 35.0; 2013 11.1; 2014 19.6; 2015 19.7; 2016 14.0; 2017 22.4; 2018 15.7.
- Policy Rate (end of period): 2010 6.0; 2011 7.0; 2012 7.5; 2013 7.0; 2014 6.5; 2015 6.5.
- M3/GDP (percent): 2010 18.5; 2011 20.3; 2012 20.1; 2013 21.1; 2014 22.7; 2015 23.7; 2016 23.9; 2017 24.2; 2018 24.4.
- NPLs (percent of total loans): 2010 10.7; 2011 8.0; 2012 6.0; 2013 6.9; 2014 6.7.
- Revenue and grants (Percent of GDP): 2010 26.3; 2011 24.6; 2012 24.2; 2013 25.1; 2014 25.2; 2015 22.5; 2016 21.0; 2017 22.2; 2018 22.1.
- Of which: grants (Percent of GDP): 2010 13.3; 2011 10.8; 2012 9.3; 2013 8.6; 2014 7.4; 2015 7.4; 2016 5.7; 2017 4.2; 2018 4.0.
- Expenditure (Percent of GDP): 2010 25.9; 2011 26.6; 2012 25.9; 2013 27.6; 2014 27.7; 2015 25.7; 2016 24.0; 2017 25.1; 2018 24.9.
- Primary balance: 2010 0.0; 2011 -1.7; 2012 -2.6; 2013 -3.8; 2014 -3.0; 2015 -3.9; 2016 -3.9; 2017 -3.1; 2018 -3.0.
- Overall balance: 2010 -0.4; 2011 -2.1; 2012 -3.2; 2013 -4.5; 2014 -3.8; 2015 -4.6; 2016 -4.6; 2017 -4.0; 2018 -3.9.
- Public gross nominal debt (Percent of GDP): 2010 20.0; 2011 20.1; 2012 21.7; 2013 28.4; 2014 30.7; 2015 33.1; 2016 35.0; 2017 37.8; 2018 38.1.
- Exports (goods and services, percent of GDP): 2010 11.1; 2011 14.0; 2012 14.0; 2013 15.6; 2014 16.5; 2015 16.6; 2016 16.9; 2017 17.0; 2018 17.1.
- Imports (goods and services, percent of GDP): 2010 28.8; 2011 34.1; 2012 34.3; 2013 32.5; 2014 33.7; 2015 32.3; 2016 31.2; 2017 33.2; 2018 30.2.
- Current account balance (including grants, percent of GDP): 2010 -5.4; 2011 -7.2; 2012 -11.3; 2013 -7.4; 2014 -11.9; 2015 -11.2; 2016 -10.4; 2017 -13.1; 2018 -9.7.
- Gross international reserves (in billions of US$): 2010 0.8; 2011 1.1; 2012 0.8; 2013 1.1; 2014 1.0; 2015 0.9; 2016 1.2; 2017 1.1; 2018 1.3.
- In months of next year imports: 2010 4.5; 2011 5.1; 2012 4.1; 2013 5.1; 2014 4.5; 2015 3.7; 2016 4.0; 2017 4.1; 2018 4.2.
- Memorandum items: GDP at current market prices (Rwanda francs (billion)) 2010 332; 2011 338; 2012 464; 2013 437; 2014 486; 2015 453; 2016 895; 2017 974; 2018 669; 2019 775; 2020 478; 2021 551 (note: table lists longer series).
- Sources: Rwandan authorities and IMF staff estimates.

### Balance of payments and external sector (Table 2 highlights)
- Exports (f.o.b., Millions of U.S. dollars): 2009 235.0; 2010 322.4; 2012 464.2; 2015 703.0; 2016 710.8; 2017 722.7; 2018 741.6; 2023 829.8; 2024 923.7; 2025 1,030.2 (table contains detailed series and projections).
- Of which: coffee and tea (US$ millions): 85.6; 111.8; 138.5; 126.6; 110.4; 112.5; 110.9; 119.2; 129.8; 144.3; 156.0 (series shown).
- Minerals exports (US$ millions): 55.4; 67.9; 151.4; 136.1; 225.7; 218.2; 203.3; 210.5; 248.1; 281.4; 320.9 (series shown).
- Imports (f.o.b., US$ millions): 999.2; 1,084.0; 1,565.8; 1,967.0; 1,851.5; 2,089.8; 1,995.4; 2,031.3; 2,154.2; 2,436.8; 2,468.8.
- Trade balance (US$ millions): -764.2; -761.5; -1,101.6; -1,376.2; -1,148.4; -1,379.0; -1,272.7; -1,289.6; -1,324.4; -1,513.1; -1,438.6.
- Tourism receipts (US$ millions): 174.5; 201.6; 251.8; 281.8; 293.6; 317.2; 303.7; 317.8; 347.8; 417.4; 500.8.
- Current transfers (net, US$ millions): 600.0; 745.3; 880.5; 722.5; 847.7; 737.5; 578.1; 564.7; 560.8; 520.2; 558.6.
- Current account balance (including official transfers, US$ millions): -382.7; -305.0; -459.8; -812.8; -558.4; -921.9; -941.6; -947.4; -957.1; -1,323.9; -1,075.2.
- Gross official reserves (including SDR allocation, US$ millions): 742.2; 813.3; 1,050.0; 843.5; 1,135.5; 884.5; 1,021.8; 879.7; 1,149.0; 1,146.3; 1,259.2.
- Gross official reserves (months of prospective imports of G&S): 5.4; 4.5; 5.1; 4.1; 5.1; 3.9; 4.5; 3.7; 4.0; 4.1; 4.2.
- Total Public Transfers (US$ million): 720.3; 852.3; 943.9; 710.7; 900.9; 877.1; 735.3; 670.7; 576.9; 522.4; 554.1.
- Sources: Rwandan authorities and IMF staff estimates and projections.

### Central government operations (Table 3 highlights)
- Revenue and grants (Billions of Rwanda francs, FY basis): 2011/12 1,049.1; 2012/13 1,101.3; 2013/14 1,336.4; 2014/15 1,394.7; 2015/16 1,355.5; 2016/17 1,483.3; 2017/18 1,462.5; 2018/19 1,578.3; 2019/20 1,774.4.
- Total revenue (Billions RwF): 591.7; 736.4; 862.1; 997.4; 948.5; 1,186.4; 1,104.2; 1,271.4; 1,444.9.
- Tax revenue (Billions RwF): 557.0; 651.9; 761.0; 894.6; 845.6; 1,064.8; 975.3; 1,133.0; 1,288.5.
- Grants (Billions RwF): 457.4; 364.9; 474.3; 397.3; 407.0; 296.9; 358.3; 306.9; 329.5.
- Total expenditure and net lending (Billions RwF): 1,098.1; 1,335.6; 1,538.9; 1,680.4; 1,647.0; 1,698.2; 1,741.1; 1,856.9; 2,099.7.
- Current expenditure (Billions RwF): 614.1; 633.9; 776.7; 794.4; 794.4; 848.6; 865.5; 946.7; 1,058.2.
- Capital expenditure (Billions RwF): 482.9; 564.5; 712.0; 767.2; 749.9; 791.7; 747.3; 828.5; 957.8.
- Primary balance (Billions RwF): -30.6; -20.3; -16.2; -24.2; -48.5; -16.8; -22.4; -21.7; -25.5 (note: table contains multiple variants and percent-GDP presentations).
- Overall deficit (incl. grants, cash basis) (Billions RwF): -62.7; -243.4; -218.7; -295.6; -301.5; -226.3; -290.1; -291.6; -338.5.
- Financing (Billions RwF): 62.6; 243.4; 224.6; 295.6; 301.5; 226.3; 290.1; 291.6; 338.5.
- Foreign financing (net) (Billions RwF): 95.0; 338.6; 104.7; 197.5; 183.1; 280.1; 215.2; 251.6; 318.4.
- Net domestic financing (Billions RwF): -32.4; -95.2; 119.9; 98.2; 118.4; -53.8; 74.9; 40.0; 20.1.
- Memorandum: Priority spending (Billions RwF): 526.5; 550.7; 626.5; 739.1; 607.6; 673.4.

### Financial soundness indicators (Table 5 highlights)
- Regulatory capital to risk-weighted assets (Percent): 2009 19.0; 2010 21.6; 2011 23.8; 2012 21.4; 2013 20.8; 2014 21.4.
- NPLs/gross loans (Percent): 2009 13.1; 2010 11.3; 2011 8.2; 2012 6.0; 2013 7.0; 2014 6.0.
- Return on average assets (Percent): 2009 0.7; 2010 1.9; 2011 1.9; 2012 2.2; 2013 1.5; 2014 1.9.
- Liquid assets/total deposits (Percent): 2009 65.3; 2010 57.8; 2011 46.3; 2012 41.2; 2013 49.4; 2014 51.7.
- Gross loans/total deposits (Percent): 2009 73.9; 2010 67.0; 2011 67.6; 2012 91.9; 2013 86.4; 2014 90.4.
- Forex exposure/core capital and related market-sensitivity metrics are provided in the table.

### Debt sustainability analysis (Tables 7–8 and Figures 8–9 highlights)
- Indicators of Public and Publicly Guaranteed External Debt under Baseline Scenario (selected):
  - External debt (nominal, percent of GDP): 2014 16.1; 2015 20.8; 2016 26.1; 2017 27.9; 2018 30.4; 2019 31.0; 2024 average 33.6; 2024–2034 average 34.2; 2024–2034 std deviation and other metrics presented.
  - PV of external debt (percent of GDP) series and PV of PPG external debt (percent of GDP) series included.
  - Debt service-to-exports ratio and PPG debt service-to-revenue ratio series included (exact percent values listed in tables).
  - Key macro assumptions: Real GDP growth (percent) series 2010–2019 and projections (e.g., 2014 7.0; 2015 6.5; 2016 6.5; 2017 7.0; 2018 7.5; 2019 7.5; 2020–2034 7.5 etc. as tabulated).
  - Aid flows (in Billions of US dollars) and grant-equivalent financing metrics are tabulated.
- Alternative scenario indicators and stress-test figures are presented in Tables 8 and Figures 8–9, showing historical, baseline, and most extreme shock paths for PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports, debt service-to-revenue, rate of debt accumulation, and grant-equivalent financing (% of GDP).

*Source: IMF staff estimates and Rwandan authorities' estimates as presented in the document.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Overview and Requests
- The attached memorandum of economic and financial policies (MEFP) is an update of the November 2014 MEFP and sets out macroeconomic policies for the remainder of fiscal year 2014/15 and the medium term.
- The Government requests:
  - completion of the third review under the PSI;
  - modification of the assessment criteria for end-June 2015 based on the revised macroeconomic framework;
  - rephasing the benchmark on agriculture scheduled for end-December 2015 into two separate benchmarks to allow time to hire a consultant and proceed with legislative measures.
- The Government will consult with the IMF before adopting any measures or policy changes and will provide information requested by the IMF. The fourth review will take place before end-December 2015.
- The Government authorizes publication and distribution of this letter and its attachments.

*Signed by Claver Gatete, Minister of Finance and Economic Planning, and John Rwangombwa, Governor, National Bank of Rwanda.*

### Program Performance through end-December 2014
- All end-December 2014 quantitative assessment criteria (QAC) were met.
- Indicative targets: three of the four indicative targets were not met.
  - Domestic revenue collection was two percent off-target (under by RWF 17 billion) due to weaker than expected VAT receipts.
  - Arrears of RWF 41.7 billion accumulated at end-December 2014 due to delays in donor disbursements; these arrears were cleared in January 2015.
  - Priority spending reached only 95 percent of its target, affected by delayed donor disbursements and restructuring in the energy sector (Rwanda Energy Group).
  - The indicative target on the domestic debt stock was met; Government reduced reliance on the overdraft facility at the central bank.
- Structural benchmarks:
  - Fixed asset tax redesigned into a property tax for simplicity and higher yields.
  - Legislation on agriculture taxation dependent on a comprehensive expert survey; consultant search ongoing.
  - Mining legislation benchmark not met due to other legislative priorities, including restructuring of income and withholding tax laws.
  - Quarterly budget execution report (continuous benchmark) could not be published within agreed timeframe due to technological issues at BNR.

### Recent Economic and Policy Performance (Key findings)
- Growth:
  - Real GDP growth in 2014: 7 percent (in line with five-year average; up from 4.7 percent in 2013).
  - Services growth: 9 percent in 2014 vs. 5 percent in 2013.
  - Agriculture growth: 5 percent in 2014.
  - Construction growth: 8 percent.
  - Manufacturing annual growth: 1 percent.
  - Private sector credit growth in 2014: 19.6 percent.
  - New authorized loans in 2014: RWF 652.9 billion (38.2 percent rise from 2013); 2013 new authorized loans: RWF 472.5 billion.
- Inflation:
  - Average inflation in 2014: 1.8 percent (lowest in the last decade).
  - Headline inflation year-on-year in December 2014: 2.1 percent.
  - Core inflation in December 2014: 2.9 percent.
  - End-2015 inflation projection: 3.5 percent; medium-term objective: below 5 percent.
- External balance:
  - Trade deficit in 2014: about US$1.3 billion (16 percent of GDP).
  - Export value growth: 3 percent in 2014.
  - Non-traditional exports—milling products—expanded 46 percent, contributing 1.4 percentage points to total export growth.
  - Total imports (cif) growth in 2014: 8 percent (vs. 2 percent in 2013).
  - Reserve coverage at end-2014: about 5 months of imports.
- Fiscal developments:
  - July–December 2014 overall fiscal outturn: deficit of RWF 67.9 billion (RWF 62.5 billion lower than projected RWF 130.4 billion).
  - Carry-over “float” into 2015: RWF 41.7 billion (payment orders since cleared).
  - Revised FY2014/15 projections:
    - Total revenue and grants: RWF 1,355.5 billion.
    - Total expenditure and net lending: RWF 1,647 billion.
    - Overall deficit: RWF 301.5 billion (RWF 5.9 billion higher than original RWF 295.6 billion).
    - Net domestic financing: RWF 118.3 billion (RWF 20.1 billion higher than original RWF 98.2 billion).
- Debt developments:
  - Total Public and Publicly guaranteed debt at end-December 2014: 30.4 percent of GDP (23.2 percent external; 7.1 percent domestic).
  - External concessional debt: 56.7 percent of total debt.
  - Commercial debt: 16.7 percent of total debt.
  - Guaranteed debt: 3.1 percent of total debt (guarantees mainly RwandAir and Rwanda Energy Group).
  - Sovereign rating: long-term foreign and local currency rating raised to 'B+' from 'B' by Standard & Poor’s in March 2015.
- Monetary and financial sector:
  - Key policy rate reduced by 50 basis points to 6.5 percent in June 2014.
  - Money market rates at end-December 2014: repo 2.8 percent, T-bills 4.9 percent, interbank 4.7 percent (down from 4.0 percent, 5.6 percent, and 5.6 percent at end-December 2013).
  - Deposit interest rates in 2014: 8.2 percent (down from 9.9 percent in 2013).
  - Lending rates in 2014: 17.2 percent (2013: 17.3 percent).
  - Broad money increase as of end-December 2014: 19 percent (initial projection: 14.3 percent).
  - Private sector credit growth in 2014: 19.6 percent (2013: 11.1 percent).
  - Rwandan Franc depreciation in 2014: 3.5 percent (2013: 6.1 percent).
  - Net foreign assets declined by 5.6 percent (lower than projected).
  - Bond market developments in 2014: regular bond issuance program initiated; three bonds issued; IFC issued an UMUGANDA Bond worth US$ 22 million for five years.
- Financial inclusion and payment systems:
  - Under FSDP2, mobile payments and e-banking expanded rapidly:
    - Payments through mobile banking increased by 155 percent between 2013 and 2014.
    - Subscribers on mobile bank and internet banking increased by 60 percent and 369 percent respectively.
    - Mobile phone users in December 2014: 7.7 million; mobile money subscribers: 6.5 million (84 percent).

### Macroeconomic Outlook and Policy (FY2014/15 and medium term)
- 2015 outlook:
  - Government expects growth in 2015: 6.5 percent.
  - Sectoral projections for 2015:
    - Agriculture growth: 5.2 percent.
    - Industry growth: 8.4 percent, with manufacturing (+5 percent), electricity (+6 percent), and construction (+8 percent) highlighted.
    - Services growth: 7.2 percent, with trade and transport at +7.4 percent and other services at +7.1 percent.
  - Inflation by end-2015 projected at 3.5 percent.
  - Risks noted: delayed rainfall early 2015 may impact second agricultural season but overall impact expected to be small.
- Fiscal framework for 2015/16:
  - Total revenue and grants: RWF 1,462.5 billion (23.1 percent of GDP).
  - Total expenditure and Net Lending: RWF 1,741.1 billion (27.5 percent of GDP).
  - Overall deficit: RWF 290.1 billion (4.6 percent of GDP).
  - Financing: net foreign loans RWF 215.2 billion (3.4 percent of GDP); net domestic finance RWF 74.9 billion (1.25 of GDP).
- Medium-term projections:
  - Total revenue and grants (nominal): RWF 1,462.5 billion in 2015/16 → RWF 1,578.3 billion in 2016/17 → RWF 1,774.4 billion in 2017/18.
  - Total expenditure and Net Lending (nominal): RWF 1,741.1 billion in 2015/16 → RWF 1,856.9 billion (26.2 percent of GDP) in 2016/17 → RWF 2,099.7 billion (26.3 percent of GDP) in 2017/18.
  - Overall deficit projected to decline: 4.6 percent of GDP in 2015/16 → 4.1 percent of GDP in 2016/17 → 4.2 percent of GDP in 2017/18.
  - Total grants projected to decline from 5.7 percent of GDP in 2015/16 (consistent with policy to reduce reliance on donor budget support).

*Source: Appendix I. Letter of Intent, MEFP update—April 30, 2015.*

### 4.6 percent of GDP in 2016/17 and to 4.4 percent of GDP in 2017/18.

### _cr15141 - 4.6 percent of GDP in 2016/17 and to 4.4 percent of GDP in 2017/18.

### Medium-term fiscal framework and revenue mobilization
- Tax revenue collections reached 14.9 percent of GDP in 2014/15 and are projected to increase by 0.5 percent of GDP to 15.4 percent of GDP in 2015/16, with further increases to reach 16 percent of GDP by 2017/18.
- The Government is committed to implementing the domestic revenue mobilization strategy agreed under the PSI program to achieve these revenue targets.
- Specific measures for 2015/16 include:
  - Increased levy on fuel for Road Maintenance Fund: RWF 5.2 billion
  - Introduction of a Levy on Fuel for Strategic Oil Reserves: RWF 8.6 billion
  - Changing the Excise Tax for Tobacco: RWF 5 billion
  - Introduction of the Infrastructure Levy on Imports: RWF 10.6 billion
  - Administrative compliance and voluntary disclosure measures (RRA) estimated to yield an additional RWF 11.5 billion

### Property tax regime reform (rationale and proposed design)
- Rationale:
  - Current regime differentiates Fixed Asset Tax (FAT) for title deed holders and Land Lease Fees for those without title deeds, producing inequity and erosion of the tax base because buildings on leased land do not pay FAT.
- New proposed regime:
  - Abolish Land Lease Fees; tax all properties and land under Fixed Assets Tax framework.
  - Buildings and other structures taxed separately from land.
  - Building and other structures will pay 0.2 percent of their estimated market value.
  - Land will be taxed at a specific tax rate per square meter between 50-80 RWF depending on market value, location, infrastructure development and land use master plans.
  - The Fixed Land Tax rate shall be increased by 50% for every square meter of land in excess of the allowable standard size; the 50 percent extra will also apply to undeveloped land.
  - A residential house of a market value equal or less than RWF 30 million will be exempted from property tax on structure; the land on which the exempted residential house is seated will pay a land fixed tax per square meter as determined by the district council.
- Consequence:
  - Structural benchmark on full migration of one district in Kigali from Land lease fee to fixed asset tax has been canceled because of the change in approach.
- Local government collection projection:
  - Expected increase in collection of LGTR from 13.5 billion in FY2014/15 to RWF 26.1 billion in FY 2015/16.

### Other tax and sectoral measures
- Mining taxation measures to be incorporated in Income Tax law under revision include:
  - Provision for ring-fencing by mining license area.
  - Regulations to support implementation of transfer pricing provisions.
  - Requirement for companies to disclose related party transactions on a schedule attached to tax returns and to document how transfer prices are established for transactions in excess of US$1 million.
- Agriculture taxation:
  - Government committed to proposing legislation; further expert advice required for the scoping stage and the search for expertise is ongoing.

### Public financial management (PFM) reforms and initiatives
- IFMIS roll out and upgrading:
  - IFMIS upgrade to meet future government financial information needs; a QAG is scheduled to guide sequencing of redevelopment activities.
- Roll out of Subsidiary Entities Accounting and Reporting System (SEAS):
  - As of mid-February 2015 SEAS had been rolled out to 72 percent (300/416) of the sectors.
  - Aim: Strengthening PFM systems and capacities at Sub National levels; gradual roll-out to schools, health centers, pharmacies over the medium term.
- Implementation of E-Procurement:
  - Feasibility study concluded e-procurement has huge potential; contract signed with vendor and counterpart team recruitment underway.
  - Expected benefits: time savings, lower transaction costs, reduced paper and travel, increased efficiency, transparency and compliance.
- Enhanced training, professionalization and capacity building:
  - PFM learning and development strategy envisaged; assignment expected later this year.
- Light update of the PFM Sector Strategic Plan (SSP):
  - PFM SSP for FY2013/14-17/18 formulated July 2013; reforms progressed faster than envisaged and new issues (e-Procurement) emerged.
  - Joint task force (Government and development partners) to review and update PFM SSP and monitoring framework.
- Central and local government PEFA Assessment:
  - Government plans a PEFA assessment by end of the current fiscal year covering central and local government.
  - Rwanda volunteered to be one of the pilot countries for the new 2015 methodology.

### Public Investment Program (PIP) and prioritization
- Increased linkage of plans and budgets through the Medium Term Expenditure Framework and the PIP for FY 2015/16.
- PIP strengthened project preparedness via coordination, private sector leverage, and feasibility studies; addressed domestically financed project weaknesses, particularly in agriculture.
- Focus going forward: address implementation bottlenecks via improved monitoring, strengthening project implementation units, and rolling out IFMIS to include externally financed projects.
- Public Investment Committee (PIC) actions:
  - Facilitated increased prioritization within a constrained envelope.
  - Spending in water and energy oriented toward facilitating private sector investments.
  - 2015/16 PIC extended to districts to consider central-local complementarity.
  - Authorities emphasize finalizing prioritization, targeting investments to leverage private sector investment, and ensuring functionality of project implementation units.

### External sector outlook and reserves
- 2015 current account deficit projected to fall to 11 percent of GDP before improving further in the medium term.
- Export and import projections for 2015:
  - Total receipts from exports projected to increase by 5.7 percent in 2015, compared to 2.9 percent in 2014.
  - Total merchandise imports expected to grow in value by 7 percent in 2015 compared to 8 percent in 2014.
- Foreign reserves coverage at end-2014 will cover around 4.7 months of imports in 2015.
- Risks:
  - Weak outlook for export prices despite improved terms of trade from falling oil prices.
  - Commodity price declines for main exports could exert pressure on RWF exchange rate and increase exchange rate pass-through to domestic prices.

### Debt management and program discipline
- Challenge: ensure Rwanda’s debt remains sustainable and maintain a low risk of debt distress under the new IMF debt limit policy.
- Requirements:
  - Projects must be identified under a clear prioritization process considering economic impact, need, and contribution to forex receipts.
  - Financing for projects must be secured on the most favorable terms to balance cost and risk of total debt.

### Monetary policy, liquidity management and bond market development
- NBR monetary stance:
  - Prudent monetary policy in 2015 to anchor inflation expectations, support growth and contain currency pressures.
  - Private sector credit expected to grow by 20 percent in 2015.
  - Exchange rate to remain market driven; NBR to allow greater exchange rate flexibility and ensure reserve levels remain comfortable at a minimum level of 4 months of prospective imports (CIF).
- Transmission mechanism and market development:
  - Interbank market interest rates becoming responsive to NBR policy; lending rates have responded more slowly.
  - NBR and MINECOFIN committed to regular quarterly Treasury Bond issuance and extending maturities.
  - A 10 year bond scheduled in May 2015 and a 15 year bond in fiscal year 2016/2017.
  - Plans to introduce market makers for Government Debt Securities to price outstanding bonds daily and support primary and secondary market activity.
  - Focus on widening investor base including institutional and foreign investors.
- Liquidity management:
  - Regular issuance of T-bonds and use of T-bills for monetary purposes expected to reduce short-term banking liquidity and activate the secondary market, progressively improving interest rate pass-through.

### Financial sector stability, inclusion and regulatory reforms
- Financial Sector Development Plan (FSDP2) implementation to sustain financial inclusion and stability.
- UMURENGE SACCO Program consolidation into an APEX organization (Cooperative Bank):
  - Harmonized internal policies and procedures elaborated and disseminated.
  - Automation of SACCO operations at the stage of selecting the software provider.
  - Formation of the Cooperative expected by end-2015.
- Legal and regulatory framework:
  - NBR law and Banking law submitted to Rwanda Law Reform Commission for final legal review before Cabinet presentation; to be implemented upon publication in the Official Gazette.
  - Deposit insurance law approved by Parliament and awaits gazetting.
  - Steering committee for development of Basel II/III framework in place; draft regulation on capital requirements developed and under review.
  - Draft insurance law approved by NBR Board in March 2015 and being translated before submission to MINECOFIN.
  - Pension law adopted by the Senate and in process of signature and publication; development of pension regulations ongoing.
- Supervision and oversight:
  - NBR to continue off-site surveillance and on-site examinations under risk-based supervision; capacity building for bank supervisors to be sustained.
  - Increased participation in supervisory colleges and joint on-site inspections for cross-border banks.
  - Non-performing loans have continued to decline; commercial banks complying with new NPL guidelines.

### Program implementation and quantitative assessment criteria (QACs)
- Table 1 (Quantitative Assessment Criteria and Indicative Targets) summarizes QACs for end-December 2014, modified end-June 2015, and end-December 2015 including:
  - Net foreign assets of the NBR (floor on stock) and specific numeric targets (e.g., 508.9; 513.7; 577.0).
  - Reserve money (ceiling on stock) with numeric entries (e.g., 243.9; 273.9; 290.9).
  - Net domestic financing (ceiling on flow) and new nonconcessional external debt contracted or guaranteed by the public sector (US$ millions) with ceiling on stock of 250.0; 20.0; Met; 250.0; 500.0; 500.0.
  - External payment arrears (US$ millions) ceiling on stock: 0.0 across listed entries.
  - Indicative targets such as Domestic revenue collection (floor on flow) with entries 839.9; 822.8; Not met; 506.1; 467.9; 951.7.
  - Net accumulation of domestic arrears (ceiling on flow) with entries -17.0; 34.0; Not met; -0.7; -26.7; -2.5.
  - Consolidated domestic debt of public sector (ceiling on stock, eop) entries 402.5; 390.2; Met; 436.5; 481.5; 456.1.
  - Total priority spending (floor on flow) entries 659.9; 628.5; Not met; 431.4; 331.2; 640.8.
  - Memorandum items include Total budget support (US$ millions) entries 447.3; 429.0; 117.8; 139.2; 400.2 and Euro bond (US$ millions) entries 400.0 across reported columns; Unused euro bond proceeds entries 76.7; 102.2; 0.0; 75.8; 18.8.
- Notes in the table specify definitions and adjustments per the Technical Memorandum of Understanding (TMU), exchange rate references (e.g., Dec 2014 numbers at the exchange rate of RWF670.1 per US dollar; 2015 program numbers at RWF694.4), and other technical clarifications.

*Source: IMF staff and Rwandan authorities (content as provided in the cited PDF).*

### 0.2 percent

### _cr15141 - 0.2 percent

### Tax policy and revenue measures
- Fully migrate one district in Kigali from Land Lease Fee to Fixed Asset Tax — End-Dec 2015. Purpose: To enhance revenue mobilization. Status: Modified. Property tax legislation will apply countrywide immediately.
- Prepare legislative proposal for new tax regime for agriculture — End-Dec 2015. Purpose: To enhance revenue mobilization. Status: Split into two benchmarks below.
  - Prepare study on new tax regime for agriculture — End-Dec 2015. (New proposed)
  - Prepare legislative proposal for new tax regime for agriculture — End-June 2016. (New proposed - To replace SB for end-Dec 2015.)
- Prepare legislative proposal for new tax regime for mining — End-Jan 2015. Purpose: To enhance revenue mobilization. Status: Not met. Date changed to end September 2015 as part of the proposed Income Tax Law.

### Public financial management (PFM)
- Sub-national entities (416) to produce monthly, quarterly, and annual financial reports using a uniform template — End-Dec. 2015. Purpose: To improve comprehensiveness and transparency of intergovernmental fiscal transfers.
- 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 — Continuous, starting mid-May 2014. Purpose: To improve fiscal transparency. Status: Not met, report published with delay.

### Monetary and exchange rate policy
- Start issuing government bonds with maturities of 7 and 10 years — End-June 2015. Purpose: To develop money market instruments.

### Technical Memorandum of Understanding (TMU) — scope and quantitative targets
- TMU defines quantitative targets for the MEFP period December 2, 2013–November 30, 2016 and supersedes the TMU in Country Report No. 14/343.
- Assessment framework:
  - Assessment criteria (AC) applicable on June 30, 2015 and December 31, 2015: 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.
  - Indicative targets (IT) throughout the program: 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.
  - Assessment criteria on contracting or guaranteeing of new non-concessional external debt by the public sector and stock of external payment arrears are applicable on a continuous basis.
- Program exchange rates (end-December 2014 rates used for 2015 accounting):
  - Rwanda Franc (per US$) 694.374186
  - Euro 1.2141
  - British Pound 1.5608
  - Japanese Yen (per US$) 120.64
  - SDR 1.44881

### Fiscal sector coverage and key definitions
- Institutional coverage: central government comprises the treasury and line ministries.
- Net domestic financing of the government (NDF) — ceiling applies:
  - NDF defined as change in 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 government, provinces and districts; includes government debt to the NBR amounting to RWF 38.6 billion incurred as a result of the overdraft to the pre-war government and the 1995 devaluation, as well as the current overdraft with the NBR.
  - Excludes treasury bills issued by the NBR for monetary policy purposes (proceeds sterilized).
  - Non-bank holdings of government domestic debt consist of non-bank holdings of treasury bills, bonds (domestic and non-resident), old development bonds (pre-1994 debt), new development bonds (including those used for recapitalization of banks), and other accounts receivable.
- Adjusters to NDF ceiling:
  - Upward adjustment by amount of any shortfall between actual and programmed budgetary loans and grants, up to a maximum of US$80 million (evaluated in Rwandan francs at program exchange rate).
  - Adjustment by extent to which unused proceeds of the US$400 million euro bond issued in April 2013 is lower than/exceed US$75.8 million by end-June 2015 and is lower than/exceed US$18.8 million by end-December 2015 (evaluated in Rwandan francs at program exchange rate).
  - Upward adjustment by the amount of expenditure for food imports in the case of a food emergency.
- 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; government deposits with NBR and commercial banks to be separated from deposits of public enterprises and autonomous agencies.

### Revenue, priority spending, and arrears targets
- Floor on flow of domestic revenues (IT):
  - Definition: total government revenue (tax and non-tax), per central government fiscal operation table, excluding external grants, peace keeping operations, and privatization receipts.
  - Reporting: detailed monthly data within five weeks of the end of each month.
- Floor on priority expenditure (IT):
  - Definition: sum of recurrent expenditures, domestically-financed capital expenditures, and net lending identified as priority in line with EDPRS2; monitored through SIBET.
  - Reporting: monthly data within five weeks of the end of each month.
- Ceiling on net accumulation of domestic arrears (IT):
  - Definition: difference between gross accumulation of new domestic arrears (payment orders minus actual payments) overdue by more than [90] days and gross repayment of any arrears outstanding at the beginning of the year (including repayment of float and older arrears).
  - Note: A negative target represents a floor on net repayment.
  - Reporting: 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, concessionality, and definitions of debt
- Ceiling on contracting or guaranteeing new non-concessional external debt by the public sector (AC) applies continuously from December 2, 2013 to end-June 2015; excludes non-concessional borrowing by Bank of Kigali (assumed not to seek/receive government guarantee).
- Public sector definition: general government (central government, NBR, local governments) and entities with government controlling stake (>50 percent); excludes Bank of Kigali.
- Concessionality definition: debt is concessional if it includes a grant element of at least 35 percent; grant element calculated as difference between present value (PV) and nominal value expressed as percent of nominal value; discount rate used is 5 percent.
- Definition of debt follows Guidelines on Performance Criteria with Respect to External Debt (effective December 1, 2009) and includes loans, suppliers' credits, leases, arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligations that constitute debt.

### Domestic debt and reporting
- Consolidated domestic debt (DD) of the public sector (IT):
  - For program purposes, domestic debt 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 for shortfall in programmed budgetary loans and grants (capped as per NDF), and upward adjustment by expenditure for food imports in case of food emergency.
  - Reporting: monthly data on domestic debt, including treasury bills issued by the NBR for monetary policy purposes, within five weeks of the end of each month.

### Monetary aggregates and reporting
- Net foreign assets (NFA) of the NBR (AC):
  - Floor applies for June 30, 2015 and December 31, 2015.
  - Definition: NFA in Rwandan francs consistent with SDDS template; external assets readily available to or controlled by NBR net of external liabilities; pledged or encumbered reserve assets excluded.
  - Adjusters: downward adjustment by shortfall in programmed budgetary loans and grants (capped at US$80 million); adjustment by unused proceeds of the US$400 million euro bond (US$75.8 million by end-June 2015, US$18.8 million by end-December 2015); downward adjustment by expenditure for food imports in case of food emergency.
  - Reporting: weekly transmission within seven days of the end of each week, including breakdown of pledged/encumbered assets and daily/weekly data on NBR’s foreign exchange liabilities to commercial banks.
- Reserve money (AC):
  - Ceiling applies for June 30, 2015 and December 31, 2015 as indicated in Table 1. Ceiling is the upper bound of a reserve money band set at +/- 2 percent around a central reserve money target.

*Sources: Rwandan authorities and IMF staff; Attachment II. Technical Memorandum of Understanding, April 30, 2015.*

### 33. The stock of reserve money for a given quarter will be calculated as the arithmetic average

### _cr15141 - 33. The stock of reserve money for a given quarter will be calculated as the arithmetic average

### Calculation of reserve money for a quarter
- "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."

### Definition of reserve money
- "Reserve money is defined as the sum of currency in circulation, commercial banks’ reserves, and other nonbank deposits at the NBR."

### Adjuster for required reserve ratio changes
- "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 requirements for reserve money
- "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 communication obligations (program monitoring)
- Government to provide data listed in TMU Table 1 as follows: 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.
- Authorities to inform 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 program outcome. Policies include customs and tax laws (including tax rates, exemptions, allowances, and thresholds), wage policy, and financial support to public and private enterprises.
- Authorities to inform IMF staff of any non-concessional external debt contracted or guaranteed by the government, the NBR, or any statutory bodies, and any accumulation of new external payments arrears on such debt.
- "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 channel: "The information should be mailed electronically to the Fund (email: afrrwa@imf.org)."

### TMU Table 1 — frequency conventions and selected items (as stated)
- Frequency codes: "Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Semi-annually (SA); Irregular (I)."
- Selected data series and reporting frequencies (as listed in TMU Table 1):
  - Exchange Rates: D (frequency of data), W (frequency of reporting), D (frequency of publication).
  - 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.
  - Interest Rates: 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.
  - Composite Index of Economic Activity (CIEA) and sub-components compiled by the NBR: M M M.
  - Revenue, Expenditure, Balance and Composition of Financing – General Government: M M M.
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: M M M.
  - Comprehensive list of tax and non tax revenues: M M M.
  - Comprehensive list of domestic arrears of the government: M M M.
  - The ten (10) largest components of transfers in the fiscal table: M M M.
  - Social security contributions (RAMA and CSR): M M M.
  - Stocks of public sector and public-Guaranteed Debt as compiled by MINECOFIN and NBR: A A A.
  - Privatization receipts: M M M.
  - External Current Account Balance: A SA A.
  - Exports and Imports of Goods and subcomponents: M M Q.
  - Exports and Imports of Goods and Services and subcomponents: A A A.
  - GDP/GNP: A, Q Q, SA Q.

- Explanatory notes included in TMU Table 1:
  - "Includes the official rate; Forex Bureau Associations rate; weighted average of the interbank money market rates; and weighted average of the intervention rate by the NBR."
  - "Includes reserve assets pledged or otherwise encumbered as well as net derivative positions."
  - "Both market-based and officially-determined, including discount rates, money market rates, interbank money market rate, rates on treasury bills, notes and bonds."
  - "One-week ahead forecasts of liquidity submitted on weekly basis. For example, in reporting data as of the last week of April, liquidity forecasts for the first week of May should be reported. The forecasted liquidity should be classified by net foreign assets, net credit to government, nongovernment credit, reserve money, currency in circulation, net credit to commercial banks broken down into discount window and money market (absorption or injection), and other item net."
  - "Includes General Index; Local Goods Index; Imported Goods Index; Fresh Products Index; Energy Index; General Index excluding Fresh Products and Energy; and their breakdowns as published by the NISR."
  - "Foreign, domestic bank, and domestic nonbank financing."
  - "The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments."
  - "Includes proceeds from privatization, accompanied by information on entities privatized, date of privatization, numbers and prices of equities sold to the private sector."
  - "Includes debts of the Bank of Kigali. Also includes currency and maturity composition."

*Source: _cr15141 (selected excerpts).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15141.pdf_