## _cr1624

## Source details

**Canonical URL:** [_cr1624](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1624.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1624.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1624.pdf.json)

---

### Rwanda Revenue Authority efforts to recoup tax arrears
- Period: December 2014–June 2015.
- Main objective: Address tax arrears by small and medium taxpayers through strengthened enforcement.
- Operational measures:
  - Tax auditors temporarily reassigned to bolster the enforcement division six-fold.
  - Cataloguing tax arrears of small and medium taxpayers.
  - Negotiating installment payments.
  - Profiling taxpayers’ immovable assets as collateral for future payments.
  - Analyzing and categorizing arrears cases for litigation based on probability of successful recovery.
- Enforcement actions:
  - Garnishing wages.
  - Publishing names of tax evaders in the newspaper.
  - Blacklisting evaders from public tendering.
- Outcomes:
  - Monthly average collection rate from this group increased from RWF 0.4 billion to RWF 1.1 billion.
  - RRA has begun taking action on taxpayers that file returns but do not pay the tax due.

### External outlook and current account dynamics
- 2016 projection:
  - Current account deficit projected to increase further in 2016, to over 15 percent of GDP.
- Drivers of the widening deficit:
  - Imports growing faster than exports.
  - Shift from external grants to loans.
  - Weak mining exports in 2015 expected to continue in 2016 before stabilizing.
  - Purchases and leases of aircraft by RwandAir and imports for the Kigali Convention Center (KCC) will cause a temporary spike in imports in 2016.
- Financing for government imports:
  - Donors agreed to accelerate 2017 budget support into the second half of 2016.
  - Non-concessional loans for RwandAir and KCC.
- Authorities’ exchange rate and reserve stance:
  - Continued flexible exchange rate policies as principal tool to alleviate external pressures.
  - Some use of reserve buffers in 2016 considered appropriate to cushion adjustment while effects and duration of the shock are evaluated.

### Selected changes to external projections (extracted lines preserved)
- 2015 / 2016 (US$ millions) — extracted lines preserved exactly:
  - Current account (incl. grants)-947-1197-249-957-1308-351
  - Mineral exports211110-10024899-149
  - Fuel imports-256-23224-309-24268
  - RwandAir imports-28-31-30-176-176
  - Net Services
    1
    -45-183-1390-117-117
  - Capital/Financial Account80811393311229124819
  - Public sector borrowing377524146448680232
  - Amortization
    2 
    -36-360-40-121-81
  - Other capital
    3
    -115-2392321138-184
  - Overall balance-139-10336272-61-332
  - Footnotes:
    - 1 Mainly reflecting accelerated construction of Kigali Convention Center
    - 2 Including refinancing of aircraft purchases. 
    - 3 Including NFA of commercial banks. 

### Export diversification and medium-term measures
- MICE and tourism:
  - Kigali Convention Center anticipated for the May 2016 World Economic Forum (Africa).
  - Four new executive hotels under construction and RwandAir scaling up, including new routes (e.g. India and China).
  - Hope that tourism-related receipts will increase to 20 percent per year in 2017-18.
- Special Economic Zones (SEZs):
  - “Plug and play” infrastructure and preferential tax treatment.
  - First phase of Kigali’s SEZ: 61 businesses established in two years, exporting garments, baby food, airline food, and green beans.
- Regional trade and logistics:
  - Re-exports to DRC increased to 26 percent of total goods exports (up 15 points from 5 years ago).
  - World Bank project financing for Lake Kivu border logistical support.
  - Northern Corridor improvements: reduced roaming charges, single tourist visa, transport times reduced (Mombasa to Kampala from 16 to 4-5 days; to Kigali from 22 to 8 days), railway construction between Mombasa and Nairobi.

### Program risks, growth, and regional risks
- Growth projection for 2016:
  - Authorities and staff agreed on a growth projection of 6.3 percent for 2016.
- Downside risks:
  - More profound impact on mining than expected.
  - Larger fiscal and monetary adjustment.
  - Shock to business tourism.
- Regional risk:
  - Worsening situation in Burundi could affect Rwanda:
    - About 75,000 of the estimated 200,000 refugees have crossed into Rwanda.
    - Increased government spending for humanitarian and peacekeeping operations increased demand for imports and foreign exchange.

### Program modalities, targets, and structural reforms
- MEFP revisions:
  - Minor revisions to end-December 2015 quantitative targets; new targets for end-June 2016.
  - Modifications to end-December targets are more stringent compared to the 3rd review, except accrual of general government domestic debt increased somewhat to allow bridge financing of Q4 expenditures, to be covered by late donor support.
  - NDF target tightened substantially, reflecting a shift in financing mix to more frontloaded external financing.
- IMF debt limit policy and monitoring:
  - New QAC on the overall fiscal deficit; initial measurement on a commitment basis with an adjustor for discrepancies in externally-financed investment spending.
  - Limits on net domestic financing and non-concessional borrowing retained as indicative targets.
  - New QAC and IT provide universal coverage of accrual of new external debt since all concessional borrowing takes place via the central government.
- Structural benchmarks:
  - Rephasing of some reforms scheduled for end-December 2015 (study on agricultural taxes delayed).
  - Migration of districts to new real estate tax system rephased due to new fixed asset law requiring concurrent migration in early 2016.
  - New proposed structural reforms through end of program in areas of increasing tax revenues, strengthening public financial management, and deepening financial markets.

### Staff appraisal and policy recommendations
- Progress:
  - Continued progress in stimulating high growth, reducing poverty, and maintaining macroeconomic stability.
- Reforms to strengthen resilience (key priorities):
  - Boost domestic revenue collection.
  - Improve investment planning, budget execution transparency, and public financial accounting.
  - Expand access to financial services and deepen financial markets.
  - Maintain conservative external borrowing strategy; rigorous debt sustainability analysis and tracking public sector contingent liabilities are critical.
- Short-term policy recommendations:
  - Continue exchange rate flexibility to cushion the shock to mineral exports.
  - Some use of reserve buffers is appropriate in the near term; rebuild buffers over the medium term.
  - Be prepared to act quickly if additional fiscal and monetary adjustment is needed.
  - NBR should be ready to tighten monetary stance if external circumstances worsen.
  - Reserve levels, while declining, remain adequate for now but need to be buttressed to restore buffers.

### Staff recommendation on PSI review
- Staff recommends completion of the fourth review under the PSI and revision of end-December quantitative and structural program targets.

### Recent economic performance — high-level findings
- Exports have not kept up with import demand.
- Services remain an important driver for growth.
- Aid flows have trended away from budget grants.
- Tax effort improving but remains below EAC objectives.
- Investment spending increased gradually.
- Official reserves gradually declining.
- Rwandan franc appreciated relative to trading partners, but less so in real terms; exports (vs. imports) are weighted to outside the EAC.

### Key macroeconomic indicators (selected series as presented)
- Real GDP (2012–2018 series): 8.8, 4.7, 6.9, 6.5, 7.0, 6.3, 6.7, 6.8
- Revenue and grants (percent of GDP): 24.2, 25.1, 24.1, 22.5, 24.3, 21.0, 24.1, 22.0, 23.0
- Tax revenue (percent of GDP) entries include: 13.6, 14.5, 15.0, ..., 15.2, ..., 16.0, 15.7, 16.2
- Current account balance (including grants, percent of GDP): -11.3, -7.4, -11.5, -11.2, -14.5, -10.4, -15.4, -14.0, -11.5
- Gross international reserves (in billions of US$): 0.8, 1.1, 1.0, 0.9, 0.9, 1.2, 0.8, 0.8, 0.9
- Reserves in months of next year's imports of G&S: 4.1, 5.1, 4.2, 3.7, 3.4, 4.0, 3.1, 3.0, 3.0

### Fiscal operations (selected exact figures)
- FY revenue and grants (Billions of RwF): 1,101.3; 1,338.8; 1,355.5; 1,418.8; 1,462.5; 1,478.9; 1,598.9; 1,767.9
- Total revenue (Billions of RwF): 736.4; 864.5; 948.5; 1,002.9; 1,104.2; 1,104.1; 1,271.0; 1,434.9
- Tax revenue (Billions of RwF): 651.9; 763.4; 845.6; 871.7; 975.3; 975.3; 1,086.5; 1,234.6
- Grants (Billions of RwF): 364.9; 474.3; 407.0; 415.9; 358.3; 374.7; 327.9; 332.9
- Total expenditure and net lending (Billions of RwF): 1,335.6; 1,538.9; 1,647.0; 1,720.1; 1,741.1; 1,784.9; 1,887.7; 2,083.6
- Primary balance (Billions of RwF): -203.6; -159.8; -248.5; -255.7; -224.4; -250.0; -223.7; -244.6
- Overall deficit (including grants, Billions of RwF): -234.3; -200.2; -291.5; -301.3; -278.7; -306.1; -288.8; -315.7
- Foreign financing (net, Billions of RwF): 338.6; 104.7; 183.1; 188.2; 215.2; 239.7; 315.0; 275.2
- Net domestic financing (Billions of RwF): -120.0; 119.9; 118.4; 147.1; 74.9; 92.8; -6.2; 53.7

### Monetary and external sector developments (selected exact figures)
- Broad money (year-on-year growth): 14.0, 15.5, 19.0, 8.7, 16.7, 15.9, 15.8, 14.7, 16.1
- Credit to the private sector (percent y/y): 35.0, 11.1, 19.6, 20.6, 27.6, 20.2, 24.6, 14.9, 15.0, 15.8
- Exports (f.o.b., US$ millions): 590.8; 703.0; 722.7; 741.6; 664.4; 829.8; 695.3; 759.6; 833.7
- Minerals (US$ millions): 136.1; 225.7; 203.3; 210.5; 110.4; 248.1; 98.9; 109.7; 122.4
- Imports (f.o.b., US$ millions): 1,967.0; 1,851.5; 1,995.4; 2,031.3; 2,011.3; 2,154.2; 2,227.0; 2,210.1; 2,338.4
- Current account balance (including grants, US$ millions): -812.8; -558.4; -908.8; -947.4; -1,196.6; -957.1; -1,308.4; -1,272.5; -1,133.7
- Gross official reserves (US$ millions): 84.3; 113.5; 98.5; 87.9; 87.9; 1,149.0; 790.0; 782.2; 860.4
- Reserves in months of prospective imports of G&S: 4.1; 5.1; 4.2; 3.7; 3.4; 4.0; 3.1; 3.0; 3.0

### Financial soundness indicators (selected exact figures)
- NPLs/gross loans (percent): 6.0; 7.0; 6.7; 6.6; 6.3; 6.0; 6.3; 5.9
- Regulatory capital to risk-weighted: 21.4; 20.8; 20.5; 21.2; 21.7; 21.4; 23.3; 21.6
- Liquid assets/total deposits (percent): 41.2; 49.4; 46.3; 54.2; 54.0; 51.7; 46.0; 49.5

### Program quantitative assessment (end-June 2015, selected exact figures)
- Net foreign assets of the NBR at program exchange rate (floor on stock): Program 512.9; Adjusted Program 513.9; Actual 516.3 — Status: Met
- Reserve money (ceiling on stock): Program 268.2; Actual 267.0
- Net domestic financing (ceiling on flow): Program 153.9; Adjusted Program 152.9; Actual 143.7 — Status: Met
- New nonconcessional external debt contracted or guaranteed by the public sector (US$ millions) (ceiling on stock): Program 500.0; Actual 101.5 — Status: Met
- Domestic revenue collection (floor on flow): Program 467.9; Actual 495.6 — Met
- Consolidated domestic debt of public sector (ceiling on stock, eop): Program 481.5; Actual 486.2 — Not met
- Total priority spending (floor on flow): Program 331.2; Actual 380.5 — Met
- Memorandum: Total budget support (US$ millions): Program 139.2; Actual -7.7

### Structural benchmark status (selected)
- Revise law on Decentralized Local government taxes to enable migration from Land Lease Fees to Fixed Asset Tax — Target: End-June 2015 — Status: Met
- Prepare legislative proposal for new tax regime for mining — Target: End-Sep 2015 — Status: Met
- Prepare study on new tax regime for agriculture — Target: End-Dec 2015 — Status: Rephased to March 2016
- Publish quarterly reports of budget execution — Target: Continuous starting mid-May 2015 — Status: Not met, rephased to March 2016
- Start issuing government bonds with maturities of 7 and 10 years — Target: End-June 2015 — Status: Met

### Letter of Intent — macro context and recent performance (selected exact figures)
- Growth revised upward to 7% for 2015.
- Annual average inflation of 2.0% through end-September 2015.
- Year-on-year inflation in October 2015: 2.9 percent.
- Core inflation in October 2015: 1.3 percent.
- Mineral export receipts halved in the first three quarters of 2015 relative to the previous year.
- Central bank reserves: US$986 million at the beginning of 2015; US$853.4 million by end-June 2015.
- Program floor for end-December 2015 central bank reserves: US$ 879 million.
- Export projections for 2015 revised from US$742 to US$664.
- FY 2014/15 fiscal deficit: 5.2 percent of GDP.
- Total revenue and grants: RWF 1,418.7 billion (exceeding revised budget by RWF 63.7 billion).

### Monetary policy and market measures (selected)
- Key Repo Rate (KRR) kept at 6.5 percent (since June 2014).
- Broad money growth: 15.9 percent from end-December 2014 to end-September 2015.
- Private sector credit expansion: 20.9 percent (first nine months of 2015).
- Franc depreciated by about 6 percent against the USD during 2015; cumulative depreciation 2012–2015 around 21.3 percent.
- Ten-year bond issued in 2015; institutional investor participation in government securities increased to 50 percent from 10 percent; retail investor share increased from 1 to 4 percent.

### Financial sector reforms and safeguards (selected)
- New Central Bank Law approved by Cabinet in October 2015.
- New pension law gazetted in May 2015 for private pensions.
- New Deposit Insurance Law published in August 2015; regulations forthcoming.
- Emergency Liquidity Facility Framework (ELF) approved by NBR board in September 2015.
- Plans to shift to Basel II&III capital requirements; parallel run before end-2015.
- Microfinance on-site inspections in all 416 SACCOs planned; completion expected in second quarter of 2016.

### Debt, credit ratings, and debt management
- Standard & Poor’s raised long-term foreign and local currency sovereign credit ratings to 'B+' from 'B' in March 2015.
- Fitch maintained ‘B+’ rating in July 2015.
- Total public and publicly guaranteed debt: 30.4 percent of GDP as of end December 2014:
  - 23.2 percent external debt
  - 7.1 percent domestic debt
- Composition of total debt:
  - 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 extended on debt owed by RwandAir and Rwanda Energy Group; PTA Bank no longer requires sovereign guarantees for its loans to RwandAir.
- Staff’s DSA assessment: Rwanda continues to be at low risk of external debt distress.
- Debt management measures:
  - DMU process for issuance of guarantees developed and applied in FY 14/15.
  - Monitoring via indicative targets: Net Domestic Financing (NDF) and Non-concessional borrowing (NCB).

### DSA findings and Box 1 macro framework (selected exact figures and assumptions)
- Long-run growth projected at 7.5 percent.
- Reserve buffers expected to attain coverage of 4.5 months of prospective imports by 2023.
- Baseline scenario: all external debt burden indicators projected to remain below policy-dependent thresholds.
- Stress tests: marginal temporary breaches of debt service-to-exports and debt service-to-revenue ratios in 2023 when the Eurobond issued in 2013 matures; assumption that Rwanda will be able to refinance the maturing Eurobond.
- PV of PPG external debt (Millions of US$): 1,573 (2015); 1,769 (2016); 2,065 (2017).
- Stock of PPG external debt (Millions of US$): 2,259 (2015); 2,628 (2016); 3,132 (2017).
- Policy-dependent thresholds for strong performers:
  - PV of debt to exports: 200 percent
  - PV of debt to GDP: 50 percent
  - PV of debt to government revenue: 300 percent
  - Debt service thresholds: 25 percent of exports and 22 percent of revenue

### Main program risks highlighted
- Primary near-term risk: decline in the mining sector and related consequences.
- Principal medium-term risk: narrow export base heavily dependent on fluctuating commodity prices.
- Program response:
  - Gather more data on the mining shock and not significantly modify quantitative objectives at this stage.
  - Four building blocks for policy: boost domestic revenue, enhance monetary policy and financial deepening, strengthen debt management, and diversify the economy.

### Key structural and policy actions forward (selected exact actions and target dates)
- Revenue Mobilization:
  - Submit revised Law on Tax Procedures to Cabinet — Target Date: June 2016.
  - Share draft study on new tax regime for agriculture — Target Date: End-November 2016.
- Public Financial Management:
  - Publish quarterly reports of budget execution within 60 days of end of each quarter — Continuous starting Q4 2015.
  - Operationalize IFMIS and E-Procurement interface protocols — Target Date: December 2016.
  - Share IPSAS roadmap — Target Date: End-June 2016.
- Monetary and financial sector:
  - Issue a 15-year Government T-Bond — Target Date: May 2016.
  - Establish a framework of market intermediaries for government securities — Target Date: September 2016.
  - RWF/US$ program exchange rate entries: 694.4; 746.5; 746.5 (program exchange rates listed in TMU).

### Technical Memorandum of Understanding — coverage and select program rules
- Period covered: July 1, 2015–November 30, 2016.
- Core ACs and ITs include floors on NFA of NBR, ceilings on reserve money, ceiling on overall deficit (commitment basis), ceiling on external payment arrears, ceilings/floors on NDF, domestic revenue, domestic arrears, non-concessional external debt by NFPEs, consolidated domestic debt, and priority spending.
- Adjusters to NDF and NFA ceilings include shortfalls in programmed budgetary grants and loans (caps specified), unused euro bond proceeds, food emergency expenditures, prefunding of Peace Keeping Operations, and changes to required reserve ratio.
- Reporting frequencies:
  - Weekly data on NBR foreign assets and reserve money within seven days of week end.
  - Monthly NDF and domestic revenue data within five weeks of month end.
  - Quarterly data on priority expenditure and domestic debt within eight weeks of quarter end.

*Source: Rwandan authorities and IMF staff estimates and projections as presented in the MEFP, TMU, and staff report excerpts in the provided content.*

### 1. Rwanda Revenue Authority Efforts to Recoup Tax Arrear ________________________________________8

### Rwanda Revenue Authority Efforts to Recoup Tax Arrear

### Background and objectives
- Period: December 2014–June 2015.
- Main objective: Address tax arrears by small and medium taxpayers through strengthened enforcement.

### Operational measures taken
- Tax auditors were temporarily reassigned to bolster the enforcement division six-fold.
- Core tasks performed:
  - Cataloguing tax arrears of small and medium taxpayers.
  - Negotiating installment payments.
  - Profiling taxpayers’ immovable assets as collateral for future payments.
  - Analyzing and categorizing arrears cases for litigation based on the probability of successful recovery.
- Enforcement actions applied:
  - Garnishing wages.
  - Publishing names of tax evaders in the newspaper.
  - Blacklisting evaders from public tendering.

### Outcomes and immediate results
- Monthly average collection rate from this group of taxpayers increased from RWF 0.4 billion to RWF 1.1 billion.
- The RRA has begun taking action on taxpayers that file returns but do not pay the tax due, to ensure that arrears do not accumulate going forward.

*Source: Box 1, “Rwanda Revenue Authority (RRA) Efforts to Recoup Tax Arrears,” IMF Rwanda report.*

### 22.      The current account deficit is projected to increase further in

### _cr1624 - 22.      The current account deficit is projected to increase further in

### External outlook and current account dynamics
- The current account deficit is projected to increase further in 2016, to over 15 percent of GDP, following recent trends and cyclical developments.
- Drivers:
  - Imports growing faster than exports, increasing both trade and current account deficits.
  - Trend from external grants to loans has exacerbated deficits.
  - Recent trends in mining contributed to weak exports in 2015 and should continue to do so in 2016, before stabilizing.
  - Purchases and leases of aircraft by RwandAir and imports for the Kigali Convention Center (KCC) will lead to a temporary spike in imports in 2016.
- Financing for government imports:
  - Donors agreed to accelerate 2017 budget support into the second half of 2016.
  - Non-concessional loans for RwandAir and KCC.

### Authorities’ policy stance on exchange rate and reserves
- The authorities agreed that continued flexible exchange rate policies will be the principal tool for alleviating external pressures.
- Rationale:
  - Exchange rate flexibility needed to restrain import demand given the drop in projected inflows.
  - Mission concerns that modest monetary adjustment, combined with the projected fiscal stance, might be inadequate to moderate still-strong import demand.
  - Authorities considered some use of reserve buffers in 2016 appropriate to cushion adjustment while the effects and duration of the shock are being evaluated.

### Summary of main changes to external projections (table excerpts as presented)
- 2015 / 2016 (US$ millions) — extracted lines preserved exactly as in source:
  - Current account (incl. grants)-947-1197-249-957-1308-351
  - Mineral exports211110-10024899-149
  - Fuel imports-256-23224-309-24268
  - RwandAir imports-28-31-30-176-176
  - Net Services
    1
    -45-183-1390-117-117
  - Capital/Financial Account80811393311229124819
  - Public sector borrowing377524146448680232
  - Amortization
    2 
    -36-360-40-121-81
  - Other capital
    3
    -115-2392321138-184
  - Overall balance-139-10336272-61-332
  - Footnotes retained exactly as in source:
    - 1 Mainly reflecting accelerated construction of Kigali Convention Center
    - 2 Including refinancing of aircraft purchases. 
    - 3 Including NFA of commercial banks. 

### Export diversification and medium-term measures
- Authorities are pursuing measures to support export diversification and private sector investment; key initiatives include:
  - MICE (meetings, incentives, conferences, events) strategy:
    - Kigali Convention Center anticipated to be finished for the May 2016 World Economic Forum (Africa).
    - Four new executive hotels under construction and RwandAir scaling up, including new routes (e.g. India and China).
    - It is hoped that growth of tourism-related receipts will increase to 20 percent per year in 2017-18.
  - Development of Special Economic Zones (SEZs):
    - SEZs provide “plug and play” business infrastructure and preferential tax treatment.
    - In the first phase of Kigali’s SEZ, 61 businesses established in two years, exporting garments, baby food, airline food, and green beans.
  - Trade with DRC:
    - Re-exports have increased as a share of total goods exports to 26 percent, up 15 points from 5 years ago.
    - World Bank initiated new project financing, shared between DRC, Rwanda and Uganda, for logistical support at Lake Kivu border crossings.
  - Opening up the “Northern Corridor” with Uganda and Kenya to reduce transport costs and increase operational efficiency; achievements include reduced roaming charges, single tourist visa, reduced transport days from Mombasa to Kampala (from 16 to 4-5 days) and to Kigali (from 22 to 8 days), and construction of a railway line between Mombasa and Nairobi.

### Program risks and shocks
- Growth projection and downside risks:
  - Authorities and staff agreed on a growth projection of 6.3 percent for 2016.
  - Projection rests on accommodative fiscal policies and strong performance in construction and business tourism (including Kigali Convention Centre and power projects).
  - Downside risks: more profound impact on mining than expected, larger fiscal and monetary adjustment, or a shock to business tourism.
- Regional risk:
  - Worsening of the situation in Burundi could have implications for Rwanda.
    - About 75,000 of the estimated 200,000 refugees have crossed into Rwanda.
    - Increased government spending for humanitarian and peacekeeping operations has also increased demand for imports and foreign exchange.

### Program modalities, targets, and structural reforms
- MEFP revisions:
  - Table 1 of the MEFP contains minor revisions to end-December 2015 quantitative targets and sets new targets for end-June 2016.
  - Modifications to end-December targets are more stringent compared to the 3rd review, except accrual of general government domestic debt was increased somewhat to allow bridge financing of Q4 expenditures, to be covered by late donor support.
  - NDF target tightened substantially, reflecting a shift in the mix between domestic and more frontloaded external financing.
- IMF debt limit policy and monitoring:
  - New QAC introduced on the overall fiscal deficit; initial measurement on a commitment basis with an adjustor for discrepancies in externally-financed investment spending.
  - Limits on net domestic financing and non-concessional borrowing retained as indicative targets (modified version favored by authorities).
  - New QAC and IT provide universal coverage of accrual of new external debt since all concessional borrowing takes place via the central government.
- Structural benchmarks (MEFP table 2):
  - Rephasing of some reforms scheduled for end-December 2015, notably a study on agricultural taxes (delayed).
  - End-December measure to migrate one district of Kigali to the new system for real estate taxes removed due to new fixed asset law requiring all districts to migrate concurrently in early 2016.
  - New proposed structural reforms through end of program period in areas of increasing tax revenues, strengthening public financial management, and deepening financial markets.

### Staff appraisal and policy recommendations
- Progress and policy direction:
  - Continued progress in stimulating high growth, reducing poverty, and maintaining macroeconomic stability.
  - Public investment program focused on growth-enhancing infrastructure and productivity-enhancing education and health programs.
  - Government efforts to encourage private investment, diversify exports, and develop niche tourism expected to shift growth toward the private sector and reduce vulnerability to commodity price movements and external assistance trends.
- Reforms to strengthen resilience:
  - Boost domestic revenue collection.
  - Improve investment planning, budget execution transparency, and public financial accounting to increase spending efficiency.
  - NBR efforts to expand access to financial services and deepen financial markets to provide capital for private-sector-led growth and prepare for EAC integration.
  - Maintain conservative external borrowing strategy; with changed program debt limits, rigorous debt sustainability analysis and tracking public sector contingent liabilities are critical.
- Short-term policy recommendations:
  - Continue exchange rate flexibility to cushion the shock to mineral exports.
  - Some use of reserve buffers is appropriate to avoid sharp adjustment in the near term; rebuild buffers over the medium term.
  - Authorities should be prepared to act quickly if additional fiscal and monetary adjustment is needed.
  - NBR should stand ready to tighten the monetary stance if external circumstances and/or the foreign exchange constraint worsen.
  - Reserve levels, while declining, remain adequate for now but will need to be buttressed to restore buffers and improve external resilience.

*Source: _cr1624 - 22.      The current account deficit is projected to increase further in*

### 34.      Staff recommends completion of the fourth review under the PSI and revision of

### _cr1624 - 34.      Staff recommends completion of the fourth review under the PSI and revision of

### Recommendation
- Staff recommends completion of the fourth review under the PSI and revision of end-December quantitative and structural program targets.

### Recent economic performance (high-level findings)
- Exports have not kept up with import demand.
- Services remain an important driver for growth.
- Aid flows have trended away from budget grants.
- The tax effort, while improving, remains below EAC objectives.
- Investment spending has increased gradually.
- Official reserves have been gradually declining.
- The Rwandan franc has appreciated relative to trading partners, but less so in real terms, and exports (vs. imports) are weighted to outside the EAC.

### Key macroeconomic indicators (Table 1: Selected Economic and Financial Indicators, 2012–18)
- Real GDP: 8.8, 4.7, 6.9, 6.5, 7.0, 6.3, 6.7, 6.8 (series across 2012–2018 as presented)
- GDP deflator: 6.1, 4.7, 3.6, 4.1, 3.3, 4.8, 4.1, 5.1, 5.0
- CPI (period average): 6.3, 4.2, 1.8, 2.8, 2.4, 4.3, 4.5, 5.0, 5.0
- CPI (end of period): 3.9, 3.6, 2.1, 3.5, 4.0, 5.0, 5.0, 5.0, 5.0
- Terms of trade (deterioration, -): -6.1, 19.3, -3.4, 2.0, 4.6, 2.5, -2.7, 8.9, 0.4
- Exchange rate (Rwanda franc/US$): 614.3, 646.6, 682.4 (series shown for earlier years)
- Broad money (M3) growth: 14.0, 15.5, 19.0, 15.9, 15.8, 13.1, 14.7, 16.1, 16.1
- Credit to non-government sector: 35.0, 11.1, 19.6, 19.7, 24.6, 14.0, 14.9, 15.0, 15.8
- Policy Rate (end of period): 7.5, 7.0, 6.5, 6.5, 6.5 (series shown for earlier years)
- Revenue and grants (percent of GDP): 24.2, 25.1, 24.1, 22.5, 24.3, 21.0, 24.1, 22.0, 23.0
- Of which: tax revenue (percent of GDP): 13.6, 14.5, 15.0, ..., 15.2, ..., 16.0, 15.7, 16.2
- Of which: grants (percent of GDP): 9.3, 8.6, 7.4, 7.4, 6.8, 5.7, 5.4, 3.7, 4.3
- Expenditure (percent of GDP): 25.9, 27.6, 27.7, 25.7, 27.2, 24.0, 27.2, 24.9, 25.2
- Primary balance (percent of GDP): -2.7, -3.7, -4.2, -3.9, -4.0, -3.9, -3.9, -3.6, -2.9
- Overall balance (percent of GDP): -3.2, -4.5, -4.9, -4.6, -4.9, -4.6, -4.8, -4.6, -3.8
- Total public debt (percent of GDP): 17.0, 27.1, 29.9, 33.1, 35.1, 35.0, 41.9, 43.6, 43.9
- Exports (goods and services, percent of GDP): 14.0, 15.6, 16.9, 16.6, 15.8, 16.9, 16.8, 17.1, 17.6
- Imports (goods and services, percent of GDP): 34.3, 32.5, 33.7, 32.3, 34.3, 31.2, 36.2, 33.6, 32.1
- Current account balance (including grants, percent of GDP): -11.3, -7.4, -11.5, -11.2, -14.5, -10.4, -15.4, -14.0, -11.5
- Gross international reserves (in billions of US$): 0.8, 1.1, 1.0, 0.9, 0.9, 1.2, 0.8, 0.8, 0.9
- Reserves in months of next year's imports of G&S: 4.1, 5.1, 4.2, 3.7, 3.4, 4.0, 3.1, 3.0, 3.0
- Memorandum items: GDP at current market prices (Rwanda francs, billion): 4,437; 4,864; 5,389; 5,974; 5,955; 6,697; 6,589; 7,389; 8,287
- Population (million): 10.5, 10.8, 11.1, ..., 11.4, ..., 11.7, 12.0, 12.3

### Fiscal operations (Tables 2a–2e: Central Government operations, fiscal-year & calendar-year basis)
- FY revenue and grants (Billions of Rwanda francs): 1,101.3 (2012/13), 1,338.8 (2013/14), 1,355.5 (2014/15), 1,418.8 (2015/16), 1,462.5 (2016/17), 1,478.9 (2017/18), projected 1,598.9, 1,767.9
- Total revenue (Billions of RwF): 736.4; 864.5; 948.5; 1,002.9; 1,104.2; 1,104.1; 1,271.0; 1,434.9
- Tax revenue (Billions of RwF): 651.9; 763.4; 845.6; 871.7; 975.3; 975.3; 1,086.5; 1,234.6
- Grants (Billions of RwF): 364.9; 474.3; 407.0; 415.9; 358.3; 374.7; 327.9; 332.9
- Total expenditure and net lending (Billions of RwF): 1,335.6; 1,538.9; 1,647.0; 1,720.1; 1,741.1; 1,784.9; 1,887.7; 2,083.6
- Current expenditure (Billions of RwF): 633.9; 776.7; 794.4; 834.1; 865.5; 899.9; 1,009.0; 1,121.8
- Capital expenditure (Billions of RwF): 564.5; 712.0; 749.9; 769.8; 747.3; 776.3; 767.7; 834.7
- Primary balance (Billions of RwF): -203.6; -159.8; -248.5; -255.7; -224.4; -250.0; -223.7; -244.6
- Overall deficit (including grants, Billions of RwF): -234.3; -200.2; -291.5; -301.3; -278.7; -306.1; -288.8; -315.7
- Overall deficit (incl. grants, cash basis, Billions of RwF): -243.4; -216.3; -301.5; -296.3; -290.1; -332.5; -308.8; -328.9
- Financing (Billions of RwF): 243.4; 216.3; 301.5; 296.3; 290.1; 332.5; 308.8; 328.9
- Foreign financing (net, Billions of RwF): 338.6; 104.7; 183.1; 188.2; 215.2; 239.7; 315.0; 275.2
- Net domestic financing (Billions of RwF): -120.0; 119.9; 118.4; 147.1; 74.9; 92.8; -6.2; 53.7
- Memorandum: Priority spending (Billions of RwF): 550.7; 626.5; 607.6; 656.8; 673.4; 673.4

### Fiscal semi-annual and calendar presentations (selected)
- Semi-annual FY2014/15 14-H2 revenue and grants: 689.0 (Billions RwF)
- Calendar year 2015 revenue and grants: 1,449.3 (Billions RwF); total revenue 1,046.6; tax revenue 907.7; grants 402.8
- Calendar year 2015 total expenditure and net lending: 1,740.3 (Billions RwF); current expenditure 847.5; capital expenditure 770.3
- Calendar year 2015 primary balance: -239.3 (Billions RwF); overall deficit (including grants) -291.0; overall deficit (incl. grants, cash basis) -303.4
- Calendar year 2015 financing: 303.4 (Billions RwF); foreign financing (net) 270.0; net domestic financing 37.1

### Monetary developments (Figure 3 and Table 3: Monetary Survey)
- Policy rate and real interest rates: Policy rate (end of period examples) 7.5, 7.0, 6.5 (series shown)
- Inflation (y/y): Headline, Core, Food series shown; EAC excl. Rwanda comparison included.
- Broad money (year-on-year growth): 14.0, 15.5, 19.0, 8.7, 16.7, 15.9, 15.8, 14.7, 16.1
- Credit to the private sector (percent y/y): 35.0, 11.1, 19.6, 20.6, 27.6, 20.2, 24.6, 14.9, 15.0, 15.8
- Monetary survey (Billions of RwF): Net foreign assets (monetary authorities) 457.1; 634.3; 585.7; 512.9; 535.0; 524.0; 570.8; 503.9; 522.3; 583.3 (series across years)
- Reserve money (Billions of RwF): 189.3; 213.2; 246.9; 268.5; 272.8; 290.7; 290.7; 327.7; 380.6; 442.0 (series)
- Broad money (Billions of RwF): 889.9; 1,028.2; 1,223.9; 1,330.9; 1,427.8; 1,418.0; 1,417.2; 1,624.9; 1,887.2; 2,191.8
- Memorandum: Money multiplier and velocity values reported (eop) 4.7; 4.8; 5.0; 4.7; 5.2; 4.5; 4.9; 5.0; 5.0; 5.0

### External sector developments (Figure 4 and Table 4: Balance of Payments)
- Exports (f.o.b., US$ millions): 590.8; 703.0; 722.7; 741.6; 664.4; 829.8; 695.3; 759.6; 833.7 (series)
- Of which: coffee and tea (US$ millions): 126.6; 110.4; 110.9; 119.2; 133.1; 129.8; 139.4; 157.1; 171.9
- Minerals (US$ millions): 136.1; 225.7; 203.3; 210.5; 110.4; 248.1; 98.9; 109.7; 122.4
- Imports (f.o.b., US$ millions): 1,967.0; 1,851.5; 1,995.4; 2,031.3; 2,011.3; 2,154.2; 2,227.0; 2,210.1; 2,338.4
- Trade balance (US$ millions): -1,376.2; -1,148.4; -1,272.7; -1,289.6; -1,346.9; -1,324.4; -1,531.7; -1,450.5; -1,504.7
- Services (net, US$ millions): -85.2; -122.4; -57.6; -44.5; -183.0; -0.1; -117.4; -47.2; 72.5
- Income (US$ millions): -73.8; -135.3; -156.6; -178.0; -191.3; -193.3; -220.2; -192.0; -201.7
- Current transfers (net, US$ millions): 722.5; 847.7; 578.1; 564.7; 524.7; 560.8; 560.9; 417.1; 500.2
- Current account balance (including grants, US$ millions): -812.8; -558.4; -908.8; -947.4; -1,196.6; -957.1; -1,308.4; -1,272.5; -1,133.7
- Capital account (US$ millions): 171.2; 234.5; 337.1; 300.1; 301.9; 202.4; 202.5; 190.6; 205.9
- Financial account (US$ millions): 411.2; 660.5; 587.8; 507.8; 791.6; 1,026.2; 1,045.0; 1,076.0; 1,007.1
- Direct investment (US$ millions): 159.8; 257.6; 267.7; 281.3; 327.0; 297.0; 348.1; 371.2; 428.4
- Long-term borrowing (US$ millions): 199.8; 599.2; 335.9; 377.5; 523.7; 448.0; 679.9; 583.9; 470.5
- Scheduled amortization (US$ millions): -89.4; -178.7; -33.5; -35.9; -35.9; -40.0; -120.5; -63.7; -41.3
- Overall balance (US$ millions): -205.5; 293.8; -147.8; -139.4; -103.0; 271.5; -60.8; -6.0; 79.3
- Gross official reserves (US$ millions): 84.3; 113.5; 98.5; 87.9; 87.9; 1,149.0; 790.0; 782.2; 860.4 (as presented)
- Reserves in months of prospective imports of G&S: 4.1; 5.1; 4.2; 3.7; 3.4; 4.0; 3.1; 3.0; 3.0
- Memorandum: Current account deficit (percent of GDP) including official transfers: -11.3; -7.4; -11.5; -11.2; -14.5; -10.4; -15.4; -14.0; -11.5

### Financial soundness indicators (Table 5: Banking sector, 2012–15)
- Regulatory capital to risk-weighted: 21.4; 20.8; 20.5; 21.2; 21.7; 21.4; 23.3; 21.6 (series across reporting dates)
- Capital to assets: 23.9; 23.1; 22.6; 23.6; 24.0; 24.2; 25.9; 24.3
- NPLs/gross loans (percent): 6.0; 7.0; 6.7; 6.6; 6.3; 6.0; 6.3; 5.9
- Provisions/NPLs (percent): 53.7; 53.0; 56.4; 50.0; 55.3; 56.8; 52.3; 51.5
- Return on average assets: 2.2; 1.5; 2.3; 2.1; 1.9; 1.9; 2.7; 2.4
- Return on average equity: 10.4; 7.3; 11.9; 12.1; 10.9; 10.8; 14.1; 13.1
- Net interest margin: 9.7; 9.5; 9.2; 8.7; 8.2; 7.9; 8.7; 8.9
- Liquid assets/total deposits (percent): 41.2; 49.4; 46.3; 54.2; 54.0; 51.7; 46.0; 49.5
- Gross loans/total deposits (percent): 91.9; 86.4; 86.1; 76.4; 79.7; 90.4; 86.6; 84.2
- Forex exposure/core capital (percent): -0.6; -2.2; -12.6; -1.5; -4.8; -2.2; -5.5; -7.1

### Program quantitative assessment criteria and indicative targets (end-June 2015, Table 6)
- Net foreign assets of the NBR at program exchange rate (floor on stock): Program 512.9; Adjusted Program 513.9; Actual 516.3 — Status: Met
- Reserve money (ceiling on stock) (upper bound): Program 273.6; Adjusted Program 273.6 — Status: Met
- Reserve money (ceiling on stock): Program 268.2; Actual 267.0
- Reserve money (ceiling on stock) (lower bound): Program 262.8; Actual 262.8
- Net domestic financing (ceiling on flow): Program 153.9; Adjusted Program 152.9; Actual 143.7 — Status: Met
- New nonconcessional external debt contracted or guaranteed by the public sector (US$ millions) (ceiling on stock): Program 500.0; Actual 101.5 — Status: Met
- External payment arrears (US$ millions) (ceiling on stock): Program 0.0; Actual 0.0 — Status: Met
- Indicative targets: Domestic revenue collection (floor on flow): Program 467.9; Actual 495.6 — Met
- Net accumulation of domestic arrears (ceiling on flow): Program -26.7; Actual -36.6 — Met
- Consolidated domestic debt of public sector (ceiling on stock, eop): Program 481.5; Actual 486.2 — Not met
- Total priority spending (floor on flow): Program 331.2; Actual 380.5 — Met
- Memorandum: Total budget support (US$ millions): Program 139.2; Actual -7.7; Memorandum also lists budget support grants 69.2 and budget support loans 70.0
- Euro bond (US$ millions): 400.0; Unused euro bond proceeds (US$ millions): 75.8; Unused euro bond proceeds actual 9.1; 66.7 (as listed)

### Status of structural benchmarks for 4th Review (Table 7)
- Revenue Mobilization:
  - Revise law on Decentralized Local government taxes to enable the migration from Land Lease Fees to Fixed Asset Tax — Target Date: End-June 2015 — Status: Met
  - Prepare legislative proposal for new tax regime for mining — Target Date: End-Sep 2015 — Status: Met
  - Fully migrate one district in Kigali from Land Lease Fee to Fixed Asset Tax — Target Date: End-Dec 2015 — Status: (no status entry)
  - Prepare study on new tax regime for agriculture — Target Date: End-Dec 2015 — Status: Rephased to March 2016
  - Prepare legislative proposal for new tax regime for agriculture — Target Date: End-June 2016 — Status: Delayed beyond program period
- Public Financial Management:
  - 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 — Target Date: Continuous, starting mid-May 2015 — Status: Not met, revised and rephased to March 2016
  - Sub-national entities (416) to produce monthly, quarterly, and annual financial reports using a uniform template — Target Date: End-Dec. 2015 — Status: Ongoing
- Monetary and Exchange Rate Policy:
  - Start issuing government bonds with maturities of 7 and 10 years — Target Date: End-June 2015 — Status: Met

*Source: Rwandan authorities and IMF staff estimates and projections as presented in the provided content.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Purpose and Requests
- The attached Memorandum of Economic and Financial Policies (MEFP) is an update of the April 2015 MEFP and sets out macroeconomic policies for the remainder of fiscal year 2015/16 and the medium term.
- The Government of Rwanda requests:
  - Completion of the fourth review under the PSI.
  - Modification of the quantitative assessment criteria for end-December 2015.
  - Approval of new targets for end-June 2016.
- The government will consult with the IMF before adopting any measures or changes to the main policies described in the MEFP and will provide the IMF with requested information on program implementation.
- The Government of Rwanda authorizes the publication and distribution of this letter, its attachments, and all reports prepared by the IMF staff.

### Macroeconomic Context and Shock
- Growth and inflation:
  - Growth revised upward to 7% for 2015.
  - Annual average inflation of 2.0% through end-September 2015.
  - Year-on-year inflation in October 2015: 2.9 percent.
  - Core inflation in October 2015: 1.3 percent.
- External shock:
  - Sharp drop in mineral prices and global demand caused a significant loss of export receipts and international reserves of the banking system.
  - Mineral export receipts halved in the first three quarters of 2015 relative to the previous year.

### Recent Economic Performance (first semester / first nine months of 2015)
- Growth:
  - GDP expanded by 7.0 percent year-on-year in Q2 2015.
  - GDP growth in Q1 2015: 7.6 percent.
  - 2015 first semester growth rate: 7.3 percent.
- Sectoral performance:
  - Industry growth (first semester): 8.5 percent.
    - Construction growth: 13.0 percent; contributed one percentage point to total GDP growth.
    - Mining contracted by 7.0 percent in the first half of the year.
  - Services expanded by 7.0 percent in the first semester.
  - Private sector credit expansion: 20.9 percent (first nine months of 2015).
  - Private consumption expansion: 12.5 percent (first semester of 2015).
- Inflation details:
  - Average headline inflation for 2015: 2.0 percent.
  - September year-on-year inflation: 3.7 percent.
  - Food import prices contracted by 10.9 percent in 2015 (through the period reported).
- Utility price changes (effective 1 September 2015):
  - Electricity prices increased for low-voltage users by 35 percent; no increase for high-voltage users.
  - Average water price increase: 19 percent.

### External Sector and Reserves
- Trade and exports:
  - Trade deficit at US$1.32 billion for the first nine months of 2015, 1.9 percent less than the same period a year ago.
  - Formal imported goods contracted by 3.0 percent between January and September 2015.
    - Unit values of energy imports down 30.6 percent year-on-year for the same nine-month period.
    - Capital imports volume grew by 14.8 percent (year to September).
    - Intermediate imports expanded by 10 percent (year to September).
  - Formal exports contracted by 6.4 percent over the first nine months of 2015.
    - Minerals exports value fell by 40 percent in the first three quarters compared to the previous year.
    - Non-traditional exports expanded by 15.9 percent (first 9 months of 2015).
    - Tea exports increased by 42.6 percent (first three quarters of 2015) relative to the same period a year earlier.
- Reserve levels and projections:
  - Central bank reserves: US$986 million at the beginning of 2015; US$853.4 million by end-June 2015.
  - Program floor for end-December 2015 central bank reserves: US$ 879 million.
  - Commercial banks’ NFA: US$150.6 million at end-December 2014; reduced to US$92.9 million by end-June 2015 and projected to remain at this level till end-December 2015.
  - Export projections for 2015 revised from US$742 to US$664.

### Fiscal Developments (FY 2014/15)
- Fiscal outcomes:
  - FY 2014/15 fiscal deficit: 5.2 percent of GDP (slightly lower than programmed).
  - Net domestic finance for FY 2014/15: RWF 108 billion (RWF10.8 billion lower than projected).
    - Domestic finance figure includes RWF 39 billion of offsetting accumulated deposits in donor project accounts.
- Revenue and grants:
  - Total revenue and grants: RWF 1,418.7 billion, exceeding the revised budget estimate by RWF 63.7 billion (1.1 percent of GDP).
  - Domestic tax collections exceeded revised estimate by RWF 26 billion (0.5 percent of GDP).
  - Direct taxes over-performed; additional non-tax revenue from Peace Keeping Operations financing; grants exceeded expectations due to Global Fund disbursements.
- Expenditure:
  - Total expenditure and net lending: RWF 1,697 billion, exceeding revised budget projections by RWF 50 billion (0.8 percent of GDP).
  - Excess spending mainly on Peace-Keeping Operations and accelerated implementation of foreign-financed infrastructure projects.
- Selected priority spending in FY 2014/15 (as % GDP):
  - Construction of Nyabarongo Hydro power station (27MW): 4.4
  - Rehabilitation of power plants and connecting households to the national grid: 2.8
  - Rehabilitation of various national and urban roads: 6.6
  - Kivu belt road construction (on-going): 2.8
  - Construction of terraces to increase arable land and stop erosion: 2.6
  - “one cow per family” project: 0.2
  - Construction and rehabilitation of health facilities: 3.8
  - Purchase of materials including equipment (health): 1.3
  - Provision of specialized staff (health): 1.0
  - Construction and renovation of various classrooms for primary and secondary education: 2.0
  - Construction and equipment for vocational education: 2.2
  - Purchases of various educational materials (books, desks etc.): 1.2
  - “One laptop per child” project: 0.5

### Monetary Policy and Developments
- Policy stance:
  - Monetary policy remained accommodative in 2015 to support recovery.
  - Key Repo Rate (KRR) kept at 6.5 percent (since June 2014).
- Monetary aggregates and credit:
  - Broad money growth: 15.9 percent from end-December 2014 to end-September 2015 (compared to 17.5 percent in same period of 2014).
  - Growth in credit to the private sector for the first three quarters of 2015: 20.9 percent (slightly higher than programmed).
- Exchange rate and forex market:
  - Forex market structurally in deficit due to narrow export base and strong imports; exacerbated by shift in donor support toward project lending and by mining export trends.
  - Depreciation of Rwandan franc between 2012 and 2015: around 21.3 percent (cumulative).
  - Depreciation recorded between 2004 and 2011: 4.2 percent (cumulative).
  - Franc depreciated by about 6 percent against the USD during 2015, while it appreciated against Uganda, Tanzania, and Kenya currencies.
  - NBR increased sales to the market to mitigate speculative pressure in July-August 2015.
- Market and regulatory development:
  - NBR working to shift from simple interbank operations to a true Horizontal REPO.
  - A ten-year bond issued in 2015 to complement 3, 5, and 7-year bonds.
  - Institutional investor participation in government securities increased to 50 percent from 10 percent last year.
  - Retail investor share increased from 1 to 4 percent.

### Financial Sector Soundness and Supervision
- Banking system indicators (Dec-14 vs Jun-15):
  - Banks: Capital / Risk Weighted Assets (Min 15%): 24% (Dec-14) → 24.30% (Jun-15).
  - Banks: Liquid assets to total deposits (Min 20%): 48.7% → 49.5%.
  - Banks: Non-Performing Loans (NPLs): 6% → 5.9%.
  - Microfinance: Capital / Risk Weighted Assets (Min 15%): 33.2 % → 31.4 %.
  - Microfinance: Quick liquidity ratio (min 30%): 87% → 95.4%.
  - Microfinance: Non-Performing Loans (NPLs): 7% → 7.4%.
- Supervisory and legal developments:
  - NBR continued capacity building for supervisors through in-house and external training (EAC and IMF’s East Afritac).
  - MOUs for information exchange between home supervisors of regional banks and local supervisors have been signed.
  - Regular supervisory colleges organized to discuss regional bank risks.
  - New Central Bank Law approved by Cabinet in October 2015.
  - New pension law gazetted in May 2015 providing for establishment of private pensions.
  - New Deposit Insurance Law published in the Official Gazette in August 2015; regulations forthcoming.
  - NBR plans a parallel run of existing Basel I requirements and new Basel II&III capital requirements before end-2015.
  - Emergency Liquidity Facility Framework (ELF) approved by the NBR board in September 2015 to support a solvent bank with liquidity stress.
- Microfinance sector actions:
  - On-site inspections planned in all 416 SACCOs targeting loan portfolio management; expected completion in second quarter of 2016.

*Letter signed by Claver Gatete, Minister of Finance and Economic Planning, and John Rwangombwa, Governor, National Bank of Rwanda; Kigali, December 17, 2015.*

### 21.      Rwanda continues to be at low risk of external debt distress and its long-term foreign and

### Rwanda continues to be at low risk of external debt distress and its long-term foreign and local currency sovereign credit ratings were raised to 'B+' from 'B' by Standard & Poor’s in March

### Credit ratings and public debt
- Standard & Poor’s raised long-term foreign and local currency sovereign credit ratings to 'B+' from 'B' in March 2015.
- Fitch maintained its ‘B+’ rating in July 2015, citing strong GDP growth and prudent fiscal management.
- Total public and publicly guaranteed debt stood at 30.4 percent of GDP as of end December 2014:
  - 23.2 percent of GDP external debt
  - 7.1 percent domestic debt
- Composition of total debt:
  - 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 extended on debt owed by RwandAir and Rwanda Energy Group; PTA Bank no longer requires sovereign guarantees for its loans to RwandAir.

### Program performance under the PSI
- All end-June 2015 quantitative Assessment Criteria (QAC) were met.
- One of four indicative targets was not met due to delayed disbursement of peacekeeping operations funds; consolidated domestic debt exceeded the target by a small margin because of additional short-term government securities issued as bridge financing.
- Structural measures delayed:
  - Study of reforms in agricultural taxes delayed for lack of technical expertise.
  - Publication of quarterly budget execution reports delayed due to technical problems; rescheduled for completion in 2016.
- Revised targets for end-December 2015 and new targets for end-June 2016 proposed; assessment of end-December 2015 targets expected by end-June 2016 (fifth review); sixth review expected by end-December 2016.

### Macroeconomic outlook and short-term policy response
- Growth projection for 2016 lowered to 6.3 percent from 7.0 percent in response to weaker external environment.
- Short-term policy responses include additional drawdown of official reserves and import compression through tightening 2016 monetary targets relative to 2015.
- Exchange rate policy: BNR will continue to allow market determination of the exchange rate; further depreciation would also lead to import compression.

### Sectoral growth projections for 2016–2018
- 2016 overall growth: 6.3 percent.
  - Agriculture: 5.1 percent (some contraction in export crops expected).
  - Services: projected growth of 7.1 percent overall (buoyed by wholesale and retail trade).
  - Construction: growth slower than in 2015.
  - Information technology: continues strong growth.
- Growth rates adjusted for 2017 and 2018 from 7.5% to:
  - 2017: 6.7 percent
  - 2018: 6.8 percent
- Notable downside risks: prolonged decline in commodity prices and/or lower growth in Asia and other export markets.

### Fiscal policy and revised FY2015/16 budget
- Medium-term fiscal objective: contain spending in line with external pressures, increase domestic resource mobilization, introduce expenditure prioritization; revised 2015/16 budget projects overall deficit of 5.3% of GDP, declining to 4.4% of GDP in 2016/17 and 4.2% of GDP in 2017/18.
- Original FY2015/16 budget projections:
  - Total revenue and grants: RWF 1,462.5 billion
    - Domestic revenue: RWF 1,104.2 billion
    - Total grants: RWF 358.3 billion
  - Total expenditure and net lending: RWF 1,741.2 billion
    - Recurrent spending: RWF 865.6 billion
    - Capital expenditure: RWF 747.3 billion
    - Net lending: RWF 128.3 billion
  - Overall deficit: RWF 290 billion with domestic financing of RWF 74.9 billion.
- Revised FY2015/16 budget (to be sent to parliament in Q1 2016):
  - Total revenue and grants revised to RWF 1,478.9 billion (increase of RWF 16.4 billion).
  - Expenditure and net lending revised to RWF 1,785 billion (increase of RWF 43.8 billion).
    - Recurrent spending increased by RWF 34.3 billion.
    - Capital expenditure increased by RWF 29 billion.
    - Net lending reduced by RWF 19.5 billion due to lower KCC spending.
- Specific allocations and financing:
  - Additional wage/salary allocation: 0.1 percentage points of GDP for hiring teachers and vocational staff.
  - Goods and services additional allocation: 0.4 percentage points of GDP (to cover spending shortfalls and 2017 election preparation).
  - Capital expenditure: RWF 29 billion authorization to use US$14.5 million of Euro bonds receipts for a hydro-power project and RWF 20.3 billion of Global Fund grants accumulated in project deposits.
  - Purchase of additional livestock for one cow per family program.
- Impact on deficit and financing:
  - Overall deficit increases from RWF 290 billion to RWF 332.5 billion (increase of 0.7 percentage points of GDP using revised GDP figures).
  - Fully financed by higher concessional external borrowing and more domestic financing:
    - External borrowing increases by RWF 25.5 billion to RWF 258.7 billion (accelerated World Bank budget loan and additional AfDB project loan drawdown).
    - Planned net domestic financing: RWF 42.2 billion.

### Revenue mobilization and tax administration reforms
- Medium-term tax reform plan implemented to improve compliance, reduce exemptions, strengthen risk management, and broaden the tax base.
- RRA underwent TADAT assessment; results to inform RRA Three-year Strategic Plan and annual action plans.
- RRA revising Tax Procedure Law to:
  - Improve use of Electronic Billing Machines (EBMs); move some sectors to VAT liability regardless of turnover (sector-based approach).
  - Allow taxpayers who never declared taxes but later declare voluntarily to be considered as voluntary disclosure.
  - Require tax litigation cases to pass administrative review by the Commissioner General prior to court.
  - Provide comprehensive rules for handling false declarations or incomplete returns.
- Legislation on agriculture taxation reforms remains to be proposed; expert advice still being sought.

### Public financial management (PFM) reforms
- Implementation of E-Procurement:
  - Feasibility study concluded strong potential for efficiency, transparency, compliance.
  - Government signed contract with vendor and recruiting counterpart team to develop and roll out system.
  - Expected benefits: time savings, lower transaction costs, reduced paper and travel.
- Development of an IPSAS roadmap for government accounting policy on fixed assets to improve accountability, transparency, and help meet EAMU fiscal reporting convergence criteria and full IPSAS compliance.
- Strengthening linkage of plans and budgets:
  - Consolidation of annual planning consultations to inform budget consultations.
  - Strengthening the investment committee (operational for 2 years); will be empowered to approve PPPs and Joint Ventures.
  - Revision of the National Investment Policy in 2015/16 to provide oversight and implementation framework for PPPs and JVs.
  - Transfer of Project monitoring unit in MINECOFIN and performance contract functions to Minister of State in charge of Economic Planning to improve monitoring and prioritization.
  - Introduction in 2015/16 of a new form of performance contracts shared across institutions to incentivize coordination.

### Debt management
- Government embraced IMF new debt limit policy based on Debt Sustainability Analysis presence of vulnerabilities and quality of fiscal data.
- Rwanda expects to remain at low risk of debt distress.
- Monitoring through two indicative targets: Net Domestic Financing (NDF) and Non-concessional borrowing (NCB).
- Debt Management Unit (DMU) developed a process for issuance of guarantees in FY 14/15:
  - DMU reviews and analyses loan guarantees, submits analysis to Debt Management committee (DMC) and Treasury Management committee (TMC), then to the Minister for approval and signature.
- Joint design of debt management reform priorities with World Bank based on DeMPA conducted during July 2015.

### Monetary policy, inflation, and reserves
- Headline inflation projected around 4 percent in December 2015 following pressures from food, transport and housing inflation.
- Main risks: depreciation of the FRW against the USD and agricultural products.
- BNR expects headline inflation around the 5 percent target in 2016.
- Monetary aggregates targets for 2016:
  - M3 growth targeted at 14.9 percent (from 16.1 percent).
  - Credit to the private sector targeted at 16.2 percent (from 24.5 percent).
- BNR to continue prudent monetary policy to maintain inflation within 5 percent target while supporting growth and containing currency pressures.
- Capital market development measures:
  - Quarterly issuance of Treasury Bonds; extend maturity by issuing a 15 year T-Bond in May 2016.
  - Framework for Market intermediaries for Government Securities to be in place by September 2016 to enhance secondary market trading.
- Interbank and forex market development:
  - BNR planning to improve exchange rate methodology based on interbank deals as agreed at EAC level.
  - Work with Dealer’s Association to raise technical capacity and organize forex interbank market via a signed code of conduct in June 2016.
  - Aim to have an interbank transaction-based exchange rate framework operational by December 2016.
  - Working with cash traders to establish their association governed by a Code of Conduct.
- Reserves:
  - BNR planning to sell additional reserves of US$90 million, bringing reserve cover down to 3.3 months of projected 2017 imports.

### External developments, trade, and balance of payments
- Balance of trade for goods and services expected to deteriorate further by about 10 percent in 2016 due to further deterioration of the terms of trade.
- Export growth in 2016 projected at 4.7 percent after a decline of 7.8 percent projected for 2015.
- Mineral export revenues expected to decline by 10.3 percent in 2016 due to weak prices.
  - Rwandan mining industry dominated by artisanal mining with production share over 70 percent.
- Non-traditional export revenues anticipated to expand by 4.8 percent.
- Tea volumes projected to increase by 16 percent due to increased acreage and nine new processing factories.
- Import growth projected at 5.0 percent in 2016, excluding one-off RwandAir imports (including plane imports, growth would be 11 percent).
- Increased public sector loans and grants and private sector financing expected to help finance capital and intermediate imports.

### Financial sector policies and safeguards
- BNR plans to establish the “Financial Sector Coordination Committee” mandated to manage any systemic financial crisis; expected establishment by June 2016.
- BNR to implement regulation for deposit insurance law by end 2016 covering:
  - Contribution rate
  - Coverage ratio
  - Pay-out procedures
- Financial consumer protection measures by 2016:
  - Regulation on Key Fact Statement (KFS)
  - Regulation on Annual Percentage Rate (APR)
  - Both to require banks and MFIs to disclose loan terms, conditions, and total costs.
- BNR plans to issue a regulation on new capital requirements on Basel II/III by end of (text truncated in source).

*Content unit: _cr1624 — Rwanda (IMF).*

### 2016. The new capital requirements will include minimum capital ratios plus a conservation

### _cr1624 - 2016. The new capital requirements will include minimum capital ratios plus a conservation

### Financial sector measures and timelines
- The new capital requirements will include minimum capital ratios plus a conservation buffer of 2.5.
- The process of automating operations of UMURENGE SACCOs started and is planned to be completed by 2017.
- In the insurance sector, BNR plans to re-model solvency requirements parameters using risk based capital approach by December 2016. This is to ensure that the solvency requirements are in line with the risk, nature, scale and complexity of the operations of insurers.

### Quantitative assessment criteria and indicative targets (selected figures)
- Net foreign assets of the NBR at program exchange rate (floor on stock): 524.0 570.8 465.0
- Reserve money (ceiling on stock) (upper bound): 290.9 290.9 315.3
- Reserve money (ceiling on stock): 285.2 285.2 309.1
- Reserve money (ceiling on stock) (lower bound): 279.5 279.5 302.9
- External payment arrears (US$ millions) (ceiling on stock): 0.0 0.0 0.0
- Net domestic financing (ceiling on flow): 151.0 37.1 203.0 (indicative targets)
- Domestic revenue collection (floor on flow): 951.7 966.9 562.0 (indicative targets)
- Net accumulation of domestic arrears (ceiling on flow): -2.5 -12.4 -5.6 (indicative targets)
- Consolidated domestic debt of public sector (ceiling on stock, eop): 456.1 522.9 561.3 (indicative targets)
- Total priority spending (floor on flow): 640.8 720.7 366.2 (indicative targets)
- New nonconcessional external debt contracted or guaranteed by nonfinancial public enterprises (US$ millions) (ceiling on stock): 500.0 500.0 500.0 (indicative targets)
- Total budget support (US$ millions) (Memorandum): 400.2 500.9 97.5
- Budget support grants (US$ millions) (Memorandum): 239.1 247.6 97.5
- Budget support loans (US$ millions) (Memorandum): 161.2 253.3 0.0
- Euro bond (US$ millions) (Memorandum): 400.0 400.0 400.0
- Unused euro bond proceeds (US$ millions) (Memorandum): 18.8 12.1 0.0
- RWF/US$ program exchange rate: 694.4 746.5 746.5

### Structural benchmarks and policy measures (selected)
- Revenue Mobilization
  - Submit revised Law on Tax Procedures to Cabinet. Target Date: June 2016. Macroeconomic rationale: To enhance revenue mobilization.
  - Share draft study on new tax regime for agriculture. Target Date: End-November 2016. Macroeconomic rationale: To enhance revenue mobilization.
- Public Financial Management
  - Sub-national entities (416) to produce monthly, quarterly, and annual financial reports using a uniform template. Target Date: End-Dec. 2015. Rationale: To improve accounting, transparency and accountability.
  - Submit revised National Investment Policy (NIP) to Cabinet. Target Date: End-June 2016. Rationale: To enable private sector involvement in PPPs.
  - Share IPSAS roadmap which includes government accounting policy for fixed assets is developed and implemented. Target Date: End-June 2016. Rationale: To improve accountability and help Rwanda attain the EAMU fiscal reporting convergence it.
  - Publish quarterly reports of budget execution against annual fiscal policy objectives, within 60 days of end of each quarter, initially excluding foreign-financed projects. Target Date: Continuous, starting Q4 2015. Rationale: To improve accounting, transparency and accountability.
  - Operationalize IFMIS and E-Procurement interface protocols. Target Date: December 2016. Rationale: To improve efficiency, transparency, and controls in public procurement.
- Monetary and Financial Sector
  - Issue a 15-year Government T-Bond. Target Date: May 2016. Rationale: To extend the yield curve.
  - Establish a framework of market intermediaries for government securities. Target Date: September 2016. Rationale: To deepen secondary market.

### Technical Memorandum of Understanding (TMU) — coverage and key program rules
- Period covered: July 1, 2015–November 30, 2016 (supported by the IMF Policy Support Instrument (PSI)); TMU updates the one of April, 2015.
- AC (Assessment Criteria) applicable on test dates December 31, 2015 and June 30, 2016:
  - Floor on stock of net foreign assets (NFA) of the National Bank of Rwanda (NBR).
  - Ceiling on stock of reserve money.
  - Ceiling on the overall deficit, including grants as measured on a commitment basis.
  - Ceiling on stock of external payment arrears of the public sector.
- IT (Indicative Targets) applicable throughout the program:
  - Ceiling on flow of net domestic financing (NDF) of the central government.
  - 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 contracting or guaranteeing of new non-concessional external debt of nonfinancial public enterprises.
  - Ceiling on stock of consolidated domestic debt of the public sector.
  - Floor on flow of priority spending.
- Program exchange rates (from July 1, 2015): Rwanda Franc (per US$) 746.5; Euro 1.10; British Pound 1.53; Japanese Yen (per US$) 120.9; SDR 1.40.

### Definitions, adjusters, and reporting requirements (selected)
- Net domestic financing (NDF) definition and components:
  - NDF defined as the 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 equals consolidated credit to the government from the banking system (NBR and commercial banks) less total government deposits with the banking system.
  - 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 the ceiling on NDF:
  - Adjusted upward by the amount of any shortfall between actual and programmed budgetary grants and loans, up to a maximum of RWF 120 billion.
  - Adjusted downward by the extent to which in Rwandan francs at the program exchange rate the unused proceeds of the US$400 million euro bond issued in April 2013 is lower than US$12.1 million by end-December.
  - Adjusted upward by the amount of expenditure for food imports in the case of a food emergency.
  - Adjusted upward up to a maximum of RWF120 billion representing the amount of foreign financed capital expenditure financed with draw-down of accumulated government deposits as specified in the definition of NDF.
  - Adjusted downward by the amount of disbursement of unused capital grants and loans accumulated in project deposits.
  - Adjusted upward, up to a maximum of RWF120 billion, representing the amount of expenditure arising from pre-financing of Peace Keeping Operations.
- Reporting requirements (selected):
  - Data on NDF (with detailed debt composition and holders) transmitted monthly within five weeks from the end of each month.
  - Detailed data on domestic revenues transmitted monthly within five weeks of the end of each month.
  - Data on priority expenditure transmitted quarterly within eight weeks of the end of each quarter.
  - Data on repayment of domestic arrears and remaining previous year’s stock of arrears transmitted quarterly within eight weeks of the end of each quarter.

### Limits on debt and definition of public sector debt
- Ceiling on contracting or guaranteeing by nonfinancial public enterprises of new non-concessional borrowing with non-residents applies continuously from July 1, 2015 to end-November 2016; figures specified in the Quantitative Assessment Criteria and Indicative Targets.
- Ceiling excludes non-concessional borrowing by the Bank of Kigali and Rwanda Development Bank (BRD) which are assumed not to seek or be granted a government guarantee.
- Public sector comprises the general government (central government, NBR, local governments) and nonfinancial public enterprises (government holds more than 50 percent of shares), excluding Bank of Kigali and BRD.
- Definition of debt follows paragraph 8(a) of the Guidelines on Public Debt Conditionality: includes loans, suppliers' credits, and leases as defined in the TMU text; arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included.

*Source: Rwandan authorities and IMF staff estimates and projections as presented in the MEFP and Attachment II: Technical Memorandum of Understanding (December 17, 2015).*

### 27. Debt guarantees. For the purposes of the relevant IT, a government debt guarantee means

### _cr1624 - 27. Debt guarantees. For the purposes of the relevant IT, a government debt guarantee means

### Definitions and thresholds
- Government debt guarantee: an explicit legal obligation to service a debt in the event of nonpayment by the borrower (through payment in cash or in kind).
- Concessionality of external debt: a debt is considered concessional if it includes a grant element of at least 35 percent. The grant element of a debt is the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt.
- PV calculation rule: The PV of debt at the time it is contracted is calculated by discounting the borrower’s future debt service payments on the debt. For debts with a grant element equal or below zero, the PV will be set equal to the nominal value of the debt.
- Discount rate used: 5.0 percent.

### Limits, assessment criteria, and adjusters
- Continuous assessment criterion: non-accumulation of payment arrears on external debt contracted or guaranteed by the public sector.
  - Definition: External payment arrears consist of external debt service obligations (principal and interest) that have not been paid at the time they are due, as specified in the contractual agreements, but exclude arrears on obligations that are subject to rescheduling.
- Ceiling on consolidated domestic debt (DD) of the public sector:
  - Domestic debt excludes treasury bills issued by the NBR for monetary policy purposes for program purposes.
  - The ceiling applies to domestic commitments contracted or guaranteed by the public sector, including private debt with official guarantees (implicit or explicit).
  - Authorities would inform Fund staff of any changes in debt position of public sector entities.
- Adjusters to the DD ceiling:
  - In case of a shortfall in programmed budgetary loans and grants (per paragraph 11), the ceiling on consolidated domestic debt of public sector will be adjusted upward by the same amount as the increase in the ceiling in the NDF, but capped per paragraph 11.
  - The ceiling on the DD will be adjusted upward by the amount of expenditure for food imports in the case of a food emergency.
- Adjusters for net foreign assets (NFA) floor of the NBR:
  - The floor on NFA will be adjusted downward by the amount of any shortfall between actual and programmed budgetary loans and grants per Table 1. This adjustment will be capped at the equivalent of US$160 million, evaluated in Rwanda francs at the program exchange rate.
  - The floor on NFA will be adjusted upward/downward by the extent to which in Rwandan francs at the program exchange rate unused proceeds of the US$400 million euro bond issued in April 2013 is lower than/exceed US$12.1 million by end-December2015.
  - The floor on NFA will be adjusted downward by the amount of expenditure for food imports in the case of a food emergency.
- Reserve money 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.
- Reserve money band: ceiling is the upper bound of a reserve money band (set at +/- 2 percent) around a central reserve money target.

### Reporting requirements and frequencies
- Domestic debt of the public sector (including treasury bills issued by the NBR for monetary policy purposes): transmitted on a quarterly basis within eight weeks of the end of each quarter.
- Data on foreign assets and foreign liabilities of the NBR: transmitted on a weekly basis within seven days of the end of each week, including breakdown of assets that are pledged or encumbered and daily/weekly data on NBR’s foreign exchange liabilities to commercial banks (including required reserves). The exchange rate used for conversion into Rwanda francs will be shown separately.
- Data on reserve money: transmitted on a weekly basis within seven days of the end of each week; transmission will include a daily and a weekly balance sheet of the NBR showing all items listed in the definition of reserve money.
- For program monitoring, Government of Rwanda will provide 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 will inform IMF staff in writing prior to making any changes in economic and financial policies that could affect the outcome of the financial program. Authorities will furnish a description of program performance according to QACs and ITs as well as structural benchmarks within 8 weeks of a test date.

### Definitions of monetary aggregates
- Net foreign assets (NFA) of the NBR (in Rwandan francs): external assets readily available to, or controlled by, the NBR net of its external liabilities. Pledged or otherwise encumbered reserve assets (including swaps) are excluded.
  - Foreign assets and foreign liabilities in U.S. dollars are converted to Rwandan francs by using the U.S. dollar/Rwanda franc program exchange rate.
  - Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate.
  - Foreign liabilities include, inter alia, use of IMF resources.
- Reserve money: the sum of currency in circulation, commercial banks’ reserves, and other nonbank deposits at the NBR.
- Calculation of reserve money for a quarter: 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.

### Debt Sustainability Analysis (DSA) findings and key projections
- Risk assessment: Rwanda continues to face a low risk of external debt distress, similar to the analysis prepared last year.
- Baseline scenario: all external debt burden indicators are projected to remain below the policy-dependent thresholds.
- Stress test result: Standard stress tests show marginal temporary breaches of the debt service-to-exports and debt service-to-revenue ratios in 2023 when the Eurobond issued in 2013 matures. These breaches are temporary, and it is assumed that Rwanda will be able to refinance the maturing Eurobond; the final assessment of a low risk of external debt distress is maintained.
- Present value of public sector debt: the ratio of the present value of public sector debt-to-GDP remains below the policy dependent benchmark both under the baseline and standard stress tests.
- Policy implication: Until efforts to broaden the export base pay off, Rwanda should remain prudent about the terms and amount of external debt it contracts/guarantees.

### Selected macroeconomic background and indicators
- Real GDP growth: 7 percent in 2014 and projected a similar growth rate in 2015.
- Mineral exports in 2015: mineral prices declined by 18 percent and production declined by 34 percent, resulting in a near halving of mining exports compared to the previous year.
- Inflation: stood at 2.1 percent at end-2014 and is expected to remain below the authorities’ medium-term target of 5 percent in 2015.
- Public sector debt (end-2014):
  - Total public sector debt: 29.9 percent of GDP.
  - External debt of the public sector: 23.7 percent of GDP.
  - Domestic debt: 6 percent of GDP.
- Composition: public external debt mainly comprised of multilateral and bilateral debt; publicly guaranteed debt rising mainly due to RwandAir’s fleet expansion.

### Selected DSA numerical projections (Table 2 excerpts)
- Stock of public and publicly-guaranteed (PPG) external debt (Millions of U.S. dollars): 2,259; 2,628; 3,132.
- Stock of PPG external debt (Percent of GDP): 27.0; 28.6; 31.1.
- Present value (PV) of PPG external debt (Millions of U.S. dollars): 1,573; 1,769; 2,065.
- PV of PPG external debt (Percent of GDP): 18.8; 19.3; 20.5.
- PV of PPG external debt to revenues (percent): 395.5; 95.6; 102.0; 91.5; 109.0; 120.6 (table shows multiple year entries).
- PV of PPG external debt to exports (percent): 124.2; 130.6; 131.5; 118.7; 140.1; 138.7 (table shows multiple year entries).
- PPG external debt service to revenues (percent): 6.5; 6.1; 5.8; 6.2; 6.1; 8.0.
- PPG external debt service to exports (percent): 8.5; 8.4; 7.5; 8.1; 7.9; 9.2.
- Discount rate (percent) used in PV calculations: 5.0; 5.0; 5.0; 5.0; 5.0; 5.0 (as shown across columns).
- Nominal GDP (RF billions) (selected years): 3,846; 4,437; 4,864; 5,389; 5,955; 6,589; 7,389; 8,287; 9,309; 10,509; 24,532; 19,255; 35,279; 64,641 (table includes a long series).
- Real GDP (percentage change) (selected years): 7.5; 8.8; 4.7; 6.9; 7.0; 6.3; 6.7; 6.8; 7.0; 7.5; 7.5; 7.5; 7.5; 7.5.
- Fiscal and balance of payments highlights (selected):
  - External grants (incl. HIPC relief) (percent of GDP): 10.8; 9.3; 8.6; 7.4; 6.8; 5.4; 3.7; 4.3; 4.1; 3.9; 1.9; 2.1; 1.2; 0.6 (table series).
  - Revenue (excl. external grants) (percent of GDP): 14.0; 15.0; 16.5; 16.7; 17.6; 18.6; 18.2; 18.7; 18.9; 19.1; 21.1; 20.5; 22.0; 23.2 (table series).
  - Primary expenditures (percent of GDP): 25.1; 26.9; 28.8; 28.2; 28.4; 28.1; 25.6; 26.0; 25.8; 25.8; 25.6; 26.1; 25.7; 25.0.
  - Exports of goods and services (percent of GDP): 14.0; 14.0; 15.6; 16.9; 15.8; 16.8; 17.1; 17.6; 17.4; 17.1; 18.5; 18.1; 18.8; 18.8.
  - Imports of goods and services (percent of GDP): 34.1; 34.3; 32.5; 33.7; 34.3; 36.2; 33.6; 32.1; 31.5; 30.9; 30.5; 30.5; 30.5; 30.5.
  - Current account, incl. official transfers (percent of GDP): -7.2; -11.3; -7.4; -11.5; -14.5; -15.4; -14.0; -11.5; -10.9; -10.7; -9.8; -9.7; -9.6; -9.4.
- Table 2 (selected projections for 2015–2017):
  - Stock of public and publicly-guaranteed (PPG) external debt (Millions of U.S. dollars): 2,259 (2015); 2,628 (2016); 3,132 (2017).
  - Percent of GDP: 27.0 (2015); 28.6 (2016); 31.1 (2017).
  - Present value (PV) of PPG external debt (Millions of U.S. dollars): 1,573 (2015); 1,769 (2016); 2,065 (2017).
  - PV of PPG external debt (Percent of GDP): 18.8 (2015); 19.3 (2016); 20.5 (2017).
  - Discount rate (percent): 5.0 (2015); 5.0 (2016); 5.0 (2017).
  - Exports of goods and services (Millions of U.S. dollars): 1,285 (2015); 1,374 (2016); 1,593 (2017).
  - Imports of goods and services (Millions of U.S. dollars): 2,730 (2015); 2,695 (2016); 2,963 (2017).
  - Current account, incl. official transfers (percent of GDP): -11.0 (2015); -9.1 (2016); -8.9 (2017).

*Source: IMF and World Bank staff; data and text as provided in the source document.*

### Box 1. Macroeconomic Framework for the DSA

### Box 1. Macroeconomic Framework for the DSA

### Overview
- Despite near-term weakness in the mining sector, the medium-term and long-term framework underpinning the DSA assumes that Rwanda continues to enjoy rapid growth, and low and stable inflation.

### Key assumptions and projections
- Growth:
  - Long-run growth is projected at 7.5 percent.
  - The composition of growth is expected to shift toward the private sector and exports as policies designed to expand and diversify the export base bear fruit.
- External sector:
  - Near-term weakness in mineral exports will be partially offset by buoyancy in exports of coffee and tea, non-traditional exports and tourism.
  - Exports of goods and services (as a percent of GDP) are expected to gradually rise over the projection horizon.
  - Import needs are expected to remain high, reflecting continued high investment needs in the economy.
  - Rwanda’s external current account is projected to remain in deficit throughout the period under consideration, though the gap is expected to narrow.
- Inflation:
  - Inflation is expected to remain contained.
  - After falling at the end of 2014 to 2.1 percent, the rate is expected to be anchored to the authorities’ medium-term target of 5 percent.
  - Improvements in agricultural productivity are expected to lower food prices over the long run.
- Reserves:
  - Reserve buffers are expected to attain coverage of 4.5 months of prospective imports by 2023, consistent with the monetary integration process among East African Community members.
- Fiscal outlook:
  - Gradual and consistent rise in domestic revenues (excluding grants) from 2015 to 2035 is assumed.
  - Primary expenditures are forecast to remain high, reflecting the need for ongoing significant capital and current spending.
- Grants:
  - The DSA assumes a tapering of external donor assistance, reflecting reduced access to grants, given Rwanda’s improved debt distress risk rating, and greater capacity to mobilize and use domestic revenue.
- External borrowing:
  - From 2015-2020, central government external borrowing needs are met mainly by disbursements of already-contracted external multilateral and bilateral debt; public guaranteed external borrowing associated with RwandAir’s expansion and the completion of the Kigali Convention Center is done via commercial debt.
  - From 2021 onward, the framework assumes central government external financing needs will be financed by new external debt, with a progressively increasing share from commercial debt, including bonds issued in the international capital market.
- Domestic borrowing:
  - Domestic borrowing will continue to decline until 2019 as the authorities anchor fiscal policy on a goal of limiting net domestic financing.
  - From 2020, domestic borrowing of 2.5 percent of GDP is assumed, which sees share of domestic debt rise.
  - Composition of domestic borrowing is expected to shift towards medium- and long-term debt as local government bond market development intensifies.
- Domestic interest rates:
  - New domestic borrowing is expected to be contracted at a nominal interest rate of 8 percent—a weighted average of the cost of short-and long-term domestic debt.

### External DSA findings
- Overall assessment:
  - Rwanda’s debt is assessed to be sustainable with low risk of debt distress.
  - The joint Bank-Fund debt sustainability framework (DSF) classifies Rwanda as a “strong” performer, based on the 3-year average of the World Bank’s CPIA ratings.
  - This classification yields higher debt sustainability thresholds compared to countries in a weak policy environment.
- Projections and vulnerabilities:
  - Under the baseline scenario all debt burden indicators are projected to remain comfortably below the policy-dependent thresholds.
  - Standard stress tests show in 2023 (when the Eurobond issued in 2013 is set to mature) marginal temporary breaches of the debt service-to-revenue ratio, and the debt service-to-exports ratio thresholds.
  - These temporary breaches highlight vulnerability to external shocks and liquidity pressures at the time the Eurobond matures.
  - Given the temporary nature of the breaches, low level of external debt, strengthening indicators of repayment capacity (expansion of Rwanda’s export base and tax revenues), and the assumption that Rwanda will refinance the maturing Eurobond, the final assessment for external public and public guaranteed debt is a low risk of debt distress.
- Policy-dependent thresholds for strong performers:
  - PV of debt to exports: 200 percent
  - PV of debt to GDP: 50 percent
  - PV of debt to government revenue: 300 percent
  - Debt service thresholds: 25 percent of exports and 22 percent of revenue

### Public DSA findings
- Adding domestic public debt to external debt does not change the results of the analysis.
- Evolution:
  - The evolution of total public debt indicators broadly follows that of external debt under the baseline.
  - The DSA suggests that public debt remains stable under the baseline.
- Indicators:
  - Based on PV of public debt-to-GDP, PV of public debt-to-revenue and debt service of public debt-to-revenue, the long-term path of total public debt is projected to be broadly stable in the baseline.
  - PV of public debt-to-GDP remains comfortably below the indicative benchmark throughout the assessment period.
  - A sharp increase in the PV of debt-to-revenue indicator when the primary balance is assumed fixed at 2015 level highlights the importance of securing the revenue gains assumed under the baseline.

### Authorities’ view
- The Rwandan authorities broadly agree with the DSA results and the overall assessment of low risk of debt distress.
- They concur that the main risk to debt vulnerability remains the narrow export base.
- They anticipate that ongoing investments and measures to boost traditional and non-traditional exports and tourism will make the expansion in the export base sufficiently durable to mitigate this risk.
- They emphasize that maintaining a prudent medium-term debt management strategy and carefully and prudently assessing future projects and their financing remain important to prevent public debt from becoming unsustainable.

### Conclusion
- Rwanda continues to face a low risk of debt distress but remains subject to external vulnerabilities.
- Under the current set of baseline assumptions, Rwanda’s debt burden indicators remain below the policy-related thresholds, with temporary breaches of the debt service-to-revenue and the debt service-to-exports ratios in 2023 under standard stress tests.
- These liquidity-ratio breaches underscore susceptibility to external shocks and potential liquidity pressures in the future.
- The risk from these breaches can be mitigated by the authorities’ ability to refinance non-concessional debt falling due in 2023, provided sound macroeconomic and fiscal policies are maintained.
- Public debt is low and Rwanda’s external debt burden profile is expected to improve further given anticipated strong growth and expansion in exports.

*Box 1. Macroeconomic Framework for the DSA — source document provided.*

### 8.      The main risk to Rwanda’s debt sustainability remains the narrow export base.

### 8.      The main risk to Rwanda’s debt sustainability remains the narrow export base.

### Main risk and outlook
- The principal risk to debt sustainability is the narrow export base, heavily dependent on fluctuating commodity prices.
- Near-term weakness in mineral exports underscores vulnerability despite the assumption that export expansion and diversification will mitigate the risk over the assessment period.
- If anticipated medium-to long-term export gains fail to materialize, resulting significantly in lower than expected export revenues, risks to debt sustainability over the longer term would increase.

### Key historical and projection indicators (selected exact figures)
- External debt (nominal): 1/21.4 26.6 28.0 32.5 39.6 40.7 40.9 40.6 40.0 37.3 27.1
- Public and publicly guaranteed (PPG) external debt: 16.8 22.1 23.7 28.6 36.0 37.6 38.2 38.2 37.9 35.2 23.5
- Change in external debt: -1.2 5.2 1.4 4.5 7.1 1.2 0.1 -0.3 -0.5 -0.3 -2.0
- Identified net debt-creating flows: 7.2 3.2 6.9 8.7 9.3 7.5 4.6 3.7 3.0 2.8 2.5
- Non-interest current account deficit: 10.8 6.7 10.5 5.4 4.2 13.5 14.3 12.9 10.4 9.7 9.8 9.3 8.6 9.0
- Deficit in balance of goods and services: 20.2 16.9 16.8 18.5 19.4 16.5 14.5 14.1 13.8 12.4 11.6
- Exports: 14.0 15.6 16.9 15.8 16.8 17.1 17.6 17.4 17.1 18.1 18.8
- Imports: 34.3 32.5 33.7 34.3 36.2 33.6 32.1 31.5 30.9 30.5 30.5
- Net current transfers (negative = inflow): -10.0 -11.3 -7.3 -11.4 2.0 -6.3 -6.6 -4.6 -5.1 -4.8 -4.6 -3.2 -2.5 -3.0
- Net FDI (negative = inflow): -1.5 -3.4 -3.4 -1.6 1.1 -4.0 -4.1 -4.1 -4.3 -4.6 -4.9 -4.4 -4.9 -4.6
- PV of external debt 4/: ......20.0 22.6 27.1 26.8 26.3 25.6 24.8 24.0 20.4
- PV of PPG external debt: ......15.7 18.7 23.6 23.7 23.6 23.3 22.7 21.9 16.8
- PV of external debt in percent of exports: ......118.3 143.5 161.3 157.0 149.4 147.3 144.9 132.1 108.2
- PV of PPG external debt in percent of exports: ......92.7 118.7 140.1 138.7 134.1 133.8 132.6 120.6 89.2
- PV of PPG external debt in percent of government revenues: ......81.8 91.5 109.0 120.6 113.7 111.8 108.5 101.8 71.6
- Debt service-to-exports ratio (in percent): 6.1 8.4 10.2 11.8 11.7 13.2 14.2 14.5 13.5 12.0 20.4
- PPG debt service-to-exports ratio (in percent): 3.6 5.3 7.0 8.1 7.9 9.2 10.2 10.2 8.8 5.5 7.8
- Total gross financing need (Billions of U.S. dollars): 0.8 0.4 0.7 1.0 1.1 1.0 0.9 0.9 0.9 1.5 4.8
- Non-interest current account deficit that stabilizes debt ratio: 12.1 11.5 9.1 9.0 7.2 11.7 10.2 10.1 10.3 9.5 10.6

### Key macroeconomic assumptions (selected exact figures)
- Real GDP growth (in percent): 8.8 4.7 6.9 7.4 1.9 7.0 6.3 6.7 6.8 7.0 7.5 6.9 7.5 7.5 7.5
- GDP deflator in US dollar terms (change in percent): 3.6 -0.5 -1.8 4.8 5.9 -2.1 -3.2 -0.1 1.9 1.9 1.9 0.1 2.0 2.0 2.0
- Effective interest rate (percent) 5/: 2.1 3.5 4.3 2.5 1.1 3.8 3.5 3.2 3.0 3.1 2.5 3.2 1.4 3.1 2.1
- Growth of exports of G&S (US dollar terms, in percent): 13.2 15.5 14.0 18.8 21.5 -2.2 9.7 8.1 12.1 8.0 8.0 7.3 10.9 9.6 10.3
- Growth of imports of G&S (US dollar terms, in percent): 13.3 -1.4 9.2 18.6 14.4 6.4 8.7 -1.2 4.0 7.1 7.6 5.4 9.6 9.4 9.5
- Grant element of new public sector borrowing (in percent): ...............38.7 34.2 54.6 47.2 47.5 51.9 45.7 38.7 18.2 29.6
- Government revenues (excluding grants, in percent of GDP): 19.7 19.8 19.2 20.5 21.6 19.6 20.7 20.8 20.9 21.5 23.5 22.2
- Aid flows (in Billions of US dollars) 7/: 0.7 0.8 0.6 0.7 0.7 0.7 0.5 0.5 0.6 0.6 0.3
  - of which: Grants: 0.3 0.4 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
  - of which: Concessional loans: 0.4 0.4 0.2 0.3 0.5 0.5 0.3 0.3 0.3 0.4 0.1
- Grant-equivalent financing (in percent of GDP) 8/: .........6.1 5.3 5.1 4.4 4.0 4.0 2.4 0.5 1.8
- Grant-equivalent financing (in percent of external financing) 8/: .........63.1 49.2 69.0 65.5 66.4 69.1 54.1 42.1 42.1 45.6
- Nominal GDP (Billions of US dollars): 7.2 7.5 7.9 8.3 8.5 9.1 9.9 10.8 11.8 18.7 47.0

### Stress tests, alternative scenarios, and sensitivity analysis (selected exact figures)
- Table 1b sensitivity tests for PV of debt-to-exports ratio, PV of debt-to-revenue ratio, PV of debt-to-GDP ratio under Baseline and shocks show combinations including:
  - Baseline PV of debt-to-exports ratio (examples): 119 140 139 134 134 133 121 89
  - A2 (New public sector loans on less favorable terms in 2015-2035) for PV of debt-to-exports: 192 5 27 28 27 29 29 32 28 (as reported in table rows)
- Bound tests include shocks such as:
  - B1. Real GDP growth at historical average minus one standard deviation in 2016-2017
  - B2. Export value growth at historical average minus one standard deviation in 2016-2017
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2016
- Table 2b stress scenarios for public debt indicators list:
  - Baseline PV of Debt-to-GDP Ratio projections: 25 29 30 29 29 28 35 36
  - A2. Primary balance unchanged from 2015 increases PV of Debt-to-GDP Ratio to values including 49 in longer horizon
  - B4. One-time 30 percent real depreciation in 2016 yields higher debt ratios (e.g., PV of Debt-to-GDP: 25 37 36 35 34 32 37 40)
- Figure summaries identify the most extreme shocks through 2025 as either a One-time depreciation shock or an Exports shock, depending on the indicator.

### Public sector debt dynamics (selected exact figures)
- Public sector debt 1/: 17.0 27.1 29.9 35.1 41.9 43.6 43.9 43.7 43.3 48.1 42.2
- Foreign-currency denominated share: 16.8 22.1 23.7 28.6 36.0 37.6 38.2 38.2 37.9 35.2 23.5
- Change in public sector debt: -5.6 10.2 2.8 5.2 6.8 1.7 0.3 -0.2 -0.5 0.8 -2.4
- Identified debt-creating flows: -4.5 0.3 0.1 0.8 1.3 -0.1 -1.6 -2.1 -2.3 -0.4 -2.0
- Primary deficit: 2.6 3.8 4.3 0.9 2.1 4.2 4.1 3.6 2.9 2.3 2.4 3.2 4.0 0.7 2.9
- Revenues and grants: 24.2 25.0 24.1 24.3 24.1 22.0 23.0 23.0 23.0 22.6 23.8
- Automatic debt dynamics: -1.7 0.3 -0.7 -0.1 -0.1 -2.2 -2.3 -2.3 -2.7 -3.4 -2.4
- Gross financing need 2/: 5.2 3.1 7.8 8.5 8.7 8.3 8.3 7.5 7.0 14.7 19.8
- PV of public sector debt (selected): ......21.9 25.2 29.4 29.6 29.3 28.8 28.1 34.8 35.5
- PV of public sector debt-to-revenue and grants ratio (in percent): ......91.1 103.6 122.2 134.8 127.2 125.2 122.0 153.6 149.2

### Policy implications and program context (selected textual points)
- Staff and authorities assume export expansion and diversification will mitigate export-concentration risk over the assessment period.
- The authorities are monitoring external developments, including depreciation of the Franc, and will take adjustment measures if necessary.
- The PSI (Policy Support Instrument) anchor has helped fine-tune policy mix to address short-term challenges without jeopardizing long-term goals set in the Economic Development and Poverty Reduction Strategy for 2013-2018 (EDPRS 2).
- Authorities remain committed to program objectives and to adjust policies in response to shocks; they seek Board support for conclusion of the 4th review under the PSI.

*Source: IMF staff report section "8. The main risk to Rwanda’s debt sustainability remains the narrow export base."*

### 6. The decline in the mining sector and related consequences remain the main risk to the

### _cr1624 - 6. The decline in the mining sector and related consequences remain the main risk to the

### Risk assessment and program stance
- The decline in the mining sector and related consequences remain the main risk to the outlook.
- Authorities agreed with staff to gather more data on the unfolding shock and not to significantly modify the program’s quantitative objectives at this stage.
- Policy objectives for the period ahead should evolve around four building blocks:
  - boosting domestic revenue for development financing;
  - enhancing monetary policy and financial deepening;
  - strengthening debt management; and
  - diversifying the economy.

### Boosting domestic revenue for development financing
- Fiscal policy should be coherent with development objectives and challenges, with priority on reforms to boost domestic revenue collection and improve public financial management to increase the domestic share of development financing.
- EDPRS 2 identified critical projects requiring a blend of domestic and foreign financing. For FY15/16, priority projects include:
  - hiring of more teachers for training programs;
  - power projects; and
  - extension of the one-cow-per-family program.

### Tax policy and administration measures
- Identified measures to boost revenue include:
  - rollout of a new road fund levy;
  - an excise tax for strategic reserve;
  - higher taxes on tobacco; and
  - changes to the mining tax regime.
- Measures to enhance e-tax are being implemented to improve compliance and streamline tax payment.
- Authorities continue to explore broadening the tax base, including potential agriculture taxation; a benchmarking study should help develop an agricultural income taxation model for Rwanda.

### Public financial management improvements
- Measures to improve public financial management focus on state-owned enterprises and public investment.
- Recent actions:
  - separation of the water and electricity company into two entities and a tariff raise intended to cover production costs and minimize fiscal risks;
  - establishment of the Public Investment Committee to improve prioritization, planning, monitoring, and evaluation of investment projects to improve value-for-money.

### Enhancing monetary policy and financial deepening
- Monetary policy has supported growth while balancing price stability.
- In light of the shock and reserve drawdown, the monetary stance will be closely monitored and adjusted if needed.
- Authorities committed to enhancing transmission mechanisms and bolstering financial deepening.
- Financial sector status and reforms:
  - The financial sector is sound and NPLs are declining owing to strong economic activity.
  - Reforms to enhance the supervisory framework include draft laws to improve central bank oversight on non-bank financial institutions.
  - Reform of the SACCOs is proceeding to foster financial inclusion.
  - Establishment of new institutions such as private pensions and revision of the deposit insurance law should broaden the financial architecture and serve a larger share of the population.

### Strengthening debt management
- Staff’s DSA concluded that Rwanda continues to face a low risk of external debt distress.
- The mining downturn has highlighted external vulnerabilities, but authorities expect resilience to improve as diversification efforts advance.
- Public sector debt details cited by staff:
  - 29.9 percent of GDP at end-2014, of which 23.7 percent for the external debt and 6 percent for domestic debt.
- The slight increase in public sector debt financed critical investment projects, including RwandAir and the Kigali Convention Center (KCC).
- Authorities expect returns on those investments to more than balance the costs in the near future.
- Going forward, priorities include preserving debt sustainability by strengthening the Debt Management Unit and smoothly transitioning to the IMF new debt limit policy.

### Diversifying the economy
- Economic diversification is central to the development strategy, aiming for a broad export base underpinned by a dynamic and diversified private sector.
- Authorities view diversification away from traditional commodity exports as the path to sustainable buffers against external shocks.
- Implementation and supportive measures:
  - The Rwanda Development Board (RDB) is the implementation body to promote Rwanda as a high spot for doing business.
  - Projects like KCC and overhauling of RwandAir fall under business tourism.
  - ICT sector development is producing emerging young entrepreneurs attracting global investors.
  - Complementary initiatives include development of Special Economic Zones, strengthening ties with neighboring countries, and speeding up integration within the East African Community.

### Conclusion and outlook
- Authorities have maintained sound policymaking that underpinned impressive achievements; growth continues to be robust and sustained, with progress in economic transformation and poverty reduction.
- Vulnerabilities remain due to the global commodity market downturn impacting a shallow export base.
- Authorities are committed to adjusting policies to dampen impacts and to pressing ahead with reforms and strategies to diversify the economy around a dynamic private sector to enhance resilience, entrench growth, and create jobs.
- Authorities appreciate the Fund’s continued support in this challenging endeavor.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1624.pdf*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1624.pdf_