IMF Logo

IMF Logo

IMF Survey: Rwanda's Priority: Mobilize Resources for Massive Investment

December 21, 2010

  • Rwanda has strategy to become middle-income country in decade from now
  • Critical to mobilize resources without jeopardizing macroeconomic stability
  • Maintaining reform momentum, growth focus vital for new policy program

If Rwanda is to achieve its goal of middle-income country status by 2020, it needs to mobilize the resources for massive investment.

Rwanda's Priority: Mobilize Resources for Massive Investment

Road under construction in Kigali, Rwanda, which needs massive investment in physical infrastructure and in human capital (photo: Simon Maina/AFP)


A recent three-day economic forum in Rwanda discussed how to bridge infrastructure gaps and sustain high economic growth in this East African nation.

The forum also highlighted the IMF’s role as Rwanda’s development partner, after the country made the transition from being an IMF borrower to no longer needing IMF financial support. In June 2010, Rwanda became the seventh country to adopt the IMF’s Policy Support Instrument, a program designed for countries that have achieved macroeconomic stability and no longer need financial support from the IMF. This achievement was a culmination of years of strong effort by the Rwandan authorities to overcome the devastation of the 1994 genocide and put the economy on a sustainable growth path.

Rwanda achieved high growth—averaging 8 percent—and macroeconomic stability under three successive IMF-supported loan arrangements during 1998–2009. At the same time, real per capita incomes increased by two-thirds despite high population growth.

Sound fiscal spending

During the period, prudent macroeconomic policies, including sound fiscal spending and limited recourse to domestic financing, helped to contain inflation. Meanwhile, rising revenues and assistance from international donors created fiscal space to scale up public spending, especially on pro-poor initiatives.

Rwanda’s external position also strengthened as donor flows and foreign direct investment allowed a buildup in reserve cover. External debt was reduced significantly with the help of debt relief under the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.

Despite these successes, problems remain. Rwanda is still a poor country, heavily dependent on donor aid. It has a narrow export base, low domestic revenues, and large infrastructure needs.

The government has a well articulated development strategy, entitled Vision 2020, which sees Rwanda becoming a middle-income country in a decade. To achieve this goal, the country needs massive investment, both in physical infrastructure and in human capital.

Resource mobilization

The critical objective is to mobilize the necessary resources, both foreign and domestic, to undertake this investment without jeopardizing macroeconomic stability. Dealing with these priorities is at the heart of Rwanda’s Policy Support Instrument program, and was a central theme of the economic forum.

The forum, held in the Rwandan capital, Kigali, October 27–29, included sessions for parliamentarians, cabinet ministers, local academics, civil society organizations, and development partners. The forum brought together top policymakers and other key stakeholders with IMF staff and other international speakers, to take stock of the country’s achievements and exchange views on the tasks ahead.

Jointly organized by the Rwandan authorities, the U.K. government-supported International Growth Center, and the IMF, the forum covered a variety of topics including scaling up investment in a sustainable way, different financing options for investment in infrastructure, and the opportunities for using trade and exports to increase growth.

The event took place as the country authorities and the IMF completed both the first review of Rwanda’s Policy Support Instrument-backed program and Rwanda’s 2010 Article IV consultation—the regular review of economic policies and prospects that the IMF carries out with each of its member countries.

Role of legislators

Lawmakers learned about the role the IMF plays in Rwanda and about how other countries are dealing with issues similar to Rwanda’s. Chamber of Deputies Speaker Rose Mukantabana described the meeting as an important event for parliament. She welcomed the fact that the discussion of the country’s economic priorities was not limited to the executive branch of government and included other key stakeholders.

Chamber of Deputies Speaker Rose Mukantabana
told forum Rwanda’s parliament
assuming more active part in
macroeconomic decision-making
(IMF photo)

Mukantabana noted that Rwanda’s parliament is assuming a more active part in macroeconomic decision-making, and welcomed interaction with the IMF as a way to build capacity and broaden legislators’ understanding of macroeconomic issues. She looked forward to future collaboration with the IMF and requested that meetings at smaller subcommittee levels take place during future visits by IMF staff.

Cabinet ministers at the forum were equally eager to hear from international practitioners about scaling up investment in infrastructure, and its financing options. Civil society organizations, as well as development partners, viewed the event as an important step to build linkages among stakeholders and deepen dialogue on key issues.

Prudent policies

Rwanda did not escape unscathed the global financial crisis: the nation’s economic growth rate fell from 11 percent in 2008 to an estimated 4 percent in 2009. At the same time, Rwanda’s prudent macroeconomic policies in the runup to the crisis—and quick government response afterward—limited the damage to the economy.

As demand for Rwanda’s exports—minerals, coffee, tourism services—took a hit, the public sector was able to pick up the slack as the government, buoyed by low debt and strong support from donors, ran a moderately expansionary budget in the fiscal year 2009/10. The central bank, for its part, stepped in quickly to inject liquidity in the banking system at a time of liquidity difficulties in early 2009. In addition, good harvests throughout this period helped the economy to grow, since agriculture accounts for one-third of GDP and provides livelihoods for 80 percent of Rwandans.

There are now signs of recovery, with GDP growth projected to exceed 6 percent in 2010 and to stabilize at 6–7 percent afterward. Growth in the medium term will be driven by a combination of public investment, financial deepening, improvements in the business climate, and stronger external demand. Looking forward, maintaining the reform momentum and the focus on growth will be critical for the success of Rwanda’s Policy Support Instrument.

Looking ahead

IMF mission chief for Rwanda Catherine McAuliffe noted that the new Policy Support Instrument program for Rwanda was a testament to achievements over the past decade, especially implementing sound macroeconomic policies. While Rwanda no longer needs to borrow money from the IMF, there are still many priorities to address. The government has a bold vision for the country and the IMF’s role is to help to provide a sound framework for implementing that vision, she stated

The tasks of improving infrastructure and expanding and diversifying exports are not unique to Rwanda, McAuliffe noted. She said the IMF is well placed, through the Policy Support Instrument program, to bring cross-country experiences to discussions on Rwanda’s options for financing higher investments in a sustainable way.

McAuliffe added that the IMF could also help to build capacity in order to reduce risks. The IMF contribution could include putting in place effective assessment and monitoring frameworks for public-private partnerships, and improving public financial and debt management capacities. In addition, the IMF could help to establish sound procedures for conducting debt sustainability analyses at early stages, so that evolving borrowing strategies remain fully consistent with fiscal and debt sustainability, McAuliffe said.