On June 28, 2019, the Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation and approved a new Three-Year
Policy Coordination Instrument (PCI) with Rwanda.
[1]
Rwanda continues to make notable progress in sustaining high and inclusive
growth. Rwanda’s National Strategy for Transformation (NST) aims to make
progress toward the SDGs, but its financing will be challenging.
The newly-approved PCI-supported program will build on the successes of
Rwanda’s previous programs with the IMF. The program aims to support NST
implementation, including through an eased fiscal policy stance and
additional domestic resource mobilization, while also maintaining external
and debt sustainability. Program reviews will take place on a semi-annual
fixed schedule. While the PCI involves no use of IMF financial resources,
successful completion of program reviews will help signal Rwanda’s
commitment to continued strong macroeconomic policies and structural
reforms.
Following the Executive Board’s discussion on Rwanda, Tao Zhang, Deputy
Managing Director and Acting Chair, issued the following statement:
“Rwanda has made notable progress in reaching its development objectives.
Rapid and inclusive growth has been based on a combination of strategic
goal‑setting, public accountability, and broad ownership of policies. This
was supported by strong macroeconomic performance and rapid responses to
shocks, for example, the recent exchange rate adjustment that helped align
the external position with fundamentals.
“Growth in 2018 was stronger than expected, at 8.6 percent, led by
construction and services. Growth should remain around 8 percent in 2019,
supported by public investment spending, private investment, and
interventions aimed at promoting diversified and higher value‑added
economic activity. Inflation has been below the authorities’ targeted band
for several months, prompting the central bank to lower its policy rate in
May.
“The new PCI‑supported program supports Rwanda’s National Strategy for
Transformation (NST), while safeguarding external and debt sustainability.
An eased medium‑term fiscal stance will provide more room for priority
investments, while keeping debt risks low. NST implementation will also be
supported by measures to mobilize domestic revenues and to further
strengthen public financial management.
“The central bank has made good progress in implementing its new
forward‑looking, interest rate‑based operational framework. Short‑term
interest rates convergence and the nascent monetary transmission to
longer‑term interest rates should be further reinforced through continued
active liquidity management, deeper money markets, and enhanced
communications of policy intentions.
“Going forward, the NST aims to make progress toward the Sustainable
Development Goals and help crowd in the private sector as an engine for
growth. However, financing the strategy will be challenging. Initiatives
such as the African Continental Free Trade Area and the Compact with Africa
should help leverage additional private financing.”
Recent Economic Developments
Rwanda has achieved notable success in reaching its development objectives.
A combination of strategic goal-setting, public accountability, and broad
ownership of policies has helped the country emerge from fragility as one
of the fastest-growing economies in SSA and the world. Moreover, growth has
been inclusive, and extensive investment in social safety nets has reduced
poverty significantly.
The economic outlook remains positive. Real GDP growth reached 8.6 percent
y-o-y in 2018 supported by activity in construction and services. Composite
indicators suggest a continued trend in early 2019. Projections over the
next five years have been revised up, to around 8.0 percent, based on first
round effects of higher public investment spending agreed under the
macroeconomic framework. Inflation is expected to rise in the second half
of 2019 and remain thereafter within the target band also supported by
policy easing by the National Bank of Rwanda. The current account deficit
is expected to increase in 2019–20, due to airport construction, and
decline thereafter.
Rwanda’s economic outlook is subject to balanced risks. Acceleration of
several large public and private ongoing investment projects (including
peat power plant, tin smelting factory, new energy distribution substations
and construction of new Special Economic Zones) and their potential impact
on productivity, as well as enhanced regional trade ties, pose upside risks
to growth. Potential downside risks include lower than expected ODA,
variable weather/climate change, commodity price movements, and regional
security issues.
Program Summary
The program is designed to support implementation of the National Strategy
for Transformation, while maintaining macroeconomic stability. The program
consists of four main pillars: (1) recalibrating fiscal objectives and the
medium-term fiscal stance; (2) bolstering domestic revenues over the medium
term; (3) improving public financial management, notably fiscal risk
management and transparency; and (4) supporting the new monetary policy
framework, including through financial sector development.
The National Bank of Rwanda (BNR) continues its efforts to ensure
successful implementation of the new interest rate-based monetary policy
operational framework. These include commitments to strengthen
communication and further deepen money markets, including by strengthening
the repo market, to strengthen monetary policy transmission and enhance
credibility of the new framework.
Structural reforms focus on supporting the National strategy and
Transformation policies including by bolstering long-term savings,
upgrading the national payments system and introducing new platforms for
broader participation in the government securities market and more
interaction across types of financial services providers. Rwanda’s
ambitions for Vision 2050 and SDG achievement will also be supported by a
renewed focus on the quality of education and private sector-led growth.
Executive Board Assessment
[2]
Directors commended the authorities’ effective use of strategic
goal-setting, public accountability, and broad ownership of policies to
bring about rapid and inclusive growth, and significant progress toward
their development objectives. Directors agreed that a PCI will
appropriately support the authorities’ efforts to build on their progress.
They highlighted the importance of continued strong ownership of the reform
agenda, as well as strong donor support and capacity building.
Directors welcomed the new program’s focus on supporting Rwanda’s National
Strategy for Transformation (NST), aimed at accelerating the achievement of
the country’s development goals. They supported recalibrating the
medium-term fiscal stance to provide more room for priority capital
investment and social spending while maintaining a low risk of debt
distress, with some Directors stressing the importance of consistency with
the EAC fiscal deficit convergence. Directors emphasized the importance of
domestic resource mobilization, including streamlining tax exemptions,
strengthening tax policy capacity, and developing a medium-term revenue
strategy. They welcomed the authorities’ commitment to further strengthen
public financial management by identifying and mitigating potential fiscal
risks and further enhancing fiscal transparency.
Directors agreed that Rwanda’s new monetary policy operational framework is
appropriate and welcomed the recent easing aimed at bringing inflation back
within the target range. They took positive note of the central bank’s
active policy operations that have led to a convergence of money market and
policy rates, and welcomed the nascent transmission of policy to
longer-term rates. Directors emphasized that the authorities’ commitment to
a more flexible exchange rate regime, combined with improved liquidity
management, forecasting, and communication, would further strengthen
monetary policy transmission.
Directors welcomed the NST’s focus to increase reliance on the private
sector as an engine of growth and job creation, and highlighted the
supportive measures to bolster financial development and mobilize national
savings and improve education. Noting Rwanda’s inherent challenges in
attracting private investment, they welcomed the African Continental Free
Trade Area as a means for creating larger markets. They saw initiatives
such as the G-20 Compact with Africa, together with aid directed toward
blended finance, as vehicles to leverage additional private financing.
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Table 1. Rwanda: Selected Economic Indicators,
2017-2023
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|
|
2017
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2018
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2019
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2020
|
2021
|
2022
|
2023
|
|
|
Act.
|
Prel.
|
Proj.
|
Proj.
|
Proj.
|
Proj.
|
Proj.
|
|
|
|
(Annual percentage change, unless
otherwise indicated)
|
|
|
Output and prices
|
|
|
|
|
|
|
|
|
Real GDP
|
6.1
|
8.6
|
7.8
|
8.1
|
8.2
|
8.0
|
7.5
|
|
GDP deflator
|
7.3
|
-0.8
|
4.2
|
5.0
|
5.0
|
5.0
|
5.0
|
|
CPI (period average)
|
4.8
|
1.4
|
3.5
|
5.0
|
5.0
|
5.0
|
5.0
|
|
CPI (end period)
|
0.7
|
1.1
|
5.0
|
5.0
|
5.0
|
5.0
|
5.0
|
|
Terms of trade (deterioration, -)
|
1.8
|
-0.7
|
0.7
|
0.1
|
0.2
|
0.4
|
0.9
|
|
Money and credit
|
|
|
|
|
|
|
|
|
Broad money (M3)
|
12.4
|
15.6
|
19.8
|
20.0
|
17.7
|
16.9
|
15.9
|
|
Reserve money
|
8.8
|
16.1
|
17.2
|
17.9
|
15.7
|
14.9
|
14.2
|
|
Credit to non-government sector
|
13.9
|
10.8
|
12.8
|
14.3
|
13.9
|
13.3
|
13.4
|
|
M3/GDP (percent)
|
23.6
|
25.3
|
27.0
|
28.5
|
29.5
|
30.5
|
31.3
|
|
NPLs (percent of total gross loans)
|
7.6
|
6.4
|
…
|
…
|
…
|
…
|
…
|
|
Budgetary central government
|
|
(Percent of GDP, unless otherwise
indicated)
|
|
|
Total revenue and grants
|
22.9
|
24.1
|
23.1
|
22.2
|
21.6
|
22.0
|
22.2
|
|
of which
: tax revenue
|
15.5
|
16.2
|
16.1
|
16.3
|
16.1
|
16.5
|
16.8
|
|
of which
: grants
|
4.7
|
4.9
|
4.8
|
3.9
|
3.4
|
3.6
|
3.7
|
|
Expenditure
|
27.5
|
28.8
|
29.2
|
28.6
|
27.8
|
27.1
|
27.0
|
|
Current
|
14.7
|
15.3
|
14.7
|
13.9
|
13.7
|
13.6
|
13.4
|
|
Capital
|
10.7
|
11.5
|
12.0
|
12.3
|
12.1
|
11.5
|
11.8
|
|
Primary balance
|
-3.6
|
-3.5
|
-4.9
|
-5.0
|
-4.8
|
-3.6
|
-3.6
|
|
Overall balance
|
-4.7
|
-4.7
|
-6.1
|
-6.4
|
-6.2
|
-5.1
|
-4.8
|
|
excluding grants
|
-9.4
|
-9.6
|
-10.9
|
-10.4
|
-9.6
|
-8.7
|
-8.5
|
|
Net domestic borrowing
|
0.2
|
0.0
|
2.0
|
0.8
|
1.1
|
-0.3
|
-0.6
|
|
Public debt
|
|
|
|
|
|
|
|
|
Total public debt incl. guarantees
|
48.9
|
53.1
|
55.8
|
57.3
|
58.2
|
57.2
|
56.7
|
|
of which
: external public debt
|
37.9
|
41.6
|
43.4
|
44.6
|
45.5
|
45.6
|
45.8
|
|
PV of total public debt incl.
guarantees
|
…
|
41.1
|
42.5
|
42.9
|
42.7
|
41.6
|
41.2
|
|
Investment and savings
|
|
|
|
|
|
|
|
|
Investment
|
23.8
|
24.4
|
27.7
|
28.4
|
28.2
|
27.6
|
27.8
|
|
Government
|
10.7
|
11.5
|
12.0
|
12.3
|
12.1
|
11.5
|
11.8
|
|
Nongovernment
|
13.1
|
12.9
|
15.7
|
16.1
|
16.1
|
16.1
|
16.1
|
|
Savings
|
11.9
|
12.9
|
14.6
|
16.4
|
18.0
|
17.0
|
18.4
|
|
Government
|
3.4
|
4.0
|
3.6
|
4.3
|
4.5
|
4.8
|
5.2
|
|
Nongovernment
|
8.5
|
8.9
|
11.1
|
12.1
|
13.5
|
12.3
|
13.2
|
|
External sector
|
|
|
|
|
|
|
|
|
Exports (goods and services)
|
21.7
|
21.4
|
21.2
|
21.4
|
22.1
|
22.1
|
22.7
|
|
Imports (goods and services)
|
32.5
|
32.7
|
33.6
|
32.8
|
31.8
|
32.0
|
31.7
|
|
Current account balance (incl grants)
|
-7.8
|
-7.9
|
-9.6
|
-9.4
|
-7.9
|
-8.1
|
-7.4
|
|
Current account balance (excl grants)
|
-11.9
|
-11.5
|
-13.1
|
-12.0
|
-10.2
|
-10.6
|
-9.4
|
|
Current account balance (excl. large
projects)
|
-7.4
|
-7.4
|
-9.0
|
-8.3
|
-7.4
|
…
|
…
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|
Gross international reserves
|
|
|
|
|
|
|
|
|
In millions of US$
|
1,163
|
1,319
|
1,428
|
1,566
|
1,637
|
1,726
|
1,867
|
|
In months of next year's imports
|
4.5
|
4.6
|
4.7
|
4.9
|
4.7
|
4.5
|
4.5
|
|
Memorandum items:
|
|
|
|
|
|
|
|
|
GDP at current market prices
|
|
|
|
|
|
|
|
|
Rwanda francs (billion)
|
7,600
|
8,189
|
9,199
|
10,442
|
11,866
|
13,460
|
15,197
|
|
US$ (million)
|
9,140
|
9,510
|
…
|
…
|
…
|
…
|
…
|
|
GDP per capita (US$)
|
774
|
787
|
…
|
…
|
…
|
…
|
…
|
|
Population (million)
|
11.8
|
12.1
|
12.4
|
12.7
|
13.0
|
13.3
|
13.6
|
|
Sources: Rwandan authorities and IMF
staff estimates.
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[1]
Under Article IV of the IMF's Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[2]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm.