IMF Staff Concludes Visit to Rwanda

IMF News, November 13, 2019

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Visit dates: October 31- November 13, 2019.
Mission led by Laure Redifer to hold discussions on the first review of Rwanda’s Policy Consultation Instrument (PCI)-supported program.
IMF staff reached preliminary agreement with the government, subject to approval by its Executive Board, on policies that could support completion of the first review of Rwanda’s PCI-supported program.

Real GDP growth averaged 10.3 percent in the first half of 2019, outpacing expectations.
Growth drivers: pronounced increase in construction and services activity; construction increase reflects both public infrastructure projects and private investment.
Growth projection: projected to remain strong, at around 8 percent, over the next 2-3 years.
Inflation dynamics:
- Inflation picked up in recent months, partly reflecting stronger domestic demand and the May decision by the Monetary Policy Committee (MPC) of the National Bank of Rwanda (BNR) to lower interest rates.
- Inflation came back within the central bank’s targeted band in August and is forecast to continue on an upward trend towards the target midpoint of 5 percent.
- In its August meeting, the MPC chose to leave its policy rate unchanged.

FY2018/19 fiscal deficit was higher than expected, due to:
- timing of budget support disbursements, and
- accelerated execution of externally financed projects.
Current account deficit widened, reflecting:
- stronger demand, and
- more capital goods imports needed for construction.
Export developments: prices for traditional exports dropped, largely offsetting increases in export volumes, particularly within the East African Community region.

Performance in implementation of Rwanda’s program with the IMF has remained satisfactory, with almost all program targets met.
The PCI-supported program was approved by the IMF Executive Board in June 2019.
Program aims to support implementation of the National Strategy for Transformation (NST) via four main pillars:
- (i) creating budget space for NST implementation while preserving fiscal and debt sustainability;
- (ii) improving fiscal transparency, including the identification and management of potential government liabilities (“fiscal risks”);
- (iii) regaining momentum on domestic revenue mobilization;
- (iv) supporting implementation of the BNR’s forward-looking monetary policy framework that uses interest rates to control policy impulses.

Budget accommodation: discussions focused on how the government budget should accommodate the size and pace of additional spending on NST investments across education, health, and infrastructure.
Fiscal space and fiscal risks:
- Better tracking of public sector assets and liabilities and associated risks should provide more space for priority spending.
- Ongoing reforms to maximize collection of domestic revenues are expected to create budget space.
Leveraging resources:
- Use of technology, schemes to attract private investment via de-risking, and strategic investment should serve to leverage public resources for greater impact.
Central bank communication: the BNR continues to strengthen communication around its inflation forecasts and the rationale for its policy decisions.

IMF Press Release No. 19/412 — November 13, 2019.