IMF Executive Board Completes Sixth PSI Review and First Review Under the Standby Credit Facility for Rwanda

IMF News, January 6, 2017

Source details

Canonical URL: IMF Executive Board Completes Sixth PSI Review and First Review Under the Standby Credit Facility for Rwanda

The Executive Board completed the sixth review of Rwanda’s performance under the Policy Support Instrument (PSI) and the first review of the arrangement under the Standby Credit Facility (SCF).
The Board’s decision was taken on a lapse of time basis.
Program implementation has been strong, with almost all targets met.
Early evidence suggests short term adjustment policies are starting to check external imbalances.

An 18-month SCF arrangement was requested with access of about US$204 million (SDR 144.18 million) or 90 percent of Rwanda’s quota.
Half of the SCF was disbursed upon approval on June 8, 2016.
With completion of the first review, another US$48.65 million (SDR 36.045 million) becomes available for disbursement.
The remaining financing will be considered in two subsequent reviews in 2017.
Rwanda’s PSI-supported program was originally approved on December 2, 2013.
The Board approved modification of end-December 2016 program targets (to reflect new information on external assistance) and granted a waiver for a minor and temporary non-observance of the continuous zero limit on external arrears accumulation.

Growth has slowed modestly, but remains robust, with projections around 6.0 percent in 2016-2017.
Inflation has risen modestly, due to food prices.
Exchange rate depreciation was 9 percent over the first 10 months of 2016.
If current trends continue, the current account deficit should fall over the course of 2017-18, bringing official reserves above 4 months of imports.
End-year inflation projections of 6.0 percent and 5 percent over the medium term.

The agreed policy mix is assessed as appropriate for safeguarding external and fiscal sustainability, while supporting growth.
Authorities have allowed exchange rate flexibility to serve as the main policy adjustment instrument, complemented by modest fiscal consolidation and monetary tightening.
Further monetary tightening may be needed, should more broad-based inflation pressures emerge.
The situation should be monitored closely to assess potential second-round effects of the inflationary impact of a depreciated exchange rate.
Clearer communication regarding the policy stance could help steer inflation expectations.
Decisive efforts would be needed to develop minimum conditions for inflation targeting within the agreed East African Community timeline.

Demand management policies have been accompanied by the government’s home-grown “Made in Rwanda” initiative, which seeks to substitute domestic production for some key imported goods, and export promotion efforts.
Performance under the program: almost all program targets set through end-June 2016 and structural reforms through end-September 2016 were achieved.

The main near-term objective is to respond to adverse global developments, most notably commodity prices, which led to growing external imbalances and pressure on the Rwandan franc and the banking system’s foreign exchange reserves.
Looking ahead, risks to the growth outlook are balanced.
The government’s incentives to promote domestic production and add value to exports should keep growth buoyant.
However, should the drought be prolonged, both growth and inflation could be adversely affected.
Authorities acted decisively to address growing external imbalances and thereby should avoid more painful adjustment that otherwise would have been needed.

Source: Press Release No. 17/02, IMF Communications Department, January 6, 2017.