IMF Staff Concludes Visit to Rwanda
IMF News, April 5, 2022
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- Published: April 5, 2022
Mission purpose, timing, and status
- IMF mission led by Haimanot Teferra held meetings with Rwandan authorities during March 21 – April 5, 2022 to discuss the sixth review under the Policy Coordination Instrument (PCI).
- Staff made significant progress toward a staff level agreement needed to complete the sixth review under the PCI; the agreement is subject to approval by IMF Management and Executive Board.
- Consideration by the Board is tentatively scheduled for the second half of June 2022.
- Follow-up discussions will be needed over the coming weeks given the unusual economic uncertainty following the war in Ukraine.
Key economic outcomes and indicators
- Real GDP: contraction of 3.4 percent in 2020 followed by rebound of 10.9 percent in 2021.
- Inflation: picked up to 5.8 percent in February 2022.
- Central bank policy rate: raised by 50 basis points to 5 percent.
- Reserves: remaining comfortably above 4 months of prospective imports levels at end-2021.
- Fiscal performance: fiscal performance in the first half of FY 21/22 was in line with expectations.
- Financial stability: financial sector stability has been maintained; the banking system remains well-capitalized and liquid.
- Credit risk: non-performing loans remain low, but credit risk continues to be elevated following the expiry of forbearance measures.
Outlook, risks, and projected revisions
- The outlook is clouded by the impact of the war in Ukraine and related uncertainties, which is likely to put the economy under strain.
- Staff will revise growth projections down relative to the previous review, with risks tilted to the downside.
- Higher global energy and commodity prices are expected to:
- fuel inflationary pressure,
- widen the current account deficit further this year,
- weigh on Rwanda’s economic recovery through deterioration in external conditions, including weaker-than-expected recovery in trading partners.
- Rwanda’s medium-term outlook, while uncertain, remains favorable, supported by the authorities’ commitment to sustainability of public finances and debt and continued structural reforms.
Immediate policy priorities and recommendations
- Preserve fiscal and financial stability and mitigate the impact of the external shock on the most vulnerable.
- If further support to affected groups or activities is warranted, such support should be:
- temporary,
- targeted,
- transparent,
- accommodated by reprioritizing current and capital spending to avoid significant budget slippages and preserve debt sustainability.
- Continue reforms to:
- enhance revenue mobilization,
- strengthen fiscal transparency,
- strengthen risk management.
- National Bank of Rwanda (BNR) recommendations:
- Stand ready to take appropriate action calibrated to evolving domestic and external economic conditions.
- Take appropriate action to contain second-round effects of higher imported prices on inflation while also considering the evolving outlook for growth.
- Allow exchange rate flexibility to mitigate the impact of rising oil and food prices on the current account and safeguard reserves.
- Limit interventions in the foreign exchange market to minimize excessive exchange rate volatility.
- Financial sector vigilance:
- Continue intensive monitoring of credit risk and prudent loan classification and provisioning.
- Structural and development priorities:
- Maintain reform momentum to promote more durable, inclusive and resilient growth.
- Further efforts needed in enhancing access to health care and education and better targeting social protection.
- Financial market deepening, digitalization, and further financial inclusion to help mobilize domestic savings.
- Progress on the authorities’ ambitious climate agenda is welcome; attracting concessional financing and private sector support remains key to implementation.
Staff conclusion
- The IMF mission expresses gratitude for the authorities’ cooperation and reaffirms the IMF’s support for the government’s efforts to implement its economic reform program.
- The views in the statement are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Staff will prepare a report, subject to management approval, for presentation to the IMF's Executive Board.
IMF Staff Concludes Visit to Rwanda — Press Release No. 22/105, April 5, 2022.