IMF Executive Board Concludes 2010 Article IV Consultation with Rwanda

Public Information Notice (PIN) No. 11/3
January 11, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 20, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Rwanda.1


Rwanda’s economy is showing clear signs of recovery from the external and domestic shocks of the past two years, while inflation has remained low.

After slowing to 4.1 percent in 2009 from 11.2 percent in 2008, real GDP growth for 2010 is expected to reach 6.5 percent, driven by a rebound in exports and stronger-than-expected growth in services (mainly in telecommunications) and construction―sectors that were adversely affected by the global recession and tight liquidity. High-frequency macroeconomic indicators for the first three quarters of 2010 confirm the pickup in economic activity.

Higher export performance, reflecting a rebound in international prices and stronger-than-expected volumes of coffee, tea, and non-traditional exports, has contributed to a narrowing of the external current account deficit (excluding grants) to 17.3 percent of GDP in 2010 from 18.6 percent in 2009, while international reserves remain at comfortable levels.

For the first time in many years, annual inflation has remained below 5 percent in 2010, reflecting in large part the benign external environment, especially stable food and fuel prices.

Monetary policy has been accommodative, but private sector credit has been slow to respond, despite three cuts in the central bank’s policy rate (the key repo rate) since November 2009 by 300 basis points.

Fiscal performance in Fiscal Year 2009/10 was better than projected, reflecting better than projected domestic revenue collection while total expenditure including net lending remained on target.

In general, Rwanda’s economy has a higher growth potential of about 8½ percent over the medium term, provided that (i) investment is scaled up significantly; (ii) productivity growth increases and remains elevated; and (iii) there are no adverse shocks. Achieving and maintaining this high growth rate, however, is challenging as it will require additional investments of at least US$350 million (or 7 percent of GDP) a year. Risks to the outlook are on the downside, reflecting mainly slower pickup in external demand and domestic credit. Donor flows are expected to remain strong, but decline gradually over the medium term. Over the longer term, risks to potential growth include lower levels of investment financing and smaller productivity gains. There are also upside risks to inflation from higher global food and fuel prices.

Rwanda’s macroeconomic policies are supported by the IMF’s Policy Support Instrument (PSI), which was approved in June 2010 (see Press Release No. 10/247). The proposed three-year PSI program aims to consolidate macroeconomic stability while reducing Rwanda’s aid dependency by: (i) maintaining a sustainable fiscal position through improved revenue mobilization; (ii) strengthening monetary and exchange rate policies to ensure low and stable inflation; (iii) reducing financial sector vulnerability by strengthening banking supervision, and deepening the financial sector by enhancing access to credit; and (iv) diversifying the export base and improving the business environment.

Executive Board Assessment

Executive Directors commended the Rwandan authorities for satisfactory implementation of the economic program supported under the PSI. Countercyclical fiscal and monetary policies helped to mitigate the impact of the global economic downturn and contributed to a rebound in economic activity. Directors noted that the recovery remains fragile.

Continued prudent policies, improved infrastructure, increased agricultural productivity, and deepened financial markets will be needed to sustain growth and reduce poverty.

Directors welcomed the authorities’ intention to gradually unwind fiscal stimulus and to embark on a medium-term path toward fiscal consolidation. They encouraged the authorities to consider complementing revenue mobilization efforts with tax policy reforms and supported further strengthening of the medium-term fiscal framework underlying the planned fiscal consolidation. Such improvements include better costing of government spending plans in the Medium-Term Expenditure Framework, improved alignment of external grants with a medium-term domestic debt strategy, and quarterly dissemination of fiscal data.

Directors commended the authorities for their progress in reforming public financial management, and emphasized the importance of further enhancing public expenditure accountability and efficiency. They noted that strengthening of public investment planning and evaluation and of debt management capacity would be critical for scaled-up infrastructure spending, in particular when using nonconcessional financing.

Directors underscored the importance of regular review of the monetary policy stance to enable timely response to any underlying inflationary pressures. They recognized the challenges involved in strengthening the monetary transmission mechanism, and encouraged more active use of the policy rate and development of an active debt market with longer-dated instruments. Directors emphasized the importance of continued analytical support for the Monetary Policy Committee deliberation process and supported continuation of reforms toward greater exchange rate flexibility.

Directors noted staff’s assessment that Rwanda’s real effective exchange rate was broadly in line with economic fundamentals. They underscored the importance of continued improvements in the business environment and stepped up efforts on structural reforms to broaden the export base.

Directors welcomed efforts to improve access to finance, but cautioned that accelerating the expansion of micro finance institutions and savings and credit cooperatives should be balanced by having in place the necessary supervisory capacity. They emphasized the importance of developing and implementing a plan to build and retain banking supervision staff. Directors stressed the importance of enhancing competition in the banking sector.

Directors encouraged the authorities to improve quality of statistics, particularly in the areas of the national accounts and the balance of payment.

Rwanda: Selected Economic and Financial Indicators
  2006 2007 2008 2009        2010 2011

        Est. Prog. Proj. Proj.
  (Annual percentage changes, unless otherwise indicated)

Output and prices


Real GDP growth

9.2 5.5 11.2 4.1 5.4 6.5 6.5

Real GDP per capita

7.3 3.3 8.9 2.0 3.2 4.3 4.3

GDP deflator

9.8 13.2 12.6 11.0 6.7 3.8 5.2

Consumer prices (period average)

8.8 9.1 15.4 10.3 6.4 3.2 5.3

Consumer prices (end of period)

12.1 6.6 22.3 5.7 7.0 4.6 6.0

External sector


Export of goods, f.o.b (in U.S. dollars)

17.9 19.9 51.4 -28.0 24.6 48.1 -0.4

Imports of goods, f.o.b (in U.S. dollars)

26.2 30.2 51.5 16.4 19.1 11.9 19.6

Terms of trade (deterioration = -)

5.5 20.9 -1.4 -15.4 2.9 23.6 -10.1

Money and credit 1/


Net domestic assets 2/

2.6 7.6 10.3 4.9 10.9 11.8 10.5

Domestic credit 2/

8.2 12.0 20.5 3.8 11.0 16.2 9.1

Government 2/

-5.6 0.2 -18.1 0.2 -2.5 8.6 -5.8

Reserve money 3/

11.9 30.7 23.5 0.3 12.5 11.7 13.9
  (Percent of GDP)

National income accounts


National savings

7.4 8.3 9.1 3.8 3.5 6.1 4.0

Gross investment

19.7 20.2 23.5 22.4 22.8 23.4 24.1

Of which: private (including public enterprises)

12.8 12.4 13.1 12.4 11.7 12.6 13.0

Government finance 4/


Total revenue (excl. grants)

12.2 12.4 12.6 14.9 12.2 12.5 13.6

Total expenditure and net lending

23.7 22.0 22.6 26.4 25.9 25.8 27.3

Capital expenditure

7.6 7.0 8.2 11.1 9.8 10.1 11.6

Current expenditure

15.9 14.2 15.1 14.5 14.9 14.7 14.8

Overall fiscal balance (payment order) 4/


After grants

5.2 -1.4 -0.2 -2.2 -1.1 -0.1 -3.6

Before grants

-11.5 -9.6 -10.0 -11.5 -13.7 -13.2 -13.8

External sector


External current account balance


Including official transfers

-4.3 -2.2 -4.9 -8.5 -7.9 -6.7 -9.0

Excluding official transfers

-12.3 -11.9 -14.4 -18.6 -19.3 -17.3 -20.2

External debt (end of period)

15.6 15.3 14.4 14.5 16.4 14.9 17.7

Gross reserves (in months of imports of goods and services) 5/

5.6 4.7 4.6 5.5 4.8 4.6 5.2
  (Millions of U.S. dollars)

Gross official reserves

439.6 552.4 596.4 742.2 744.3 737.2 767.3

Memorandum item:


Nominal GDP (billions of Rwanda francs)

1,716 2,049 2,565 2,964 3,333 3,278 3,672

Sources: Rwandan authorities and IMF staff estimates and projections.

1/ Projections are based on the program exchange rate of RwF per US dollar of 571.24.

2/ As a percent of the beginning-of-period stock of broad money.

3/ Increase in 2 percent after correcting for the rebasing at end-2006.007 reflects rebasing of the monetary program; reserve money growth was limited to 13 percent after correcting for the rebasing at end-2006.

4/ On a fiscal year basis (July-June). For example, the column ending in 2011 refer to FY2010/11. Column 2011 is therefore the program column for F fiscal data.

5/ Data from 2009 onwards includes SDR Allocation.

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. 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:


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