Press Release No. 07/17

Press Release: IMF Executive Board Completes First Review of Rwanda's Three-Year Arrangement Under the Poverty Reduction and Growth Facility

January 29, 2007

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Rwanda's performance under an SDR 8.01 million (about US$12 million) Poverty Reduction and Growth Facility (PRGF)¹ arrangement (see Press Release No. 06/121). Completion of the review enables a further release of SDR 1.1 million (aboutUS$1.7) which will bring total amount drawn under the arrangement to SDR 2.3 million (about US$3.4 million).

In completing the review, the Board granted waivers for the non-observance of a quantitative performance criterion concerning total priority spending and a structural performance criterion concerning issuing a first report on a monitoring system of project accounts.

Following conclusion of the Executive Board's discussion of Rwanda's economic program, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"The Rwandan Authorities are to be commended for continuing to make good progress under their program supported by the Poverty Reduction and Growth Facility. Macroeconomic performance has continued to be satisfactory and structural reforms are broadly on track.

"Nevertheless, to reduce widespread poverty and make headway toward the Millennium Development Goals, decisive action is needed to remove obstacles to higher growth, which include low agricultural yields, a severe infrastructure gap, and an underdeveloped financial system. This will also involve making the most effective use of aid, addressing the risk of a resurgence of inflationary pressures, and prudently managing debt to maintain debt sustainability.

"Against this background, the authorities are appropriately focusing on addressing the macroeconomic policy challenges arising from scaled-up aid, while increasing spending for social and infrastructure priorities. In this regard, the 2007 budget is an important milestone in Rwanda's development because it judiciously increases allocations for priority areas, particularly investments in the water and energy sectors. To address the inflationary pressures stemming from increased spending and prevent costly sterilization through a build-up of domestic debt, the central bank is committed to allowing greater flexibility of the exchange rate by stepping up sales of foreign exchange. The central bank also plans to keep a tight monetary stance until inflation is firmly on a downward trend.

"The authorities' structural reform agenda is geared toward improving public service delivery and removing obstacles to growth, including by according priority to building capacity in both the civil service and the private sector. The public expenditure management plan is an encouraging step, but further progress will be needed in addressing weaknesses in expenditure management more systematically. Rwanda's infrastructure investments, reform of the banking system and overhaul of business-related laws are expected to stimulate private sector development. Going forward, it will also be important to advance trade integration and follow through on the design of medium-term financial sector reforms," Mr. Portugal said.

¹ The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies that are adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.