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IMF Executive Board Completes Tenth PSI Review for Rwanda

November 30, 2018

  • Rwanda’s real GDP growth has been recovering over the past four quarters and averaged 8.6 percent in the first half of 2018.
  • The authorities reaffirmed forward-looking policy commitments and are brainstorming with IMF staff on topics of interest for a potential successor program supported by the IMF
  • IMF capacity development underway will continue to support the authorities in key areas for structural reform.

The Executive Board of the International Monetary Fund (IMF) today completed the tenth and final review of Rwanda’s performance under the Policy Support Instrument (PSI). [1]

The PSI for Rwanda was approved on December 2, 2013 (see Press Release No.13/483), and extended on January 12, 2018, to December 1, 2018 (see Press Release No.18/02).

The PSI-supported program emphasized four priority areas for maintaining macroeconomic stability while supporting inclusive growth and poverty reduction. These include maintaining a sustainable fiscal position by enhancing domestic revenue mobilization (DRM) and pursuing public financial management (PFM) reforms; ensuring stable and low inflation by modernizing the monetary policy framework; improving financial inclusion while reducing financial sector vulnerabilities by strengthening financial supervision; and preserving external stability, including debt sustainability.

The authorities reaffirmed forward-looking policy commitments and are brainstorming with staff on topics of interest for a potential successor program supported by the IMF. This will also help sharpen how future engagement can support implementation of the National Strategy for Transformation (NST) and achievement of the Sustainable Development Goals (SDGs) while maintaining macroeconomic sustainability. IMF capacity development underway will continue to support the authorities in key areas for structural reform. Staff and the authorities agreed that the capacity development strategy will continue to focus on domestic revenue mobilization, transition to the interest rate-based monetary policy operational framework, improving the coverage, timeliness and transparency of fiscal reporting and the monitoring of fiscal risks, harmonizing BOP and national accounts, and strengthening financial sector supervision.

Recent Economic Developments

Real GDP growth has been recovering over the past four quarters and averaged 8.6 percent in the first half of 2018. The rebound was in line with the projected growth rate of 7.2 percent for 2018. Growth was robust in most areas, except construction, with pronounced pick-ups in non-traditional exports and services. Over the medium term, investment in public infrastructure and interventions to promote structural transformation and diversified exports, underpinned by strong DRM efforts and PFM reforms, should sustain growth in line with or above historical averages.

Inflation remains low and expectations are anchored within a ±3 percentage points range of the medium-term target of 5 percent. The monetary policy stance remains broadly neutral. The central bank has maintained its policy rate at 5.5 percent so far in 2018, after a cumulative 100 basis point reduction in 2017. Money supply growth, at 9.6 percent y/y in August, remained broadly in line with economic activity.

The headline FY17/18 fiscal deficit was unchanged from the previous year, at 4.6 percent of GDP. However, the primary deficit excluding grants and UN peace keeping operations (PKO) was reduced, from 8.2 to 8.0 percent of GDP.

External balances and reserve buffers continued to improve, while the financial sector remains healthy. The trade deficit has continued to decline, by 6 percent from October 2017-September 2018. The current account deficit has been revised modestly upward, including in projections, reflecting an updated methodology for estimating travel expenditures.

External balances continue to improve.

Program Summary

In spite of various shocks, Rwanda has made good progress toward the objectives of the PSI-supported program. Domestic revenue mobilization, careful spending containment and strong debt management have rendered fiscal and debt positions sustainable, while still allowing for a growth-enhancing scaling up of public investment and social spending in line with the country’s development strategy. Numerous reforms have been introduced to establish the preconditions for a forward-looking monetary policy framework, while inflation has remained contained and financial sector supervision and stability has been enhanced. The authorities’ public investment strategy has supported higher value-added economic activity and diversified exports, providing a sound foundation for high growth and poverty reduction.

At the conclusion of the Executive Board discussion on Rwanda, Mr. Tao Zhang, Deputy Managing Director and Acting Chair stated:

“Rwanda’s macroeconomic conditions have continued to improve owing to the strong implementation of reforms underlying the authorities’ economic program. Over the past four quarters, economic activity has gained momentum and was broad-based, inflation remains low, and the economy’s resilience to shocks has been boosted.

“Rwanda has made substantial progress toward the original objectives of its economic program supported by the IMF’s Policy Support Instrument. Rapid, inclusive growth has resulted in sustained poverty reduction. Revenue mobilization efforts have increased resilience to declining aid flows. Headline inflation remains anchored within the authorities’ medium-term target range and supported by implementation of several reforms to modernize Rwanda’s monetary policy framework. Despite numerous shocks, adjustment policies have restored external stability and public debt has remained sustainable.

“The authorities have demonstrated a strong commitment to fiscal discipline while scaling up investment spending needed to implement their development plans. The new Vision 2050 and National Strategy for Transformation (NST) lay the foundation to help meet the SDGs and propel Rwanda to middle-income status over the longer term. Fiscal discipline has been complemented by efforts to bolster domestic revenue mobilization and improve fiscal transparency, but there is scope for additional progress on resource mobilization.

“Despite the notable achievements, external risks could pose hurdles to Rwanda’s quest toward achieving middle-income status. It will be important to cement macroeconomic stability by preserving low inflation and debt sustainability. The structural reform agenda should continue encouraging more private investment. The Fund remains committed to help the authorities manage the risks as they move toward achieving middle-income status.”

Table 1. Rwanda: Selected Economic Indicators, 2017-2020 

2017

2018

2019

2020

9th PSI Review

Act.

9th PSI Review

Proj.

9th PSI Review

Proj.

9th PSI Review

Proj.

(Annual percentage change, unless otherwise indicated)

Output and prices

Real GDP

6.1

6.1

7.2

7.2

7.8

7.8

8.0

8.0

GDP deflator

7.3

7.3

3.0

3.0

4.9

4.9

5.8

5.8

CPI (period average)

4.8

4.8

2.8

2.8

5.0

5.0

5.0

5.0

CPI (end period)

0.7

0.7

5.0

5.0

5.0

5.0

5.0

5.0

Terms of trade (deterioration, -)

1.8

1.8

-1.1

-1.7

0.3

0.1

0.9

0.7

Money and credit

Broad money (M3)

12.3

12.3

16.5

17.8

18.8

14.8

21.7

Reserve money

8.8

8.8

12.3

13.4

14.1

12.8

20.2

Credit to non-government sector

13.9

13.9

15.1

11.0

15.2

14.0

17.0

M3/GDP (percent)

23.6

23.6

24.9

25.2

26.1

25.5

27.2

NPLs (percent of total gross loans)

7.6

7.6

General government budget

(Percent of GDP, unless otherwise indicated)

Total revenue and grants

22.9

22.9

23.4

23.6

22.0

22.6

22.1

22.7

of which : tax revenue

15.5

15.5

15.8

15.8

15.8

15.6

16.0

15.9

of which : grants

4.7

4.7

4.9

5.1

4.0

4.5

3.9

4.3

Expenditure

27.6

27.6

27.5

29.4

26.2

26.7

25.6

26.1

Current

14.7

14.7

14.9

15.2

14.1

13.8

13.8

13.5

Capital

10.7

10.7

10.5

12.2

10.0

10.8

9.8

10.6

Primary balance

-3.6

-3.6

-3.0

-4.6

-3.2

-3.1

-2.5

-2.4

Overall balance

-4.7

-4.7

-4.1

-5.8

-4.2

-4.1

-3.4

-3.4

excluding grants

-9.4

-9.4

-9.0

-10.8

-8.2

-8.6

-7.3

-7.7

Net domestic borrowing

0.2

0.2

0.8

1.5

0.6

0.6

0.0

0.1

Public debt

Total public debt incl. guarantees

48.3

47.1

49.0

49.7

49.0

49.5

47.3

47.9

of which : external public debt

37.5

37.5

39.2

39.9

39.7

40.1

38.6

39.1

Investment and savings

Investment

23.4

23.4

25.0

25.6

25.9

26.3

25.9

26.6

Government

10.7

10.7

10.5

12.2

10.0

10.8

9.8

10.6

Nongovernment

12.7

12.7

14.6

13.4

16.0

15.5

16.1

16.0

Savings

12.5

10.9

12.4

11.7

13.8

13.0

14.6

14.7

Government

3.4

3.4

3.6

3.3

3.9

4.3

4.5

4.9

Nongovernment

9.0

7.5

8.8

8.4

10.0

8.7

10.1

9.8

External sector

Exports (goods and services)

22.4

21.7

23.0

22.5

24.1

23.7

24.2

23.9

Imports (goods and services)

32.3

32.9

34.4

35.3

34.9

35.9

34.2

34.6

Current account balance (incl grants)

-6.8

-8.3

-8.8

-10.0

-9.0

-10.0

-8.3

-9.0

Current account balance (excl grants)

-10.9

-12.4

-12.6

-13.9

-12.1

-13.3

-11.4

-11.9

Current account balance (excl. large projects)

-6.4

-7.9

-8.6

-9.8

-7.8

-8.7

-7.2

-8.0

Gross international reserves

In millions of US$

1163

1163

1240

1284

1332

1319

1460

1461

In months of next year's imports

4.1

4.1

4.0

4.1

4.0

4.0

4.1

4.1

Memorandum items:

GDP at current market prices

Rwanda francs (billion)

7,597

7,597

8,388

8,388

9,486

9,486

10,839

10,839

US$ (million)

9,136

9136

GDP per capita (US$)

772

772

Population (million)

11.8

11.8

12.1

12.1

12.4

12.4

12.7

12.7

Sources: Rwandan authorities and IMF staff estimates.


[1] The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Rwanda's PSI are available at www.imf.org/rwanda.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Lucie Mboto Fouda

Phone: +1 202 623-7100Email: MEDIA@IMF.org

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