Mr. Ales Bulir, Daniel Baksa, Mr. Juan S Corrales, Andres Gonzalez, Diego Rodriguez, and Dyna Heng
This technical note and manual (TNM) addresses the following issues: • Evaluating the full implications from the policies adopted to mitigate the impact of the COVID-19 pandemic on the economy requires a well-developed macroeconomic framework. This note illustrates how such frameworks were used to analyze Colombia and Cambodia's shock impact at the beginning of the pandemic. • The use of macroeconomic frameworks is not to infer general policy conclusions from abstract models or empirical analysis but to help policymakers think through and articulate coherent forecasts, scenarios, and policy responses. • The two country cases illustrate how to construct a baseline scenario consistent with a COVID-19 shock within structural macroeconomic models. The scenario is built gradually to incorporate the available information, the pandemic's full effects, and the policy responses. • The results demonstrate the value of combining close attention to the data, near-term forecasting, and model-based analyses to support coherent policies.
The COVID-19 pandemic is having an adverse impact on Rwanda’s economy, despite a sizeable policy response. Output in 2020 is projected to contract by 0.2 percent, compared to an 8 percent increase expected pre-pandemic. The government’s early actions helped contain the spread of the virus and mitigate its economic impact, supported by financing from Rwanda’s development partners, including from the IMF under the RCF. With the number of infections contained, the authorities are gradually easing up containment measures.
COVID-19 has had a severe economic impact on Rwanda through the implementation of strict domestic measures to contain the spread of the virus and the related global spillovers. The authorities have responded by rolling out health and economic measures totaling USD 311 million (3.3 percent of GDP) to mitigate the impact on businesses and households. To help address the urgent balance of payments need arising from the pandemic, the Executive Board approved on April 2 and June 11, 2020 the authorities’ consecutive requests for emergency financing under the “exogenous window” of the Rapid Credit Facility (RCF) totaling SDR 160.2 million (IMF Country Reports No. 20/115 and No 20/207). This brings the total IMF COVID-19 support to Rwanda to 100 percent of quota, or USD 220.46 million.
This paper highlights Rwanda’s Request for Disbursement Under the Rapid Credit Facility (RCF). The economic impact of the coronavirus disease 2019 pandemic is rapidly unfolding with the near-term outlook deteriorating quickly. This has given a rise to significant fiscal and external financing needs. The authorities have acted fast by putting in place measures to help contain and mitigate the spread of the disease. The RCF funds will support the authorities’ efforts by backstopping the decline in international reserves and providing financing to the budget for increased spending aimed at containing the epidemic and mitigating its economic impact. This additional IMF financing also ought to help catalyze further assistance from the international community, preferably in the form of grants. The IMF continues to monitor Rwanda’s situation closely and stands ready to provide policy advice and further support as needed. Monetary policy needs to be data-driven and the central bank should stand ready to provide additional liquidity support if warranted. A flexible exchange rate should be maintained as a shock absorber. The National Bank of Rwanda has taken various measures to help maintain the health of the financial sector and should continue to show flexibility, while encouraging prudent loan restructuring and stepping up reporting requirements.
This paper discusses Cote d’Ivoire’s Sixth Review Under the Arrangement of the Extended Credit Facility and the Extended Arrangement Under the Extended Fund Facility, and Request for Extension and Augmentation of Access. Côte d’Ivoire has been pursuing a development-oriented policy agenda, and the IMF-supported program in place since 2016 has supported that focus, paving the way for the private sector to become the main driver of growth. The performance under the program has been strong. The medium-term growth prospects remain robust, predicated on continuing prudent macroeconomic policy, furthering financial sector reforms and sustaining structural reforms to bolster private sector-led inclusive growth. Côte d’Ivoire’s reform efforts have resulted in improvements in its business climate in recent years. It will be imperative to continue the reform agenda to further stimulate private sector activity and support inclusive growth, including by improving the energy sector, human capital and financial inclusion, accelerating digitalization, enhancing trade connectivity and governance, expanding the coverage of social safety nets, and reinforcing the statistical apparatus to help better inform economic policy.
Rwanda has made considerable progress in sustaining high and inclusive growth and reducing poverty. Despite numerous shocks, macroeconomic management has been strong and debt risks have remained low. Going forward, the authorities’ National Strategy for Transformation (NST) aims to make progress toward the SDGs, but its financing will be challenging. A more neutral medium-term fiscal policy stance can help, reinforced with commitments for more domestic revenue mobilization and mitigation of fiscal risks. The central bank moved to a new interest-rate based monetary policy framework and, with inflation below its target range, eased the policy stance. To support their policies and NST implementation, the authorities are requesting approval of a 3-year program supported by the Policy Coordination Instrument (PCI).
International Monetary Fund. Strategy, Policy, & and Review Department
The 2018 Review of Program Design and Conditionality is the first comprehensive stocktaking of Fund lending operations since the global financial crisis. The review assesses program performance between September 2011 and end-2017. Programs during this period were defined by the protracted structural challenges faced by members and hampered by the persistently weak global environment.
This is the tenth and final review of Rwanda’s PSI-program, approved by the Executive Board on December 2, 2013. A concurrent 18-month SCF arrangement was approved on June 8, 2016 to support adjustment policies to eliminate external imbalances. The PSI-supported program was extended three times, on: June 8, 2016; November 19, 2017; and January 12, 2018. When it expires on December 1, 2018, the program will have reached its maximum 5-year limit.
Recent Developments. After a dip in 2016–17, real GDP growth has been recovering over the past four quarters. Growth averaged 8.6 percent in the first half of 2018 and, despite a temporary deceleration in Q2, remains in line with projections for 7.2 percent for the year. Growth in the medium term should remain at or higher than historical averages, based on a strong pipeline of tourism and business tourism, new mining operations, more resilient agriculture, new and more diversified exports, and construction of a new airport. Inflation remains low, and expectations within targeted ranges. External balances and reserve buffers continued to improve, while the financial sector remains healthy.
Is over-optimism about a country's future growth perspective good for an economy, or does
over-optimism also come with costs? In this paper we provide evidence that recessions, fiscal
problems, as well as Balance of Payment-difficulties are more likely to arise in countries
where past growth expectations have been overly optimistic. To examine this question, we
look at the medium-run effects of instances of over-optimism or caution in IMF forecasts. To
isolate the causal effect of over-optimism we take an instrumental variables approach, where
we exploit variation provided by the allocation of IMF Mission Chiefs across countries. As a
necessary first step, we document that IMF Mission Chiefs tend to systematically differ in
their individual degrees of forecast-optimism or caution. The mechanism that transforms
over-optimism into a later recession seems to run through higher debt accumulation, both
public and private. Our findings illustrate the potency of unjustified optimism and underline
the importance of basing economic forecasts upon realistic medium-term prospects.