The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Rwanda’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Rwanda will be eligible to draw an amount equivalent to SDR 0.57 million (about US $0.86 million), bringing the total amount disbursed under the arrangement to SDR 2.86 million (about US $4.3 million). Rwanda’s PRGF arrangement was approved on August 12, 2002 (see Press Release No. 0⅔ 6), for SDR 4 million (about US$6.0 million).
In completing the review, the Board granted a waiver for the nonobservance of performance criteria on priority expenditures. The Board also granted a six-month extension of the arrangement through February 11, 2006.
The Board also considered the issue of inaccurately reported information in connection with the continuous performance criterion on external arrears. This performance criterion was not observed as a result of the incurring arrears to the Arab Bank for Economic Development for Africa during the fourth quarter of 2003, which were not reported to the IMF at that time. Consequently, the disbursements following the completion of the second and third program reviews under the PRGF arrangement were rendered noncomplying and a similar conclusion pertained to the disbursement of interim assistance made under the enhanced HIPC Initiative at the time of the completion of the second program review. However, in view of the settlement of the arrears in the context of satisfactory program implementation, the Board decided not to take remedial action in relation to the misreporting.
In commenting on the Executive Board discussion on Rwanda, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
“The Rwandese authorities are to be commended for having largely achieved macroeconomic stability. Implementation of economic policies improved considerably in 2004 despite an electricity crisis and rising fuel prices.
“A key priority for Rwanda in the medium term will be to raise the economic growth rate, while maintaining macroeconomic stability and debt sustainability, in order to reduce poverty significantly and advance toward the Millennium Development Goals. Steadfast commitment to reform will be necessary for this purpose. Of particular importance will be productivity-enhancing strategies, especially in agriculture and exports; prudent management of large donor inflows so as to preserve export competitiveness; and strengthening the economy’s capacity to cope with shocks, including through the mobilization of domestic revenue and maintenance of adequate international reserves. The reallocation of resources to priority needs in line with the Poverty Reduction Strategy Paper, as envisaged in the 2005 budget, should also be pursued.
“The authorities are committed to reducing inflation while at the same time allowing an expansion in credit to the private sector.
“Important structural reforms were implemented recently, including an overhaul of the legal frameworks underlying the budget and the tax system, improvements in tax administration, and progress in financial sector reform. Further strengthening of public expenditure management will be critical for implementing the PRSP, including through capacity building in line ministries and local governments to allow implementation of the organic budget law. The authorities are also aware of the importance of stepping up efforts to mobilize domestic revenue and implement the recommendations of the ongoing Financial Sector Assessment Program.
“The authorities’ commitment to limit external borrowing and accelerate export promotion efforts will be key to maintaining debt sustainability. In line with this commitment, the authorities’ intention to seek external financing mostly in the form of grants is appropriate.
“The authorities are to be commended for completing—through a broad-based consultative process—the second annual progress report on implementation of their poverty reduction strategy. Considerable progress has been made in the health and education sectors. It will be important to build on this by increasing the emphasis on private sector-led development, particularly in agriculture and exports, and better orienting public service delivery toward poverty reduction.
“Rwanda has satisfied the conditions for reaching the completion point under the enhanced HIPC Initiative. This will result in debt relief to bring the debt to a sustainable level.” Mr. Carstens said.
On the issue of the noncomplying disbursement, Mr. Carstens said:
“The Executive Board regretted the authorities’ failure to ensure the accuracy of information relating to the accumulation of external payments arrears, which led to a breach of the relevant performance criterion under the PRGF arrangement and to two noncomplying disbursements under the arrangement and disbursements of interim assistance under the Enhanced HIPC Initiative. There was a misunderstanding between the authorities and one creditor as to the due date of an interest payment, leading to the misreporting to the Fund. However, given that the deviation was minor, had been settled in the interim, and had not endangered achievement of the other objectives of the PRGF-supported program, the Executive Board decided to grant a waiver of nonobservance of the performance criterion.”
The PRGF is the most concessional facility for low-income countries. PRGF-supported programs is based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a 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 5 ½-year grace period on principal.