The Executive Board of the International Monetary Fund (IMF) has completed the second review under a three-year Policy Support Instrument (PSI) for Rwanda.1 The Executive Board’s decision was taken on a lapse of time basis.2
Rwanda’s macroeconomic performance has been strong overall, and its economic program supported under the PSI remains on track. Real GDP growth is estimated at 7.5 percent for 2010, up from 4.1 percent in 2009, driven by a favorable external environment and the PSI-supported fiscal stimulus. However, rising global food and fuel prices, slower pick-up in credit to the private sector, and raising financing to implement the government’s investment plan to close the infrastructure gap continue to pose policy challenges. All quantitative assessment criteria for December 2010 were observed, and structural reforms are advancing at a good pace.
The start of fiscal consolidation in FY 2011/12 would further anchor macroeconomic stability and support growth. To this end, the authorities are streamlining expenditures—while protecting priority spending—and introducing further reforms in revenue administration and public financial management (PFM). The authorities are committed to tighten monetary policy in 2011 if needed to contain any second round effects of higher global food and fuel prices on inflation. Structural reforms will continue to focus on improving access to financial services while safeguarding financial stability, further improving monetary policy implementation, further strengthening the Public Financial Management (PFM) system, enhancing revenue administration, improving the quality of national accounts statistics and enhancing policy coordination and capacity building. Stepped up efforts will be needed to ensure that the risks of the large roll-out of Savings and Credit Cooperatives (SACCOs) is addressed adequately through hiring and training of inspectors and the early adoption of a sustainable institutional structure for SACCOs. Over the medium term, sustaining the growth momentum would depend on securing financing for the key growth catalytic investments, a favorable external environment, and a strong recovery in credit to the private sector.
The Executive Board approved a three-year PSI for Rwanda on June 16, 2010 (see Press Release No. 10/247).