Journal Issue

IMF Executive Board Concludes 2012 Article IV Consultation with Rwanda

International Monetary Fund. African Dept.
Published Date:
March 2013
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On November 28, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Rwanda.17


Rwanda has been an economic success story. Real gross domestic product (GDP) growth averaged above 8 percent per year in the last decade; inflation has been subdued since 2009; foreign reserves have been kept at adequate levels; poverty based on the household living conditions survey declined from about 57 percent in 2005/06 to below 45 percent in 2010/11; and income inequality declined notably.

Macroeconomic developments have been generally favorable this year. The Rwandan economy grew by 8.6 percent year-on-year in the first half of 2012, driven by the construction and services sectors. Headline inflation declined to 5.4 percent in October 2012, mainly in response to slowing import prices for food and petroleum products while core inflation was down to 2.5 percent.

The current account deficit has widened due to strong import growth and delays in aid inflows. Exports of goods and services have remained strong in 2012, as rising mineral exports and markedly higher tea prices have more than offset lower prices for a number of traditional exports, including coffee. Meanwhile, imports have increased rapidly, driven by higher imports of capital goods and materials for the construction sector. Moreover, aid delays have resulted in lower official transfers. As a result, the current account deficit (including aid inflows) has widened and, for 2012, is estimated to reach 11.3 percent of GDP.

Fiscal consolidation continued in the July 2011-June 2012 fiscal year. The overall fiscal deficit (cash basis, after grants), was 0.7 percent of GDP lower than targeted, as a result of greater-than-projected revenue and lower spending. The higher revenue reflected higher income tax revenue due to unexpectedly large clearance of arrears, as well as higher revenue from taxes on goods and services and international trade (boosted by higher imports). On the spending side, higher-than-budgeted current spending, mainly on wages and salaries, was more than offset by under-execution of domestically-financed capital expenditures.

The monetary policy stance has been tightened since mid-2012, following an extended period of accommodation. Against a background of rapid growth in broad money and credit to the private sector in the first half of the year, the National Bank of Rwanda (NBR) raised its key repo rate (policy rate) in May 2012 by 50 basis points (to 7.5 percent) and increased the use of repo operations to mop up excess liquidity. As of end-October, the exchange rate had depreciated by 3.7 percent since the beginning of the year.

The macroeconomic outlook remains generally favorable, provided delays in budget support disbursements are temporary. For the whole of 2012, real GDP growth is projected at about 7.7 percent, easing compared to the first half of the year because of weaker agricultural output and lower-than-planned government spending caused by delays in some budget support disbursements. Growth is expected to be sustained at 7.6 percent in 2013, driven by an expansion in services and construction, and to stabilize at around 7 percent over the medium term. Inflation is projected to continue its convergence toward the authorities’ medium-term target of 5 percent per year.

Risks to the outlook arise mainly from possible cutbacks in aid and a more challenging global environment. Staff estimates indicate that a prolonged delay in the delivery of budget support could lower growth in 2013 by 1½ percentage points and possibly more, depending on the magnitude of second round effects.

Rwanda’s macroeconomic policies are supported by the IMF’s Policy Support Instrument (PSI), which was approved in June 2010. The 5th review under the PSI was completed in conjunction with the conclusion of the 2012 Article IV consultation.

Executive Board Assessment

Executive Directors commended Rwanda’s strong economic performance in the last decade, including under the PSI-supported program. Sustained rapid economic growth, relatively subdued inflation, and a sharp decline in poverty and income inequality have been underpinned by sound and inclusive policies supported by the donor community. Although the outlook remains favorable, it is subject to highly uncertain prospects for donor aid and the global environment, while the export base is narrow and poverty needs to be further reduced. Directors therefore stressed the importance of maintaining sound economic management and the momentum of structural reform, and promoting regional stability.

Directors considered the overall stance of fiscal policy to be appropriate. They welcomed the steps taken to address delays in budget support, including identification of contingent spending cuts, and urged a cautious execution of fiscal policy to take into account available financing. They underscored the importance of prioritizing spending and minimizing recourse to domestic bank financing.

Directors called for stepped-up efforts to strengthen the domestic revenue base and reduce the aid dependence. They encouraged the authorities to reform tax policy and revenue administration in line with the recommendations of a recent IMF technical assistance mission. Directors welcomed the steps the authorities have taken to strengthen public financial management and debt management capacity. They noted the authorities’ planned issuance of a euro bond before end-201218, and agreed that the bulk of the proceeds should be used to retire shorter term external debt to help preserve debt sustainability. At the same time, Directors stressed the need to maximize the use of concessional financing.

Directors supported maintenance of a tight monetary stance to contain inflationary pressures. They welcomed the central bank’s adoption of a more flexible reserve money targeting framework to improve liquidity management and the effectiveness of monetary policy. They commended efforts to improve the functioning of the foreign exchange and money markets, and encouraged greater exchange rate flexibility to protect against external shocks.

Directors welcomed the authorities’ efforts to increase financial inclusion by strengthening financial intermediation in the rural areas. They noted that the risks and challenges stemming from the rapid expansion of local savings and credit cooperatives and the growing exposure of banks to the real estate sector call for strong financial sector regulation and supervision.

Directors encouraged the authorities to continue their efforts to improve the business environment, strengthen competitiveness, and broaden the economic base. The ongoing work on an ambitious new economic development and poverty reduction strategy will be important in this regard. Directors emphasized that the strategy’s targets should be realistic and consistent with available financing.

Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Selected Economic and Financial Indicators, 2008–17
Est.Country Report No.12/152Proj.Country Report No. 12/152
Output and prices
Real GDP growth13.
Real GDP (per capita)
GDP deflator10.
Consumer prices (period average)15.410.
Consumer prices (end of period)
Money and credit 1

Domestic credit 2
Government 2-
Broad money (M2)
Reserve money23.50.312.523.417.016.516.916.315.613.713.713.8
Velocity (GDP/M2; end of period)
National income accounts

National savings
Gross investment23.522.321.722.123.823.723.023.021.520.019.719.4
Of which: private (including public enterprises)13.112.410.
Government finance 3
Total revenue (excl. grants)12.614.912.513.613.814.314.014.914.915.114.915.2
Total expenditure and net lending22.626.325.727.726.926.628.032.328.424.423.322.9
Capital expenditure8.
Current expenditure15.114.514.714.814.514.914.314.014.614.113.913.4
Overall fiscal balance (payment order)
After grants-0.2-2.2-0.1-3.4-1.9-1.2-2.6-6.9-2.9-2.3-1.6-1.6
Before grants-10.0-11.5-13.2-14.1-13.2-12.3-14.0-17.4-13.5-9.3-8.5-7.8
External sector
External current account balance
Including official transfers-4.9-7.3-5.9-7.3-10.0-11.3-9.7-10.2-9.0-6.8-5.9-5.4
Excluding official transfers-14.4-17.2-17.5-19.0-21.5-20.9-19.0-19.7-16.3-13.0-11.5-10.6
External debt (end of period)14.714.914.818.418.721.319.120.420.320.119.518.7
Net present value of external debt
(Percent of exports of goods and services)86.9108.6111.2136.8114.8129.5127.6119.1110.6102.0
Scheduled debt service ratio
(Percent of exports of goods and services)
Gross reserves (months of imports of goods and services)
Gross reserves596.4742.2814.21051.21042.01144.2950.4989.0978.81030.11006.21047.6
Memorandum item:
Nominal GDP (billions of Rwanda francs)2,5652,9853,2803,8264,4094,4375,1095,1185,8396,5787,4128,364
Sources: Rwandan authorities and IMF staff estimates and projections.

Projections are based on the program exchange rate of RWF 604.14 per U.S. dollar.

As a percent of the beginning-of-period stock of broad money.

On a fiscal-year basis (July–June). For example, the column ending in 2011 refers to FY2010/11.

Data from 2009 onward includes SDR allocation.

Sources: Rwandan authorities and IMF staff estimates and projections.

Projections are based on the program exchange rate of RWF 604.14 per U.S. dollar.

As a percent of the beginning-of-period stock of broad money.

On a fiscal-year basis (July–June). For example, the column ending in 2011 refers to FY2010/11.

Data from 2009 onward includes SDR allocation.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

The euro bond launch was subsequently postponed.

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