The Executive Board of the International Monetary Fund (IMF) yesterday completed the first review under the policy support instrument (PSI) for Rwanda.1 In completing the review, the Board approved a waiver for the non-observance of the continuous assessment criteria related to the ceiling on contracting new non-concessional external debt. The decision was taken without a formal Board meeting.2
The three-year PSI for Rwanda was approved on December 2, 2013 (see
Following a slowdown in 2013 characterized by a 4.6 percent growth rate, Rwanda’s growth prospects are projected to improve to 6 percent in 2014, while inflation is expected to remain well contained. Downside risks to the outlook center around delays in government financed projects and a weak second season for agriculture.
The country continues to face the challenge of sustaining high inclusive growth while reducing its reliance on aid and preventing the build-up of imbalances. Moreover, after drawing down foreign exchange reserves over the past few years to support the economy, the room for maneuver is more limited and it will be important to rebuild policy buffers.
In the short term, the need to support growth and preserve the level of foreign reserves requires a cautious fiscal stance through maintaining priority spending whilst also creating an enabling environment for private sector credit expansion. With inflationary pressures subdued, and faced with a binding balance of payments constraint, the National Bank of Rwanda’s monetary stance of maintaining exchange rate flexibility and preventing a build-up of pressures in the foreign exchange market is appropriate.
Looking ahead, the challenge is the cost-effective financing and implementation of the ambitious agenda embodied in the government’s second Economic Development and Poverty Reduction Strategy (EDPRS2). The authorities thus need to accelerate their domestic revenue mobilization efforts in support of the EDPRS2. Additionally, given the significant scaling up of investment, careful project selection and prioritization will be critical to contain fiscal risks and maintain debt sustainability.
The PSI is an instrument of the IMF designed for low-income countries that may not need balance of payments financial support but seek to maintain a close policy dialogue with the IMF through the IMF’s endorsement and assessment of their economic and financial policies. The PSI, once approved by the IMF’s Executive Board, signals to donors, multilateral development banks, and markets, the strength of a member’s policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Rwanda’s current PSI are available at www.imf.org/rwanda.
The Executive Board takes decisions without a meeting (based on lapse of time procedures) when it is agreed by the Board that a proposal can be considered without convening formal discussions.