Statement by the IMF Staff Representative

Rwanda’s Second and Third Reviews under the Poverty Reduction and Growth Facility, and request for Waiver of Performance Criteria are discussed. After an extended period characterized by a strong expansion of economic activity, real GDP growth is estimated by IMF staff to have slowed to 0.9 percent in 2003. On the structural side, performance criteria on the revision of the tax law and preparation of the financial instructions for more effective expenditure management have been met.

Abstract

Rwanda’s Second and Third Reviews under the Poverty Reduction and Growth Facility, and request for Waiver of Performance Criteria are discussed. After an extended period characterized by a strong expansion of economic activity, real GDP growth is estimated by IMF staff to have slowed to 0.9 percent in 2003. On the structural side, performance criteria on the revision of the tax law and preparation of the financial instructions for more effective expenditure management have been met.

This statement provides information on economic developments that became available since the issuance of the staff report on the Second and Third Reviews under Rwanda’s Three-Year Arrangement under the PRGF. The new information does not alter the thrust of the staff appraisal.

Prior Actions

1. The Second and Third Reviews of the PRGF-supported program for 2004 set the following prior actions, to be taken by May 31, 2004: (i) cabinet approval of a new procurement code; (ii) central bank (NBR) establishment of written procedures ensuring that data reported to the Fund for program purposes are consistent with the TMU and reconciled with accounting records; (iii) restoration, by the NBR, of the regulation on the net open foreign exchange position of commercial banks to the text in force in June 2003.

2. All three prior actions were met on time. A new procurement code was approved by cabinet on May 31, 2004. The code, which addresses issues raised in the Auditor General’s report for 2002, strengthens transparency in the award of government contracts and widens eligibility for participation in tenders for the provision of goods and services for public sector entities. Statistical guidelines and verification procedures meeting the prior action on written procedures were issued by the central bank on May 31, 2004 and will be applied beginning with the submission of data for April 2004. The revised regulation on the net open foreign exchange position of commercial banks, which brings the regulation into line with widely observed international norms, took effect on May 19, 2004.

Recent Economic Developments

3. Rainfall through April 2004 was close to the long term average, and agricultural output for this year could support the targeted real GDP growth rate of 6 percent envisaged in the program. The 12-month rate of inflation peaked at 11.2 percent in February 2004, before declining to 10.4 percent in April. As the value of the Rwanda franc vis-à-vis the US dollar stabilized in 2004 following a pronounced depreciation during 2003, the price pass-through of depreciation should moderate in the period ahead.

4. The government’s operations through end-April 2004 were consistent with the program targets. Revenue was slightly above the projected level, boosted by strong customs collections. Domestic spending and the domestic fiscal balance remained in line with program targets. The stock of unpaid government bills (“arrears”) accumulated during 2003 was cleared, as of end-May 2004.

5. The end-2003 liquidity overhang was progressively reduced through April 2004 and net credit from the banking system to government was on track. In line with program objectives, commercial bank reserves were brought substantially in line with requirements and, as of May 21, 2004, the year-on-year growth rate for reserve money had declined to 10.3 percent. Central bank foreign exchange sales have been limited, in line with the program.

6. Five interested investors have now completed due diligence studies of the Commercial Bank of Rwanda. Investor bids are due on June 16, 2004.

7. The central bank issued a payment order on June 7, 2004, to fully amortize the external government-guaranteed loan for the hotel project.