Front Matter Page
© 2008 International Monetary Fund
July 2008
IMF Country Report No. 08/222
Rwanda: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion and Modification of Performance Criteria—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Rwanda
In the context of the fourth review under the three-year arrangement under the Poverty Reduction and Growth Facility and a request for a waiver of nonobservance of a performance criterion and modification of performance criteria, the following documents have been released and are included in this package:
The staff report for the Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion and Modification of Performance Criteria, prepared by a staff team of the IMF, following discussions that ended on March 18, 2008, with the officials of Rwanda on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 30, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff statement of June 16, 2008 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its June 16, 2008 discussion of the staff report that completed the review.
A statement by the Executive Director for Rwanda.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Rwanda*
Memorandum of Economic and Financial Policies by the authorities of Rwanda*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623–7430 • Telefax: (202) 623–7201
E–mail:publications@imf.org • Internet:http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
RWANDA
Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criterion, and Modification of Performance Criteria
Prepared by the African Department
(In collaboration with other departments)
Approved by Hugh Bredenkamp and Mark Plant
May 30, 2008
Program Review
Staff recommends completion of the fourth review under the PRGF arrangement based on Rwanda’ performance and understandings reached on the macroeconomic and structural program for 2008.
All but one of the end-2007 quantitative performance criteria were met. Staff supports the authorities’ request for a waiver of the nonobservance of the performance criterion on net credit to government, because the deviation was temporary.
Staff supports the authorities’ request for modification of the program to accommodate newly available donors’ funds, new spending needs, and exogenous shocks. Staff also supports the authorities’ request for a modification of the program to allow less concessional borrowing for a large infrastructure project.
Participants
The mission team (March 5–18, 2008) headed by Ms. Murgasova comprised Mr. Mitchell, Mr. Gorbanyov and Ms. Kaendera (all AFR) and was assisted by Mr. Engström, the resident representative.
The mission met with Minister of Finance and Economic Planning Musoni, Governor Kanimba of the National Bank of Rwanda, other government officials, and representatives of the private sector, civil society, and the international community.
Contents
Executive Summary
I. Program Performance in 2007 and Early 2008: Broadly On Track
II. The Program for 2008: Safeguarding Macroeconomic Stability
A. Adjusting Fiscal Plans
B. Boosting Productivity and Debt Sustainability
C. Strengthening Implementation of Monetary and Exchange Rate Policies
D. Monetary and Fiscal Policy Coordination: Accommodating Scaling Up
E. Structural Reforms
III. Program Risks and Monitoring
IV. Staff Appraisal
Figures
1. Macroeconomic Performance, 2004–08
2. Fiscal Performance, 2007
3. Monetary Sector, 2006–08
4. Balance of Payments, 2004–07
5. NPV of External Debt-to-Exports Ratio, 2008–28
6. Domestic Instruments Used for Sterilization, 2005–08
Tables
1. Selected Economic and Financial Indicators, 2005–09
2. Operations of the Central Government, 2006–09
3. Monetary Survey, 2005–08
4. Balance of Payments, 2005–10
5. Proposed Schedule of Disbursements Under the PRGF Arrangement, 2008–09
6. Millennium Development Goals
Appendix
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Executive Summary
Program performance was broadly satisfactory. Growth at 6 percent in 2007 exceeded initial expectations. Headline inflation declined to single digits largely due to a favorable harvest, while core inflation accelerated. Fiscal policy remained on track, though the December 2007 performance criterion on net credit to government (NCG) was missed by 0.2 percent of GDP because of delays in a disbursement from a donor and a reimbursement in relation to peacekeeping activities. These funds were received in the first quarter of 2008, and the overrun on the NCG was corrected. Furthermore, the domestic component of spending exceeded projections and injected extra liquidity into the economy, making the conduct of monetary policy exceedingly difficult.
The macroeconomic program for 2008 is revised in light of new developments. The fiscal program includes additional spending financed by new donor aid (for health outlays and energy investment) and outlays for earthquake rehabilitation and a large energy project. The monetary program accommodates the first round effects of rising prices of imported food and petroleum products.
Policy coordination needs to improve to preserve macroeconomic stability. Pressures for a real exchange rate appreciation are expected to continue in 2008 with further increases in aid-financed fiscal spending. Monetary and exchange rate policies therefore need to be geared toward managing the domestic demand impact of the fiscal expansion. Greater exchange rate flexibility will be needed to achieve sales of foreign exchange consistent with meeting the reserve money target and the limits on domestic debt. If the limits on domestic debt are exceeded or inflation is rekindled, the domestic component of fiscal spending should be released more gradually. A strengthened Treasury Management Committee should help facilitate the policy coordination process.
To finance a large energy project, the authorities plan to borrow at less-concessional terms than those allowed under the program. The project would help alleviate binding infrastructure bottlenecks to economic growth. The World Bank positively assessed the project’ financial viability, and the impact on debt sustainability appears manageable. To prevent an excessive reaccumulation of debt, future borrowing will be guided by a debt management strategy.
On the structural side, the focus remains on advancing reforms in tax administration, public financial management (PFM), the financial sector and export promotion, as well as improving the conditions for the private sector.
Program risks have increased. The planned fiscal expansion and the passthrough of rising import prices could fuel inflation and dampen prospects for growth if not properly managed. To prevent an inflation spiral from unfolding, the program envisages more exchange rate flexibility and close monitoring of the import component of fiscal spending.
Front Matter Page
INTERNATIONAL MONETARY FUND
RWANDA
Fourth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criterion, and Modification of Performance Criteria—Informational Annex
Prepared by the African Department
(In collaboration with other departments)
Approved by Hugh Bredenkamp and Mark Plant
May 30, 2008
Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange system. Outstanding Fund credit was SDR6.27 million (7.83 percent of quota) at end-March 2008. Completion of the fourth review would allow the disbursement of SDR1.14 million.
Relations with the World Bank Group. Describes World Bank Group program and portfolio and provides statement of IFC investments.
Statistical Issues. Assesses the quality of statistical data. Although economic data are generally adequate for surveillance, weaknesses hamper economic analysis.
Front Matter Page
June 16, 2008
Front Matter Page
Press Release No. 08/138
FOR IMMEDIATE RELEASE
June 16, 2008
International Monetary Fund
Washington, D.C. 20431 USA
Front Matter Page
June 16, 2008
