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© 2009 International Monetary Fund
February 2009
IMF Country Report No. 09/58
Rwanda: 2008 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Nonobservance of Performance Criterion—Staff Report; Staff Supplement and Statement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Rwanda
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2008 Article IV consultation with Rwanda and the fifth 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, the following documents have been released and are included in this package:
The staff report for the combined 2008 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion, prepared by a staff team of the IMF, following discussions that ended on November 4, 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 December 19, 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 supplement on the joint IMF/World Bank debt sustainability analysis.
A staff statement of January 12, 2009 updating information on recent developments.
A Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its January 12, 2009, discussion of the staff report on issues related to the Article IV consultation and the review, respectively.
A statement by the Executive Director for Rwanda.
The documents listed below have been 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
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INTERNATIONAL MONETARY FUND
RWANDA
Staff Report for the 2008 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Nonobservance of Performance Criterion
Prepared by the African Department
(In consultation with other Departments)
Approved by Mark Plant and Anthony Boote
December 19, 2008
Main topics
Article IV consultation. The key issue is how to sustain Rwanda’s recent economic performance, encourage broad-based growth, and reduce poverty. This would require developing the country’s production base, maintaining macroeconomic stability, and accelerating structural reforms.
Program review. The program is broadly on track. Economic growth and the external position are in line with program objectives, but inflation stemming from world commodity prices and domestic demand is higher than expected. All quantitative performance criteria for end-June 2008 were met and structural policies are generally proceeding as envisaged. Staff supports the authorities’ request for waiver of nonobservance of a structural performance criterion for end-June 2008 and recommends the completion of the fifth review of the PRGF, based on remedial measures taken and policy commitments for the remainder of the program.
The exchange rate system is classified as a conventional peg. Rwanda has accepted the obligations of Article VIII, Sections 2, 3 and 4, and maintains a system free of restrictions on payments and transfers for current international transactions.
Mission
Discussions were held in Rwanda during October 22–November 4, 2008. The staff team comprised Ms. Murgasova (head), Messrs. Mitchell, Sobolev and Gorbanyov (all AFR), assisted by Mr. Engström, the resident representative. The mission met with Mr. Musoni, the Minister of Finance and Economic Planning, Mr. Kanimba, the Governor of the National Bank of Rwanda, other senior government and central bank officials, and representatives of the donor and business communities.
Contents
Executive Summary
I. Background
II. Key Economic Challenges
A. Increasing Productive Capacity
B. Preserving Macroeconomic Stability and Debt Sustainability
C. Accelerating Structural Reforms and Other Policies
D. Macroframework and Risks
III. Program Issues
A. Macroeconomic Developments and Program Performance in 2008
B. Macroeconomic Policies for 2009
C. Data Issues
D. Program Risks and Monitoring
IV. Staff Appraisal
Tables
1. Rwanda: Selected Economic and Financial Indicators, 2006-09
2a. Rwanda: Operations of the Central Government, Calendar Year Basis, 2006–08
2b. Rwanda: Operations of the Central Government, Fiscal Year Basis, 2006/07–09/10
3. Rwanda: Monetary Survey, 2006–09
4. Rwanda. Balance of Payments, 2006–13
5. Rwanda: Millenium Development Goals
6. Financial Soundness Indicators for the Banking Sector, 2005–June 2008
7. Rwanda: Proposed Schedule of Disbursements Under the PRGF Arrangement, 2009
8. Rwanda: Work Program, 2009
Figures
1. Rwanda: Recent Economic Performance and Achievements, 2000–07
2. Rwanda: Fiscal Developments, 2000–07
3. Rwanda: Monetary and Financial Developments, 2000–07
4. Rwanda: External Sector Developments, 2000–07
5. Rwanda: Agricultural Productivity
6. Rwanda: Electricity Consumption
7. Rwanda: NPV of External Debt-to-Exports Ratio (percent), 2008–28
8. Rwanda: Inflation Developments, January 2005–October 2008
9. Rwanda: Monetary Sector, 2006–08
10. Rwanda: Exchange Rate Movements, May 2005–October 2008
Boxes
1. Progress in Main Structural Reforms since 2006
2. Banking Soundness and Financial Sector Development
3. Exchange Rate Assessment
Appendices
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Att. 1. Table 1. Rwanda: Quantitative Performance Criteria and Benchmarks for 2008
Att. 1. Table 2. Rwanda: Quantitative Indicative Targets and Benchmarks for 2009
Att. 1. Table 3. Rwanda: Structural Conditionality, 2008
Attachment II. Technical Memorandum of Understanding
Att. 2. Table 1. Priority Spending, January-June 2009
Executive Summary
Rwanda has sustained strong economic growth over the last decade, but the country is still very poor. Sound macroeconomic and structural policies backed by substantial donor assistance have led to macroeconomic stability, robust growth and low inflation, a comfortable level of international reserves, and significantly reduced external debt. Yet poverty is prevalent.
The main challenge for the medium term is to address Rwanda’s development needs while maintaining macroeconomic stability. Stimulating higher growth requires addressing Rwanda’s severe infrastructure gap and low agricultural yields, developing the financial and private sectors, and promoting savings. Yet the required scaling up of public investment must be pursued in a manner consistent with preserving macroeconomic stability and debt sustainability. Structural reforms must be accelerated to improve public sector efficiency and effectiveness.
Policy implementation under the PRGF program has been satisfactory. Growth in 2008 is expected to reach 8.5 percent primarily because of buoyant private sector activity. However, 12-month inflation gradually increased to over 20 percent in the third quarter as a result of the international commodity price pass-through and domestic demand pressures. All quantitative performance criteria for end-June 2008 were met. Because of administrative delays, the end-September indicative target for the net accumulation of domestic arrears was missed, but the authorities expect to eliminate the arrears by end-2008. Although structural policies are generally on track, the completion and publication of the Public Financial Management reform action plan for 2008-10, a structural PC for end-June, was not achieved until September. Staff recommends a waiver because the deviation was temporary.
Program risks have increased. Short-term risks to economic growth and the balance of payments have emerged because of the global financial crisis and economic slowdown. The Rwandan franc has also appreciated in real terms in 2008. The authorities have committed to monitoring developments closely and to increase the flexibility of the exchange rate as appropriate. Further, they have agreed to contain fiscal spending and tighten monetary policy to rein in inflation and maintain an adequate level of reserves.
Nevertheless, the medium-term economic outlook is favorable. Real GDP growth is projected at 6 percent and with supportive macroeconomic policies inflation could decline to 5 percent over the medium term. Continued progress in structural reforms would make the public sector more efficient and effective in tax policy and administration, public financial management, and capacity building, and create an enabling environment for private sector development. Progress in these areas would also help garner donor support. Rising government revenues and substantial donor assistance would allow for more government spending on priorities and infrastructure projects with limited domestic financing.
The staff recommends the completion of the fifth review of the PRGF.
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INTERNATIONAL MONETARY FUND
RWANDA
Staff Report for the 2008 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Nonobservance of Performance Criterion—Informational Annex
Prepared by the African Department
(In collaboration with other Departments)
Approved by Mark Plant and Anthony Boote
December 19, 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 SDR7.41 million (9.25 percent of quota) at end-October 2008. Completion of the fifth review would allow the disbursement of SDR1.14 million.
Joint World Bank–IMF Work Program. Outlines the Joint Management Action Plan.
Statistical Issues. Assesses the quality of statistical data. Although economic data are generally adequate for surveillance, weaknesses hamper economic analysis.
Contents
I. Relations with the Fund
II. Joint Management Action Plan: July 2008-June 2009
III. Statistical Issues
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INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND
RWANDA
Joint IMF/World Bank Debt Sustainability Analysis
Prepared by the Staffs of the International Monetary Fund and the International Development Association
Approved by Mark Plant and Anthony Boote (IMF) and Carlos Braga and Sudhir Shetty (IDA)
December 19, 2008
This debt sustainability analysis (DSA) assesses the sustainability of Rwanda’s external and domestic public debt. It was conducted jointly by the staffs of the IMF and the World Bank using the Bank-Fund framework for debt sustainability analysis for low-income countries. The analysis concludes that Rwanda is at a moderate risk of debt distress.
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January 12, 2009
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Public Information Notice (PIN) No. 09/14
FOR IMMEDIATE RELEASE
February 6, 2009
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA
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Press Release No. 09/07
FOR IMMEDIATE RELEASE
January 12, 2009
International Monetary Fund
Washington, D.C. 20431 USA
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January 12, 2009
