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© 2012 International Monetary Fund
January 2012
IMF Country Report No. 12/15
Rwanda: Third Review Under the Policy Support Instrument—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Rwanda.
In the context of the third review under the policy support instrument, the following documents have been released and are included in this package:
The staff report for the Third Review Under the Policy Support Instrument, prepared by a staff team of the IMF, following discussions that ended on October 28, 2011, 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 7, 2011. 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 of December 23, 2011 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its January 9, 2012 discussion of the staff report that completed the request and/or 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
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
RWANDA
Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria
Prepared by the African Department
(in consultation with other departments)
Approved by Saul Lizondo and Christian Mumssen
December 7, 2011
IMF relations. The Executive Board completed the second review of the Policy Support Instrument (PSI)-supported program on June 23, 2011.
Discussions. Discussions were held in Kigali October 13–28. The team included Ms. McAuliffe (head), Messrs. Opoku-Afari and Yabara, Ms. Saxena (all AFR), and Mr. Geiregat (SPR). Mr. Gershenson, resident representative, assisted the team. The team met with Minister of Finance and Economic Planning Rwangombwa; Governor of the National Bank of Rwanda Gatete; Deputy Governor Nsanzabaganwa; heads of key government agencies; other officials; and representatives of the private sector, commercial banks, and development partners.
Review. Staff recommends completion of the third review under the PSI, modification of end-December 2011 assessment criteria, setting of end-June 2012 assessment criteria, and approval of additional structural benchmarks for FY2011/12. All end-June 2011 and continuous quantitative assessment criteria were met, and structural benchmarks were partially met—one was met with delay and one was not met.
Outreach. The mission organized a half-day outreach event for members of parliament, cabinet ministers, civil society and donors. As a follow-up to the successful outreach event in 2010, participants appreciated the opportunity to discuss growth in the East African Community (EAC)—and the role of Rwanda—as well as spillovers on Rwanda from recent global economic developments.
Contents
Executive Summary
I. Recent Developments and Program Performance
II. Policy Discussions
A. Overview and Outlook
B. Enhancing Revenue Mobilization to Support Fiscal Consolidation
C. Enhancing Monetary Policy Framework and Implementation
D. Financial Sector—Next Steps After 2011 FSAP Update
E. Securing Financing in a Challenging Global Financial Environment
F. Furthering the Structural Reform Agenda to Support Policy Objectives
III. Risks to the Program
IV. Program issues
V. Staff Appraisal
Boxes
1. Assessing Underlying Inflationary Pressures on the Basis of Various Measures of Core Inflation
2. Determinants of Growth of Currency in Circulation
3. Possible Spillovers from Adverse Global Economic Developments
4. Challenges of Developing the Interbank Money Market
Figures
1. Recent Performance
2. Selected High Frequency Indicators of Economic Activity, Jan 2008–Sep 2011
3. Fiscal Developments, 2005/6–2011/12
4. Monetary and Financial Developments
5. Medium-Term Outlook, 2008–16
Tables
1. Selected Economic and Financial Indicators, 2008–16
2. Balance of Payments, 2007–16
3. Operations of the Central Government, Fiscal Year Basis, 2006/07–2015/16
4. Monetary Survey, 2006–13
5. Financial Soundness Indicators for Banking Sector, 2006–11
Appendix
Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Executive Summary
Program performance was broadly satisfactory. All end-June quantitative assessment criteria were met. Structural benchmarks were partially met—one was met with delay and one was not met—as the pace of implementation of structural benchmarks has slowed somewhat either owing to technical difficulties or capacity bottlenecks.
Rwanda’s economy in 2011 is poised for high growth—but also high inflation—with elevated risks for 2012. While strong agriculture and exports are driving high real GDP growth, aggregate demand pressures are also building up, increasing underlying inflation that has already pushed up core inflation. Growth is expected to slow in 2012, although risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation.
The authorities have tightened monetary policy to contain inflation. They should remain vigilant and tighten monetary policy further if needed.
Fiscal consolidation in FY2011/12 and FY2012/13 remains on track and is expected to further anchor macroeconomic stability. The authorities have introduced additional revenue measures for FY2012/13 to preserve the revenue objective of the Policy Support Instrument (PSI).
Further capacity-building measures are planned. The effectiveness of monetary policy—namely the implementation of the reserve money program—will be enhanced through (i) improved forecasting of domestic liquidity and (ii) an action plan to develop the interbank money market to allow fully market-determined interest rates consistent with the inflation objective of the National Bank of Rwanda (NBR). Further improvements in national account statistics and Public Financial Management (PFM) are also planned.
Establishment of a transparent and sustainable institutional structure to supervise Savings and Credit Cooperatives (SACCOs) needs to be fast-tracked. The hiring and training of 60 supervisors was an important first step. Given the speed of rolling out SACCOs as full-fledged lending institutions, and the risks involved, it is imperative that the necessary institutional structure is put in place without delay.
Staff recommends the completion of the third review, modification of the assessment criteria for end-December 2011, setting of end-June 2012 assessment criteria, and approval of additional structural benchmarks for FY 2011/12 under the PSI program.
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INTERNATIONAL MONETARY FUND
RWANDA
Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Informational Annex
Prepared by the African Department
(In collaboration with other Departments)
Approved by Saul Lizondo and Christian Mumssen
December 7, 2011
Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange system.
Joint World Bank–IMF Work Program. Outlines the Joint Management Action Plan through June 2012.
Contents
I. Relations with the Fund
II. Joint Bank–Fund Work Program
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INTERNATIONAL MONETARY FUND
Rwanda—Third Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Supplementary Information and Supplementary Letter of Intent
Supplement Information
Prepared by the African Department
(in consultation with other departments)
Approved by Saul Lizondo and Christian Mumssen
December 23, 2011
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Kigali, Rwanda
December 22, 2011
Ms. Christine Lagarde
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, D.C., 20431
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Press Release No. 12/4
FOR IMMEDIATE RELEASE
January 9, 2012
International Monetary Fund
Washington, D.C. 20431 USA
