Abstract
This paper presents key findings of the Third Review under the Policy Support Instrument (PSI) in Rwanda. Program performance was broadly satisfactory. All end-June quantitative assessment criteria were met. Structural benchmarks were partially met as the pace of implementation of structural benchmarks has slowed somewhat either owing to technical difficulties or capacity bottlenecks. 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 PSI.
Dear Ms. Lagarde,
1. The attached Memorandum on Economic and Financial Policies (MEFP) reviews recent economic developments in Rwanda and implementation of Rwanda’s economic program under the three-year Policy Support Instrument (PSI), which was approved by the IMF Executive Board on June 16, 2010. The attached MEFP is an update of the previous MEFP and sets out policies and programs the Rwandan government intends to implement for the fiscal year 2011/12 and the medium term. The PSI is set to expire on June 29, 2013.
2. We continue to make progress with our economic program. All quantitative assessment criteria for end-June 2011 were met and all but one end-June structural benchmarks were met. Further to our letter of November 23, we would like to inform you that the continuous quantitative assessment criterion on the contracting and guaranteeing by the public sector of new nonconcessional external debt was missed. On the structural benchmarks, the preparation of quarterly budget execution report was delayed owing to technical difficulties shifting to the GFS 2001 fiscal reporting framework. The first quarterly budget execution report is now planned to be completed by end-November 2011, covering the first quarter of FY2011/12. The hiring of bank supervisors for the central bank, planned for end-June 2011, was met with a slight delay. We also met most structural benchmarks set for September and October 2011; one with delay and another has been postponed for March next year.
3. The nonconcessional loan was contracted by the Banque Rwandaise de Developpement (BRD), as part of the public sector, and aims at improving medium and long-term financing for businesses in Rwanda targeting crucial long-term investment by local companies, mainly SMEs, to support growth and job creation. Since the nonconcessional loan amounts to just 0.18 percent of GDP and Rwanda has been taking measures to upgrade its debt management capacity, the loan does not pose a risk to debt sustainability or the overall macroeconomic objectives of the program.
4. We regret the miscommunication that occurred and remain committed to regularly update the Fund on new developments for adequate monitoring of the program. As a remedy, the terms of the PSI have been communicated to all SOEs to ensure that they understand the consequences of such miscommunication. Also, to prevent this from occurring in the future, SOEs were asked to seek prior approval of the Ministry of Finance and Economic Planning before contracting any new nonconcessional external loan. In addition, over the medium term, the government will strengthen standardized reporting requirements for all SOEs.
5. In light of the satisfactory program implementation and performance outlined in the attached MEFP, and the corrective measures to strengthen communication within the government, the government requests a waiver of the nonobservance of the continuous assessment criterion on contracting and guaranteeing by the public sector of new nonconcessional external debt, and the completion of the third review under the PSI. The Government also requests approval of the modification of the assessment criteria for end-December 2011 with respect to (i) NFA of the central bank to reflect the escrowing of part of foreign reserves; (ii) reserve money to account for structural increase in currency; and (iii) NDF to account for changes in timing of donor inflow disbursements. The government also requests approval of end-June 2012 assessment criteria and structural benchmarks for FY2011/12.
6. The Government believes that the policies and measures set forth in the attached Memorandum will deliver the objectives of the program. We stand ready to take any further measures that may become appropriate for this purpose. The Government will consult with the IMF—at its own initiative or whenever the Managing Director of the IMF requests such a consultation—before the adoption of any such measures or changes to the policies described in the attached Memorandum.
7. The Government will provide the Fund with such information as the Fund may request in connection with the progress made in implementing the economic and financial policies and achieving the objectives of the program. It is expected that the fourth review will take place before end-June 2012, and the fifth review before end-December 2012.
8. The Government of Rwanda authorizes the publication and distribution of this letter, its attachments, and all reports prepared by the Fund staff.
| Sincerely yours, | |
| /s/ | /s/ |
| John Rwangombwa Minister of Finance and Economic Planning | Claver Gatete Governor, National Bank of Rwanda |
| Sincerely yours, | |
| /s/ | /s/ |
| John Rwangombwa Minister of Finance and Economic Planning | Claver Gatete Governor, National Bank of Rwanda |