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© 2013 International Monetary Fund

March 2013

IMF Country Report No. 13/77

Rwanda: 2012 Article IV Consultation and Fifth Review under the Policy Support Instrument and Request for Modification of Assessment Criteria—Staff Report; Staff Supplement; 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 2012 Article IV consultation with Rwanda and the fifth review under the Policy Support Instrument and Request for Modification of Assessment Criteria, the following documents have been released and are included in this package:

• The staff report for the combined 2012 Article IV consultation and fifth review under the Policy Support Instrument and Request for Modification of Assessment Criteria, prepared by a staff team of the IMF, following discussions that ended on October 9, 2012, 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 November 20, 2012. 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 Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its November 28, 2012, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.

• 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

STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT, AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA

November 20, 2012

Key Issues

Rwanda faces two main challenges: Near term, conducting policy and maintaining macroeconomic stability under highly uncertain prospects for donor aid and the global environment; medium-term, sustaining strong growth and poverty reduction while gradually reducing high dependence on foreign aid.

Outlook and risks: Growth is projected to ease to 7.7 percent in 2012 and settle around 7 percent over the medium term. Risks to the outlook mainly stem from possible cutbacks in aid, spillovers from the crisis in Europe and the weak global environment, and higher food and petroleum prices.

Policy discussions centered on four themes: sustaining rapid inclusive growth over the medium term; strengthening fiscal policy so it can contribute to growth in the face of declining external aid; enhancing the monetary policy framework and strengthening the financial sector to support macroeconomic stability and growth; and maintaining external stability through increased exports and a strong debt management policy.

Main policy recommendations:

• Align spending priorities in FY 2012/13 with available financing. Stand ready to scale back spending should delays in aid disbursements extend beyond the current fiscal year.

• Use the proceeds of the eurobond exclusively to retire short-term debt and complete strategic investment projects as planned.

• Review recommendations of the recent technical assistance mission to strengthen domestic revenue mobilization.

• Strengthen the monetary policy framework and foreign exchange market reforms to enhance the effectiveness of monetary policy and ensure that the exchange rate responds better to market fundamentals.

• Staff supports the granting of a waiver for the nonobservance of the Quantitative Assessment Criterion (QAC) on NDF, the conclusion of the PSI 5^th review, and the modification of end-December 2012 QACs.

Approved By

Roger Nord (AFR) and Dhaneshwar Ghura (SPR)

Contents

• THE CONTEXT

• POSITIVE ECONOMIC DEVELOPMENTS

• SATISFACTORY PROGRAM PERFORMANCE

• FAVORABLE ECONOMIC OUTLOOK BUT RISING RISKS

• A. Baseline Scenario

• B. Downside Risks

• POLICY DISCUSSIONS

• A. Sustaining Rapid, Inclusive Growth

• B. Fiscal Policy: Supporting Growth in the Face of Declining Aid

• C. Modernizing the Monetary Framework and Enhancing Financial Sector Policies

• D. External Stability: Revising Debt Policy and Improving Exports

• PROGRAM ISSUES

• STAFF APPRAISAL

• BOXES

• 1. Rwanda’s Response to the 2010 Article IV Consultation’s Key Recommendations

• 2. The Downside Scenario—Impact of Protracted Delays in Aid

• 3. The Economic Development and Poverty Reduction Strategy II (EDPRS II)

• 4. Simulations of the Public Investment-Growth Nexus

• 5. Recommendations to Improve Revenue Mobilization

• 6. Financial Sector Profile

• 7. Proposed Eurobond Issuance: Background and Implications for Debt Sustainability

• 8. Exchange Rate Assessment and External Competitiveness

• FIGURES

• 1. Recent Performance

• 2. Selected High-Frequency Indicators of Economic Activity, Jan 2008–Sept 2012

• 3. Fiscal Developments

• 4. Inflation Developments and Outlook

• 5. Monetary Developments

• 6. Medium-Term Outlook, 2008–17

• TABLES

• 1. Selected Economic and Financial Indicators, 2008–17

• 2. Balance of Payments, 2008–17

• 3. Operations of Central Government, Fiscal-Year Basis, 2008/09–16/17

• 4. Monetary Survey, 2009-13

• 5. Financial Soundness Indicators for Banking Sector, 2006–12

• APPENDIXES

• I. Letter of Intent

  • Attachment I. Memorandum of Economic and Financial Policies

  • Attachment II. Techincal Memorandum of Understanding

• II. External Stability Assessment

• III. Debt Sustainability Analysis, 2012-2032

• IV. Millennium Development Goals

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RWANDA

November 20, 2012

STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT, AND REQUEST FOR MODIFICATION OF ASSESSMENT CRITERIA—INFORMATIONAL ANNEX

Prepared By

Contents

• RELATIONS WITH THE FUND

• JOINT BANK-FUND WORK PROGRAM

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Public Information Notice (PIN) No. 13/30

FOR IMMEDIATE RELEASE

March, 19, 2013

International Monetary Fund

700 19^th Street, NW

Washington, D. C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

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Press Release No. 12/463

FOR IMMEDIATE RELEASE

FOR IMMEDIATE RELEASE

November 28, 2012

International Monetary Fund

Washington, D.C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org