Growth in 2015 has been stronger than expected. Growth was driven by strong activity in agriculture, construction, and services, with the projection for the year increased from 6.5 to 7.0 percent. Inflation remains well contained, although the monetary stance remains accommodative, with higher than expected credit growth. Fiscal policy has been broadly in line with expectations. Recent household survey results show good progress in poverty reduction. However, the outlook for 2016 is darker. An external shock is currently unfolding: mining exports have been almost halved in recent months, due to lower prices and demand in export markets. Combined with US dollar appreciation, this has put strong downward pressure on the Rwandan franc, and prompted a drawdown of international reserves by the banking system. Deterioration of the current account in 2015 is expected to continue in 2016, including due to public infrastructure imports for the Kigali convention center and expansion of RwandAir's fleet.

Abstract

Growth in 2015 has been stronger than expected. Growth was driven by strong activity in agriculture, construction, and services, with the projection for the year increased from 6.5 to 7.0 percent. Inflation remains well contained, although the monetary stance remains accommodative, with higher than expected credit growth. Fiscal policy has been broadly in line with expectations. Recent household survey results show good progress in poverty reduction. However, the outlook for 2016 is darker. An external shock is currently unfolding: mining exports have been almost halved in recent months, due to lower prices and demand in export markets. Combined with US dollar appreciation, this has put strong downward pressure on the Rwandan franc, and prompted a drawdown of international reserves by the banking system. Deterioration of the current account in 2015 is expected to continue in 2016, including due to public infrastructure imports for the Kigali convention center and expansion of RwandAir's fleet.

Recent Developments and Outlook

1. The Rwandan Parliament unanimously approved that the Constitution be amended to permit President Kagame the option to seek another term. When his current term ends in 2017, the amendment would allow the President to seek a third seven-year term, and then make the rule going forward two five-year terms (including for the President). The amendment is likely to garner strong support in a forthcoming domestic referendum.

2. Rwanda’s latest household survey showed a strong improvement in poverty reduction indicators over the past 3 years. Survey results, released in August, showed that poverty reduction, health/education, and living standards indicators improved considerably. Inequality has also maintained its downward trend.

Selected Rwanda Household Survey Indicators

(in percent)

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Source: EICV4 household survey

There was a change in methodology in the 2013/14 survey; comparability is being assessed.

3. Growth was robust in the first half of 2015, and inflation was contained (Figures 1 and 2). Real GDP grew by 7.3 percent in the first half and high-frequency indicators suggest that strong activity was maintained through the third quarter. Growth was driven by strong activity in agriculture, construction, and services. Headline inflation (y/y) stood at 2.9 percent in October, reflecting an increase in utility prices, mitigated partly by lower retail fuel prices.

Figure 1.
Figure 1.

Rwanda: Recent Economic Performance

Citation: IMF Staff Country Reports 2016, 024; 10.5089/9781513585567.002.A001

Sources: Rwandan authorities, IMF staff estimates.
Figure 2.
Figure 2.

Rwanda: Selected High Frequency Indicators of Economic Activity

Citation: IMF Staff Country Reports 2016, 024; 10.5089/9781513585567.002.A001

Source: Rwandan authorities' estimates.

4. The fiscal outturn in FY2014/15 was in line with expectations (Tables 2a and 2b). Compared to 5.3 percent targeted, the fiscal deficit was 5.2 percent. Resources were 1.1 percentage points of GDP higher than expected; these financed an increase in spending of 1.3 percentage points of GDP (offset by more spending committed but not yet executed). About half of the higher revenues and spending were for self-financed peacekeeping operations. Collection of direct taxes and VAT was also higher than expected, continuing a gradual trend upward of domestic revenue collection.

Table 1.

Rwanda: Selected Economic and Financial Indicators, 2012–18

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Sources: Rwandan authorities and IMF staff estimates.

Defined as excluding food and fuel.

The savings rate excludes grants.

Imports for 2016 reflect purchases of two aircrafts.

Table 2a.

Rwanda: Operations of the Central Government, Fiscal-Year Basis,1 2012/13–2017/18

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Includes peacekeeping operations, assistance to victims of genocide, and spending on demobilisaton/reintegration.

Reflects the government's contribution to the Agaciro Development Fund.

Total revenue minus noninterest expenditure.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 2b.

Rwanda: Operations of the Central Government, Fiscal-Year Basis,1 2012/13–2017/18

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Includes peacekeeping operations, assistance to victims of genocide, and spending on demobilisaton/reintegration.

Reflects the government's contribution to the Agaciro Development Fund.

Total revenue minus noninterest expenditure.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 2c.

Rwanda: Operations of the Central Government, Semi-Annual Basis,1 2014/15–2016/17

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Includes peacekeeping operations, assistance to genocide victims, and spending on demobilisaton/reintegration.

For the purpose of this presentation, 2014 number includes the contribution to the Agaciro Development Fund.

Total revenue minus noninterest expenditure.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 2d.

Rwanda: Operations of the Central Government, Calendar-Year Basis,1 2015–17

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Sources: Rwandan authorities and IMF staff estimates and projections.

January to December.

Includes peacekeeping operations, assistance to victims of genocide, and spending on demobilisaton/reintegration.

Total revenue minus noninterest expenditure.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 2e.

Rwanda: Operations of the Central Government, Calendar Year Basis,1 2015–17

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Sources: Rwandan authorities and IMF staff estimates and projections.

January to December.

Includes peacekeeping operations, assistance to victims of genocide, and spending on demobilisaton/reintegration.

Total revenue minus noninterest expenditure.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

5. Through end-June, broad money grew much faster than programmed (Table 3, Figure 3). Although reserve money growth was broadly in line with expectations, broad money growth was 16.7 percent (y/y), compared to 8.7 percent in the program. Notwithstanding still-high real lending rates, private sector credit growth was higher than expected, at 27.6 percent (y/y). Although partly mitigated by a reduction in credit from the banking system to the public sector, net domestic assets grew well beyond levels anticipated in the program. At the same time, banking system net foreign assets (NFA) contracted more than envisaged in the program. Financial sector indicators have, on aggregate, continued to improve, with non-performing loans continuing to decline (Table 5).

Table 3.

Rwanda: Monetary Survey, 2012–18

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Sources: National Bank of Rwanda (NBR) and IMF staff estimates and projections.

For program purposes NFA are shown at program exchange rates.

Reserve money as an assessment criteria is measured as the average of the months in the quarter. The actual reserve money is measured as the daily average of the three months in the quarter.