Front Matter Page
IMF Country Report No. 16/153
RWANDA
FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR EXTENSION, AND REQUEST FOR AN ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR RWANDA
June 2016
In the context of the Fifth Review Under the Policy Support Instrument and Request for Extension, and Request for an Arrangement Under the Standby Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 8, 2016, following discussions that ended on April 5, 2016, with the officials of Rwanda on economic developments and policies underpinning the IMF arrangement under the Standby Credit Facility. Based on information available at the time of these discussions, the staff report was completed on May 25, 2016.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Staff Supplement updating information on recent developments.
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 IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2016 International Monetary Fund
Front Matter Page
RWANDA
FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR EXTENSION, AND REQUEST FOR AN ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY
May 25, 2016
Key Issues
Despite an unfolding external shock, growth remained strong in 2015. Real GDP grew by an estimated 6.9 percent, buoyed by strong construction and services activity. Inflation picked up, driven by utility and food prices, the latter affected by increased demand from Burundian refugees and cross-border trade.
Despite exchange rate depreciation, the external position remained under pressure. Mining exports dropped by almost half in 2015, leading to a significant loss in foreign exchange earnings. Although lower fuel prices offset about 2/3 of the losses, they were exacerbated by lower private remittances and capital inflows and still-strong import demand. Combined with US$ appreciation, this led to a 7.5 percent depreciation of the Rwandan franc in 2015, and a sharp drawdown of banking system reserves. Accelerated depreciation in 2016 has not yet reversed the trends, despite initial signs of muted import demand.
To complement the authorities’ medium-term policies, policy discussions focused on near-term adjustment. The authorities have reinforced policies to promote export diversification and import substitution, but these will take time. Thus, it was agreed that additional policy adjustment is warranted in the near term. The principal tool for responding to the shock will continue to be exchange rate adjustment, complemented by fiscal and monetary tightening. Combined policy adjustment is forecast to reduce imports by roughly 15 percent over 2016-2017, thus averting a more precipitous decline in reserves. These policies are expected to reduce growth modestly, to 6.0 percent in 2016 and 2017, with risks on the downside.
The authorities are requesting an eighteen month arrangement under the Stand-by Credit Facility to support adjustment efforts, with extension of the PSI-supported program for about 13 months. To bolster reserve levels while the adjustment effort is underway, the authorities are requesting access of 90 percent of quota (SDR 144.18 million) under an 18-month SCF arrangement. This temporary balance of payments support notwithstanding, they wish to maintain their medium-term engagement with the Fund through the PSI, which has served them well in terms of supporting and signaling their medium-term macroeconomic and growth objectives.
Approved By
Roger Nord (AFR) and Catherine Pattillo (SPR)
Discussions were held in Kigali during March 22-April 5. The mission comprised Laure Redifer (head), Tobias Roy, Samson Kwalingana, and Fan Yang (all AFR), and Myrvin Anthony (SPR). Alun Thomas, resident representative, assisted the mission. The mission met with Minister of Finance and Economic Planning Gatete; National Bank of Rwanda Governor Rwangombwa; Minister of Trade and Industry Kanimba; EAC Minister Rugwabiza and other senior officials; and representatives of the private sector and development partners.
Contents
RECENT DEVELOPMENTS
PSI PROGRAM PERFORMANCE
GROWTH AND EXTERNAL OUTLOOK
POLICY DISCUSSIONS
A. Fiscal Policy
B. Monetary Policy
C. External Outlook After Adjustment Policies
D. Technical Assistance
REQUEST FOR AN SCF ARRANGEMENT
PROGRAM RISKS
PROGRAM MODALITIES
STAFF APPRAISAL
BOXES
1. Stylized ‘No Adjustment’ Baseline Outlook for the Balance of Payments
2. Medium-term Measures to Reverse External Imbalances
3. Revenue Measures
FIGURES
1. Recent Economic Developments
2. Selected High Frequency Indicators
3. Fiscal Sector Developments
4. Inflation and Monetary Developments
5. External Sector Developments
TABLES
1. Selected Economic and Financial Indicators, 2014-2018
2a. Operations of the Central Government, Fiscal-Year Basis, 2014/15–17/18 (Billions of Rwanda francs)
2b. Operations of the Central Government, Fiscal-Year Basis, 2014/15–17/18 (Percent of GDP)
3. Monetary Survey, 2014–18
4. Balance of Payments, 2014–18
5. Financial Soundness Indicators for Banking Sector, 2014–15
6. Quantitative Assessment Criteria and Indicative Targets as of end-December 2015
7. Status of Structural Benchmarks for 5th PSI Review
8. Proposed Schedule of Disbursements Under the SCF Arrangement
9. Indicators of Fund Credit, 2015–25
ANNEX
I. External Sector Assessment
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
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RWANDA
FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR EXTENSION, AND REQUEST FOR AN ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS
May 25, 2016
Approved By
Roger Nord and Cathy Pattillo (IMF) and John Panzer (IDA)
The Debt Sustainability Analysis (DSA) was prepared jointly by IMF and World Bank staff, in consultation with the authorities.
The results of the debt sustainability analysis indicate that Rwanda continues to face a low risk of external debt distress, similar to the analysis prepared for the 4th Review under the PSI. 1, 2 Under the baseline scenario all external debt burden indicators are projected to remain below the policy-dependent thresholds. Standard stress tests show temporary breaches of the debt service-to-exports and debt service-to-revenue ratios in 2023 when the Eurobond issued in 2013 matures. As these breaches are temporary, and it is assumed that Rwanda will be able to refinance the maturing Eurobond, the final assessment of a low risk of external debt distress is maintained. The ratio of the present value of public sector debt-to-GDP ratio remains below the policy dependent benchmark both under the baseline and standard stress tests. Until exports expand and are diversified further, Rwanda needs to remain prudent about the terms and amount of external debt it contracts/guarantees.
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RWANDA
FIFTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT AND REQUEST FOR EXTENSION, AND REQUEST FOR AN ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY – SUPPLEMENTARY INFORMATION
June 8, 2016
Approved By
Roger Nord (AFR) and Catherine Pattillo (SPR)
Front Matter Page
Press Release No. 16/270
FOR IMMEDIATE RELEASE
June 8, 2016
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