Statement by the Executive Director, Mr. Daouda Sembene, and by the Executive Director Advisor, Ms. Loy Nankunda, on Rwanda January 12, 2018

Eighth Review Under the Policy Support Instrument and Request for Extension, and Third Review Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Rwanda


Eighth Review Under the Policy Support Instrument and Request for Extension, and Third Review Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Rwanda

The Rwandan authorities appreciate the instrumental role that the PSI and SCF arrangements have played in supporting their development program in general and in maintaining macroeconomic stability. Over the past years, the PSI and the SCF-Supported programs have served their purpose of supporting the country to address external imbalances and adjust to external shocks that had hit the economy.

The authorities would like to express their appreciation for the constructive policy discussions held in Kigali with the IMF staff team in the context of the Eighth review under the PSI and Third review under the SCF. They wish to assure the IMF Executive Board of their continued commitment to maintain macroeconomic stability, while ensuring high and sustained inclusive growth under their medium-term development strategy. In this connection, development of the private sector as an engine of growth will be of paramount importance in the years to come. The authorities’ reform agenda is geared towards these objectives.

Recent Economic Developments and Program Performance.

After real GDP growth remained disappointing at 2.9 percent during the first half of 2017, Q3 growth confirms the authorities’ revised forecast that the economy is strongly recovering during the second half of the year and the country is likely to end the year a little higher than the revised projections of 5.2 percent. Indeed, real GDP growth increased by 8 per cent in Q3, with the main drivers being the mining and quarrying sectors, air transport, and food crops.

Inflation was about 2.2 percent last November, the sixth consecutive month below the target after reaching a peak of 8.1 percent in February. The drop-in headline inflation was mainly reflected in declining food prices and transport costs. Food inflation fell from 13.3 percent in 2017Q2 to 2.2 percent in November 2017, as agricultural production increased because improvements in weather conditions. Overall, inflation has averaged 5.4 percent from January to November and for the annual average, core inflation stood at 4.2 percent in November, down from 4.4 percent recorded in October of 2017. Rwanda’s trade deficit improved by 21.1 percent by the end of November 2017 over the same period in 2016. This was driven by good export performance combined with a decline in imports.

Program performance remained strong under the PSI and SCF arrangements. All end-June 2017 and continuous quantitative assessment performance criteria were met under the program and most structural benchmarks were implemented or are in progress. However, the indicative target on domestic arrears was not observed by a small margin. To avoid recurrence of similar issue going forward, several remedial actions are being taken, notably through improvements in treasury cash management forecasts in matching these against seasonal spending.

Outlook and Medium-Term Policies

The authorities remain optimistic about the economic outlook, given the favourable weather conditions and the expected impact of medium-term policies. The economy is expected to return to its historical growth rates of above 7 percent over the next three years while inflation will be kept under the central bank’s 5 percent headline target. The authorities’ medium term policies are geared towards sustaining improvement in the environment for private sector development and increasing productivity through strategic infrastructure investments with a view to serving the structural transformation agenda. The authorities will continue to ensure that the momentum is kept in enhancing domestic revenue mobilization, fostering financial deepening, and maintaining prudent monetary policy.

Fiscal Policy

Fiscal performance in FY2016/17 was largely satisfactory. As reflected in the 2017/18 budget, the authorities remain committed to fiscal consolidation and a prudent borrowing policy to keep the level of debt sustainable. Over the medium term, this commitment to fiscal consolidation will be maintained, including through improved domestic resource mobilization as shown by projections. In this respect, the authorities are taking several steps. These include revising the property tax law and expanding the use of the electronic billing machines to better track total sales. In addition, the authorities are conducting a tax expenditure analysis with IMF technical assistance to ensure that tax incentives are well targeted and do not unnecessarily reduce the tax base.

Efforts will be made to carry out a fiscal risk analysis of selected sectors with the ultimate aim of mitigating such risks. At the same time, the authorities are taking measures to enhance public financial management. Steps are underway to improve the timeliness, frequency and coverage of fiscal reporting.

Debt Management

In the most recent debt sustainability analysis, Rwanda is assessed to be at low risk of debt distress, despite a temporary breach under the liquidity indicator, which is associated to the 10-year Eurobond maturing in 2023. Rwanda’s external debt portfolio remains mostly constituted of concessional loans (72 percent as end June 2017), and this will continue to be the main source of funding for public projects going forward.

The issuance of treasury bills and bonds is for cash flow purposes and capital market development. These new issuances reflect efforts to establish a longer yield curve and stronger secondary markets to help bolster the monetary transmission mechanism.

The objective of our current strategy is to ensure that government’s financing needs and payment obligations are met at the lowest cost and risk levels while increasing concessional loans and developing the domestic capital market. This strategy lengthens the maturity of short term domestic instruments that meets the objectives of the MTDS while also providing the cheapest and less risky debt portfolio composition alternative.

Monetary Policy and Financial Sector Issues

Monetary policy will continue to remain prudent to maintain the inflation close to the authorities’ medium-term target level of 5 percent.

As noted in the staff report, the central bank proceeded with policy rate cuts to address concerns over subdued credit growth and the outlook for below-target inflation. More recently, the central bank further eased its monetary policy on December 28, 2017, by reducing the central bank rate (KRR) to 5.5 percent from 6 percent to continue supporting the financing of the private sector by the banking sector. In addition, the Monetary Policy Committee (MPC) observed the positive impact of the accommodative monetary policy implemented in 2017. By end November 2017, the broad monetary aggregate (M3) increased by 9.5 percent compared to 8.8 percent in November 2016; the outstanding credit to the private sector increased by 12.3 percent compared to 8.8 percent in the same period of 2016 and against PSI target of 11.4 percent by end December 2017. New authorized loans increased by 7.7 percent compared to 4.5 percent in the period under review.

Going forward, monetary policy will continue to be prudent, underpinned by continued exchange rate flexibility. The authorities are rolling out their plans to transition to interest rate based monetary policy framework, as illustrated by recent steps taken by the BNR to meet preconditions for implementing a forward-looking monetary policy framework notably in terms of liquidity management and policymaking processes.

The staff report also indicated that banks remain well capitalized even though the banking sector asset quality deteriorated slightly. In this regard, it is noteworthy that that following the BNR review process and the external audit in October-November 2017, NPLs at end September 2017 were estimated at 7.7 percent and not 8.3 percent, as initially projected during the staff mission in Kigali.

External Sustainability

The current account deficit improved in 2016 and is expected to improve over the medium term partly due to exchange rate adjustment to which has led to increase in exports and reduced imports. The projected improvement in the current account balance also reflects Rwanda’s forward-looking policies on imports substitution and export promotion.

The Rwandan Authorities are implementing a “Made in Rwanda” policy to encourage domestic production of certain goods currently imported and promote export diversification, with the aim of strengthening external stability and fostering growth in the medium term. Because of the authorities’ prudent macroeconomic policies, reserves buffers were rebuilt to above 4 months of imports, from 3.6 months of imports in 2015 when the shock took place.


As underscored in the staff report, Rwanda’s adjustment policies continue to be successful, with sustained improvement in the country’s external situation and reserve buffers. These policies cantered around exchange rate adjustment underpinned by fiscal discipline and prudent monetary policy. Performance under the IMF-supported program is expected to remain good in view of the authorities’ strong commitment to its objectives.

In this light, we would appreciate Directors’ support for the completion of the third and eight reviews under the SCF and PSI-supported program, respectively, as well as the authorities’ request to extend the PSI-supported program through December 1, 2018.