Ninth Review Under the Policy Support Instrument

Abstract

Ninth Review Under the Policy Support Instrument

Recent Economic Developments

1. Growth continues to pick up, while inflation remains subdued (Figure 1, Table 1). The rebound that started in early 2017 picked up steam in the second half of 2017, rising to 10.5 percent y/y in Q4. Growth for the year was higher than anticipated, at 6.1 percent. The outturn was based on a broad-based pick up in activity, with the exception of construction following a boom in 2016. Annual inflation remains low, reflecting ample food supplies and stabilization of the exchange rate with headline and core inflation at 1.7 and 2.1 percent (y/y), respectively, in April. Inflation has remained below the authorities’ medium-term target of 5 percent since May 2017.

Figure 1.
Figure 1.

Rwanda: Overview of Recent Economic Developments

Citation: IMF Staff Country Reports 2018, 167; 10.5089/9781484361184.002.A001

Source: Rwandan authorities, and IMF staff estimates.
Table 1.

Rwanda: Selected Economic Indicators, 2016–20

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Sources: Rwandan authorities and IMF staff estimates.

Imports for 2016 reflect purchases of two aircrafts.

uA01fig01

Recent growth trends

(quarterly, y/y and q/q annualised, seasonally adj.)

Citation: IMF Staff Country Reports 2018, 167; 10.5089/9781484361184.002.A001

2. Fiscal performance respected program targets (Figure 2, Tables 2a-b and 3a-b). In the first half of the fiscal year (June-December 2017), the deficit was about 0.4 percent of GDP lower than projected, due to higher revenues and grants, partly offset by larger than expected investment expenditures. Tax revenues gains reflected a large one-off tax arrears payment and improved compliance measures. Non-tax revenue inflows for UN peacekeeping operations (PKO) were higher than expected and some budget grants disbursements were disbursed earlier than expected. On the spending side, earmarked funds from the Strategic Fuel Levy were drawn down to finance construction of a petroleum reserve depot in Kigali, and there was higher spending associated with Global Fund disbursements. Government deposits at end-2017 were higher than anticipated because EU grants were disbursed very late in 2017 rather than in 2018 as projected. At the same time, the “float” (payment commitments not yet settled), increased at the end of the year, but these were settled in January.

Figure 2.
Figure 2.

Rwanda: Fiscal Developments

Citation: IMF Staff Country Reports 2018, 167; 10.5089/9781484361184.002.A001

Source: Rwandan authorities, and IMF staff estimates.
Table 2a.

Rwanda: Budgetary Central Government Flows, FY 2016/17–19/201

(Billions of Rwandan francs)

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Includes peacekeeping operations, spending on demobilisaton/reintegration, and genocide relief.

2016/17 foreign-financed capital spending included RwF34.5bn deposit drawdown, accumulated in previous years.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 2b.

Rwanda: Budgetary Central Government Flows, FY 2016/17–19/201

(Percent of GDP)

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Includes peacekeeping operations, spending on demobilisaton/reintegration, and genocide relief.

2016/17 foreign-financed capital spending included RwF34.5bn deposit drawdown, accumulated in previous years.

A negative sign indicates a reduction.

A negative number implies an overerestimate of financing.

Table 3a.

Rwanda: Financial Operations of the Budgetary Central Government, GFSM 20141

(Billions of Rwandan francs)

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Sources: Rwandan authorities and IMF staff estimates and project

Fiscal year runs from July to June.

Table 3b.

Rwanda: Financial Operations of the Budgetary Central Government, GFSM 20141

(Percent of GDP)

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Sources: Rwandan authorities and IMF staff estimates and projections.

Fiscal year runs from July to June.

Rwanda: Operations of Central Government

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3. After a reduction in December 2017, the policy interest rate was kept unchanged in the first quarter of 2018 (Figure 3, Table 4). Consistent with staff’s advice, the Monetary Policy Committee lowered the policy rate by 50 basis points in December 2017, bringing it to 5.5 percent, for a cumulative reduction of 100 basis points since last quarter 2016. In March of this year, the MPC kept the key repo rate unchanged, noting, inter alia, a stronger growth outlook