IMF Executive Board Completes Ninth PSI Review for Rwanda
Author: International Monetary Fund. African Dept.
Publication Date:
11 Jun 2018
eISBN:
9781484361184
Language:
English
Keywords:
ISCR; CR; debt; real GDP; consumer price inflation; deficit; exchange rate; medium-term target; reform effort; revenue mobilization effort; Rwanda's effort; Rwanda's risk; Inflation; Current account balance
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Ninth Review Under the Policy Support Instrument

Abstract

Ninth Review Under the Policy Support Instrument

The Executive Board of the International Monetary Fund (IMF) today completed the ninth review of Rwanda’s performance under the Policy Support Instrument (PSI).1

The PSI for Rwanda was approved on December 2, 2013 (see Press Release No.13/483), and extended on January 12, 2018, to December 1, 2018 (see Press Release No.18/02).

Rwanda’s strong implementation of its macroeconomic program has helped it weather external shocks and maintain macroeconomic stability. With deliberate adjustment policies underpinned by exchange rate flexibility, combined with structural reforms to bolster domestic production, Rwanda’s external position has improved markedly while maintaining comfortable rates of growth. Budget execution remains in line with expectations, while monetary policy continues to focus on low and stable prices. Performance under the PSI-supported program remains very satisfactory.

Growth rebound in 2017 was stronger than expected while inflation was contained. Growth was robust in most areas, except construction, with pronounced pick-ups in non-traditional exports and services. Consumer price inflation remained very low, with ample food supplies and as the exchange rate has reached equilibrium values. Over the medium term, investment in public infrastructure and interventions to promote structural transformation and diversified exports, underpinned by strong domestic revenue mobilization efforts and PFM reforms, should sustain growth in line with or above historical averages over the medium term. Inflation is expected to remain around the authorities’ targeted 5 percent over the medium-term.

Looking forward, the authorities’ “Vision 2050” to reach middle income status by 2035 will require continued reform efforts to create higher value added economic activity, with the private sector serving as the main engine of growth. In addition, renewed momentum in domestic revenue mobilization will be necessary to support development spending. The Vision will be effected through a series of 7-year National Strategies for Transformation (NST), underpinned by detailed sectoral strategies that are aimed toward achievement of the SDGs.”

Recent economic developments

At 6.1 percent, growth in 2017 was high relative to the region, supported by agriculture, industry and services. A growth recovery that began in Q2 2017 strengthened through Q4. The current account deficit was more than halved, from 14.9 percent of GDP in 2016 to 6.8 percent in 2016, largely driven by a narrowed trade deficit, reflecting the impact of exchange rate adjustment and structural policies on exports and imports. As a result, the central bank accumulated foreign exchange reserves faster than anticipated, with reserves in their optimal range of over 4 months of imports at end-2017.

Consumer price inflation declined in 2017 through early 2018, with year-on-year inflation at 1.7 percent in April 2018, reflecting improving food supply conditions and exchange rate stabilization. Inflation is expected to remain below the central bank’s medium-term target of 5 percent in 2018, but should pick up toward the target over the medium-term. Despite lower inflation expectations and tapering off of exchange rate pressures, the central bank has maintained a relatively neutral monetary policy stance over the near term, since the pace of recovery of domestic demand is still uncertain, with still low private sector credit growth. The fiscal stance policy for the remainder of FY2017/18 and for FY2018/19 remain unchanged, thus maintaining the path toward medium term objectives.

Performance under the PSI-supported program remains strong. All but one quantitative targets and structural reform benchmarks were met. An indicative target on contracting new external debt by public enterprises was breached due to accelerated signing of a lease by Rwandair. Rwanda’s risk of debt distress remains low.

Program summary

The existing PSI arrangement has supported Rwanda’s efforts to address external imbalances, thereby supporting sustained growth and poverty reduction. The program aims to promote private-sector led growth through safeguarding macroeconomic stability, including through external sustainability, fiscal sustainability based on continued improvements in domestic resource collection, low and stable inflation, and enhancing access to credit and deepening the financial sector.

Table 1.

Rwanda: Selected Economic Indicators, 2017–2020

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Sources: Rwandan authorities and IMF staff estimates.

NPLs to total gross loans for 2017 is at June 2017.

imports for 2016 reflect purchases of two aircrafts.

1

The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF’s Executive Board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Rwanda’s current PSI are available at www.imf.org/rwanda.

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Cover IMF Staff Country Reports
Rwanda: Ninth Review Under the Policy Support Instrument
Author: International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 167
Publisher:
International Monetary Fund
ISBN:
9781484361184
ISSN:
1934-7685
Pages:
69
DOI:
https://doi.org/10.5089/9781484361184.002