Statement by the Executive Director, Mr. Mohamed-Lemine Raghani and the Advisor of the Executive Director, Ms. Loy Nankunda on Rwanda November 28, 2018

Tenth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda


Tenth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda

Our Rwandan authorities would like to express their gratitude to staff, Management and the Executive Board for the Fund’s continued support to their policy and reform agenda. They value the constructive discussions held with staff in Kigali in the context of the tenth and final review under the PSI-supported program. The implementation of comprehensive reforms under the PSI arrangement has helped Rwanda make important strides in strengthening macroeconomic stability and in achieving high growth and substantial poverty reduction despite external shocks. The authorities broadly agree with the thrust of the staff report as a fair assessment of challenges facing the economy.

The authorities are strongly committed to transforming Rwanda into a middle-income economy by 2035. To achieve this objective, they will implement their Vision 2050 and National Transformation Strategy with an emphasis on fiscal discipline, increased public investment, sound monetary policy and far-reaching structural reforms. The 2013–18 PSI-supported program has broadly met its objectives. Going forward, the authorities remain determined to pursue their reform agenda to make the economy more resilient through broad-based and more inclusive growth. In this context, they intend to discuss with staff a potential successor program in the first quarter of 2019.

Program Performance and Recent Developments

Owing to our authorities’ strong commitment to the program objectives and sound policymaking, all continuous and end-June quantitative targets as well as all structural benchmarks were met. Continued performance under the PSI arrangement has led to an improved fiscal stance and a more sustainable debt position. Moreover, growth has stood at 7.2 percent on average since 2013 and poverty has declined from 45 percent in 2011 to 39 percent in 2014. Strong growth momentum has continued over the recent period. Real GDP rose by 8.6 percent y/y in the first half of 2018, mainly driven by robust performance in agriculture and increased activity in the manufacturing sector and public construction work.

The fiscal deficit for FY17/18 stood at 4.6 percent, unchanged from the previous year but reflecting higher investment spending to meet the priority objectives of the National Strategy for Transformation and was financed by official development assistance. This fiscal performance was broadly in line with the objectives set in the budget.

Thanks to the decline in food prices which offset the increase in energy prices, inflation has been low. It is projected to remain within the authorities’ medium-term target of 5 percent. In view of recent price developments and slow private sector credit growth, the authorities have maintained a broadly neutral monetary policy stance.

The financial sector remains sound, with well-capitalized banks, declining Non-Performing Loans (NPLs) and rising bank provisions. Moreover, banks’ profitability has improved while increased activity of Micro-Finance Institutions (MFIs) has contributed to further financial inclusion. In addition, the money and capital markets continued to deepen.

The external position has strengthened, reflecting higher export growth, improved terms of trade, as well as policies to enhance the value-added of exports and increase the scope of re-exports. As a result, reserve buffers have strengthened. These buffers are expected to increase further due to higher official flows and higher net exports growth.

Medium-Term Macroeconomic Policies and Structural Reforms

The authorities remain optimistic about the economic outlook, which should benefit from the positive impact of recent public investments and medium-term policies, as well as a conducive global environment. While recognizing downside risks to the outlook linked to potential adverse weather conditions and volatile global commodity prices, they remain confident that economic prospects offered by recent and current investment projects, tourism-related activity, and the mining sector, would counterbalance these risks. The authorities stand ready to adjust their policy actions in the event of negative shocks.

The economy is expected to continue to grow at above 7 percent over the next three years while inflation will be kept under control. The authorities’ medium-term policies are geared towards sustaining improvements in the business environment for private sector development and increasing productivity through strategic infrastructure investments. These policies are consistent with the country’s structural transformation agenda and underpinned by continued efforts in enhancing domestic revenue mobilization, maintaining prudent monetary policy and fostering financial deepening.

Fiscal Policy and Debt Sustainability

The FY18/19 and medium-term budget frameworks remain in line with the authorities’ commitment to fiscal prudence and debt sustainability; while making room for development-related expenditures to achieve the SDGs.

The authorities are stepping up reforms to enhance revenue mobilization and public financial management. On the other hand, they maintain an adequate level of priority spending to support inclusive growth. In addition, they are taking actions to ensure that tax incentives for private sector investment are well targeted and do not unnecessarily jeopardize revenue mobilization efforts. They appreciate the tax expenditure analysis that Fund technical assistance is providing in this respect. Steps are also underway to improve the timeliness, frequency and coverage of fiscal reporting. The authorities will pursue their fiscal objectives while remaining committed to their domestic financing target. More broadly, they will maintain a prudent borrowing strategy which will help preserve public debt sustainability.

Monetary and Financial Sector Policies

The authorities will pursue prudent monetary policy to maintain price stability and keep inflation expectations well-anchored. They also remain committed to a flexible exchange rate as the main shock absorber.

The authorities are transitioning to an interest rate-based monetary policy framework with a medium-term objective of adopting a formal inflation targeting framework. In this respect, they continue to undertake reforms, including revising the monetary policy committee’s decision-making process, strengthening communication tools to better anchor inflation expectations, reducing structural excess reserves, and deepening money and capital markets for effective monetary operations and liquidity management.

The financial sector remains broadly sound, underpinned by strong regulatory and supervisory frameworks. The banking sector’s capital adequacy ratio exceeds the minimum requirement under Basel II, and the Non-Performing Loans (NPLs) ratio has continued to decline. Important progress has also been made towards greater financial inclusion with the expansion of microfinance activity, including the Savings and Credit Cooperatives (SACCOs). In addition, important steps have been made in reforming the banking sector’s legal, regulatory, and supervisory frameworks. Moreover, the authorities have established a deposit guarantee fund for banks and microfinance institutions.

External Sustainability

While export growth is expected to remain robust in 2018, the construction of the new airport and the pickup in foreign-financed investment are driving imports up, increasing the trade deficit, thus temporarily increasing the current account deficit. Looking ahead, the current account balance is projected to further improve over the medium-term as measures under the “Made in Rwanda” policy, new and diversified export products, and investments in the services sector bear fruit.

Rwanda’s external debt remains sustainable and the country continues to rank in the category of low-risk of debt distress. In order to preserve debt sustainability, the authorities will continue to resort to prudent borrowing to finance their development projects in a context of significant decrease in development assistance.

Structural Transformation Agenda

Through the Vision 2050, the Rwandan authorities aim to a structural transformation of the economy to achieve middle income status by 2035. To operationalize this vision, our authorities are now implementing their 2017–24 National Strategy for Transformation (NST), which is articulated around three main pillars, namely, economic transformation, social transformation, and transformative governance. The NST’ sectoral strategies are also well aligned with Rwanda’s SDGs.

The authorities’ commitment to support a greater private sector involvement in the economy is at the core of their medium-term agenda, with the aim of sustaining the growth momentum while ensuring debt sustainability. This is reflected in their efforts to improve the business climate. The World Bank’s 2019 Doing Business report has ranked Rwanda among the top-10 performers, moving 11 places up to the 29th position in the world. Our authorities are also keen on harnessing the benefits of attracting foreign investment through the G20’s Compact with Africa initiative, and look forward to agreeing on more concrete steps to achieve this objective. They are convinced that these achievements, combined with initiatives to develop Special Economic Zones (SEZs) and foster innovative Small and Medium-Sized Enterprises (SMEs), will help attract more Foreign Direct Investment (FDI) to Rwanda.


Rwanda’s sound economic policies continue to support macroeconomic stability, foster robust growth, and improve the living conditions of the population. The policy framework under the PSI has been a useful signaling instrument on Rwanda’s policies while also helping in coping with various shocks faced by the economy.

Going forward, the authorities are committed to keeping the reform momentum for addressing the economy’s remaining challenges. They will step up efforts to implement their National Strategy for Transformation aimed at turning Rwanda into a middle-income economy.

In view of the strong performance under the PSI-supported program and the authorities’ firm commitment to sound macroeconomic policies and reforms, we would appreciate Executive Directors’ support for the completion of the tenth and final review.