Rwanda: Request for a New 36-Month Policy Coordination Instrument and Request for an Arrangement Under the Resilience and Sustainability Facility—World Bank Assessment Letter for the Resilience and Sustainability Facility

RWANDA

Abstract

RWANDA

Title Page

RWANDA

REQUEST FOR A NEW 36-MONTH POLICY COORDINATION INSTRUMENT AND REQUEST FOR AN ARRANGEMENT UNDER THE RESILIENCE AND SUSTAINABILITY FACILITY— WORLD BANK ASSESSMENT LETTER FOR THE RESILIENCE AND SUSTAINABILITY FACILITY

November 28, 2022

WORLD BANK ASSESSMENT LETTER FOR THE RESILIENCE AND SUSTAINABILITY FACILITY

A. Climate Changes Implications for Rwanda

1. Rwanda is vulnerable to increasingly frequent climate-induced natural disasters as well as to rising temperatures and changing rainfall patterns. The University of Notre Dame Global Adaptation Initiative (ND-GAIN) Index, ranks Rwanda as 124th out of an 182 countries with respect to the country’s vulnerability to climate change and other global challenges as well as its readiness to improve resilience.1 Rwanda’s vulnerability to climate change reflects the economy’s dependence on climate sensitive sectors such as nature-based tourism, rainfed agriculture, extractives, and other weather-sensitive industries, which in 2021 accounted for an estimated 65 percent of employment, 45 percent of GDP, and 40 percent of exports.2 The Rwanda Country Climate and Development Report (CCDR, 2022) estimates that Rwanda’s annual GDP during 2022–50 could be between 0.6 and 2.6 percent lower on average, depending on the climate scenario, than in a baseline with no climate change, and that annual deviations could be 5.0–7.0 percent lower than the baseline in some years.3 Droughts have historically had the widest reach among natural disasters, affecting as much as 12 percent of the population.4 Rwanda, also faces floods, landslides, and rainstorms. For example, the 2018 floods caused damage to physical assets valued at Rwandan franc (RWF) 201 billion and economic losses of RWF 21 billion (2.4 percent and 0.3 percent of GDP, respectively).5 Nearly 52 percent of the Rwandan population lives below the international poverty line. Poor households and communities have little capacity to manage climate risks, including the health risks that are likely to increase with climate change.

2. Rwanda contributes only 0.003 percent to global greenhouse gas emissions and emitted 5.34 MtCO2e in 2015. Rwanda’s per capita emissions are about 0.5 tCO2e, which is around one-fifth of the regional average and just one-twelfth of the world average. Rwanda also has a relatively low emissions intensity—around 0.6 tCO2e per 1000 2015 US$ GDP. Emissions from livestock dominate the emissions profile of Rwanda. Livestock, agriculture, and land use together account for 74 percent of total emissions. Energy, waste sector, and industrial processes and product use (IPPU) accounts for 18 percent, 8 percent and 1 percent of total emissions.6

B. Government Policies and Commitments for Climate Change Adaptation and Priority Areas to Strengthen Resilience

3. Rwanda is integrating its efforts to address climate change with development goals given its a growing rural population, high incidence of poverty, lack of universal access to basic services, and limited private sector engagement. Food security in Rwanda lies well below the average for low-income countries, mainly due to challenges in food affordability and availability, and is further threatened by climate change. With nearly 40 percent of the population living in informal settlements, access to water and sanitation, health services, and energy is limited, and informal settlements are likely to expand as the country seeks to promote rapid urbanization. Rwanda needs to modernize agriculture, manage urbanization, promote competitive domestic enterprises, strengthen regional integration, and invest in human development.7

4. Over several decades, Rwanda has progressively strengthened its climate commitments and put in place a legal, policy, and strategic framework to build resilience against climate change. Rwanda’s Vision 2050 and National Transformation Strategy 2017–24 provide the foundation by mainstreaming sustainability and resilience into productive sectors and government planning.8 Rwanda’s Nationally Determined Contributions (NDC) presents details regarding specific adaptation and mitigation actions, as well as goals and targets. The country’s 2020 updated NDC presents the interventions in more detail, specifying the government institution that is responsible, the timeframe for implementation, and the estimated costs. The updated NDC includes 24 priority adaptation interventions in the water, agriculture, land and forestry, human settlements, health, transport, and mining sectors. Interventions in the agriculture sector are aimed, among others, at sustainable land-use management and climate-resilient crops, resilient livestock, and value addition facilities and technologies. Other interventions in the NDC will improve forest management, promote afforestation, and reforestation and, in the area of water management, restore wetlands, build water storage, increase efficiency of water use, and introduce conservation practices.

5. The Ministry of Environment leads the development of climate change strategy and policies at the central government level.9 Local governments are responsible for the application of laws and regulations related to the protection of the environment within their jurisdiction. Rwanda’s National Fund for Environment (FONERWA) has, with the Development Bank of Rwanda, mobilized significant funding for climate action, including through the Rwanda Green Investment Facility, which recently mobilized US$104 million to support the private sector in developing a climate-friendly economy.

C. Government Policies and Commitments for Climate Change Mitigation and Priority Areas to Reduce Greenhouse Gas Emissions

6. Although the focus of Rwanda is on adaptation, the country is also committed to a low-carbon transition. Rwanda’s 2020 NDC presents an estimated total emissions reduction potential of around 4.6 million tons of carbon dioxide equivalent (MtCO2e) in 2030, or a 38 percent reduction against the projected business as usual (BAU) emissions in the same year of 12.1 MtCO2e.10 To achieve the emission reduction commitment, the government has prioritized measures in energy, industrial processes and product use, waste, and agriculture. Investments in soil conservation, composting, and animal husbandry would provide almost half of this reduction (2.2 MtCO2e), as agriculture and land use are dominant sources of Rwanda’s current GHG emissions.11 In energy, the aim is to achieve 1.5 MtCO2e reduction through increased use of hydropower, efficient cook stoves, motor vehicle standards, and the use of solar power in irrigation and mini grids. In addition to these measures that reduce emissions of GHGs, Rwanda is committed to protecting forests, which remove and store carbon, further offsetting Rwanda’s GHG emissions.

D. Other Challenges and Opportunities

7. Mobilizing financing for the proposed investments in Rwanda’s 2020 NDC will be challenging. Although all actions in the NDC support achieving Vision 2050’s development goals, the government estimates that these actions will cost approximately US$11.0 billion, of which US$4.16 billion will be unconditional (with 52 percent for adaptation and 48 percent for mitigation) and US$6.89 billion will be conditional (with 47 percent for adaptation and the rest for mitigation). To manage these costs, additional fiscal space is needed, through increased spending efficiencies (as also outlined in the forthcoming World Bank Public Expenditure Review) and spreading out of planned investments over a longer timeframe.12 There is also a need for the private sector to share the burden of investing in climate resilience and the low-carbon transition, such as through public-private partnerships or joint management of protected areas.

8. Refinements to public investment management systems can support meeting Rwanda’s climate commitments. Potential areas of action include: assessing systematically fiscal risks from climate change; mainstreaming into the public investment management system the appraisal of projects’ climate change and natural disaster vulnerabilities, as well as their potential contributions to reducing damages and losses from climate change; and introducing climate change-related rules into public procurement regulations.

9. Developing a green finance market as part of the broader capital market development effort in Rwanda can also help mobilize financing. This will require actions by financial regulators and supervisors to implement environmental, social, and governance standards in operations of Rwanda’s financial institutions as well as developing a pipeline of bankable and monitorable green projects. Introducing new financial products would also require new technical knowledge, e.g., to develop crop and livestock insurance products tailored to meet the needs of smallholders.13

E. World Bank Engagement

10. The World Bank has an active portfolio of financing and technical assistance that is helping Rwanda implement its climate commitments.

  • Active operations: The Second Rwanda Urban Development Project (P165017) includes flood management. The Energy Access and Quality Improvement Project (P172594), Commercialization and De-Risking for Agricultural Transformation Project (P171462) contribute to addressing climate change through their focus on urban resilience, energy efficiency, and increased use of irrigation.

  • Operations under preparation: The World Bank is preparing the Rwanda Urban Mobility Project (P176885), which aims to boost climate resilience in the transport sector. The Volcanoes Community Resilience Project (P178161) will reduce flood risks and improve land management through protected area expansion and landscape management. A planned new Development Policy Financing series is also expected to support policy reforms that boost climate resilience and advance the low-carbon transition.

  • Analysis and technical assistance: The CCDR provides policy- and investment-related recommendations on climate change. The World Bank has been supporting the establishment of the Rwanda Green Investment Facility and will continue to support the government to mobilize climate and nature-based financing through targeted financing options (with a focus on private sector financing). The World Bank also continues to provide technical assistance on climate finance under the Green Growth and Climate Resilient Development Project (P169151).

1

GoR. 2019c. Rwanda Rapid Post Disaster Needs Assessment (PDNA). Kigali: Republic of Rwanda as cited in World Bank Group. 2022. Rwanda Country Climate and Development Report. International Bank for Reconstruction and Development/The World Bank

2

World Bank Group, Rwanda Country Climate and Development Report, 2022. World Bank staff estimates using 2021 national accounts, employment, and balance of payments data from the Bank of Rwanda and the National Institute of Statistics Rwanda.

3

World Bank Group, Rwanda Country Climate and Development Report: Technical Annex, 2022. Climate scenarios incorporate expected changes in rainfall and temperature associated with RCPs 2.6, 4.5, and 8.5 (ensemble averages) and with wetter, hotter, and drier variants of RCP8.5. Hot and dry conditions cause the largest losses.

4

According to the data from the Emergency Events Database (EM-DAT), the 1996 drought affected 12 percent of the population.

5

Republic of Rwanda, Ministry in Charge of Emergency Management (MINEMA), Rwanda Rapid Post Disaster Needs Assessment Final Report, January 2019.

6

World Bank Group. 2022. Rwanda Country Climate and Development Report. International Bank for Reconstruction and Development/The World Bank

7

Ibid.

8

The Green Growth and Climate Resilience Strategy (2011, revised in 2021), Rwanda’s Nationally Determined Contribution (NDC) (2016, updated in 2020), and the National Environment and Climate Change Policy (2019) are other core documents.

9

Rwanda adopted in 2011 the Rwanda Green Growth and Climate resilient strategy (GGCRS).

10

This reduction potential includes an unconditional target of 1.9 MtCO2e plus an additional conditional reduction of 2.7 MtCO2e, which would require new financing and assistance.

11

The government estimates that agriculture accounted for 49 percent of GHG emissions in 2018, followed by energy (35 percent) and waste management (14 percent). Government of Rwanda, Rwanda’s First Biennial Update Report Under the United Framework Convention on Climate Change, December 2021.

12

World Bank Group. 2022. Rwanda Country Climate and Development Report. International Bank for Reconstruction and Development/The World Bank

13

World Bank Group. 2022. Rwanda Country Climate and Development Report. International Bank for Reconstruction and Development/The World Bank

Rwanda: Request for a new 36-Month Policy Coordination Instrument and Request for an Arrangement Under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for Rwanda
Author: International Monetary Fund. African Dept.