IMF Executive Board Completes Ninth PSI Review for Rwanda

Stocks and Financial Services Press Releases Tuesday June 12, 2018 09:16
IMF--12 Jun--International Monetary Fund
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.


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