Press Release No. 12/4

Press Release: IMF Executive Board Completes Third Review Under Policy Support Instrument for Rwanda

January 9, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Rwanda’s economic performance under the Policy Support Instrument (PSI). In completing the review, the Board approved the modification of the end-December 2011 assessment criteria.

The Executive Board approved a three-year PSI for Rwanda on June 16, 2010 (see Press Release No. 10/247). The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners.

Following the Executive Board’s discussion on Rwanda, Naoyuki Shinohara, Deputy Managing Director and Acting Chair issued the following statement:

“Rwanda’s economy in 2011 is poised for high growth—but also high inflation—with elevated risks for 2012. While strong agricultural output and exports are driving high real gross domestic product (GDP) growth, aggregate demand pressures are also building up and have already pushed up core inflation. Growth is expected to slow in 2012, although risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation. Structural reforms efforts will have to be stepped up to boost growth prospects.

“The authorities have begun to tighten monetary policy in late 2011 to contain inflation. However, further tightening may be needed in 2012 to prevent the erosion of recent gains in macroeconomic stability. Monetary policy implementation is expected to be enhanced further, including by preparing an action plan to develop the interbank money market.

“Fiscal consolidation in FY2011/12 and FY2012/13 remains on track and is expected to further anchor macroeconomic stability. The authorities have introduced additional revenue measures for FY2012/13 to preserve the revenue objective of PSI. The new requirement for State-Owned Enterprises (SOEs) to seek prior approval of the Ministry of Finance before contracting new external debt will help further consolidate recent improvements in Rwanda’s debt management capacity.

“The establishment of a transparent and sustainable institutional structure to supervise Savings and Credit Cooperatives (SACCOs) needs to be fast-tracked. The hiring and training of 60 supervisors was an important first step. Given the speed of rolling out these cooperatives as full-fledged lending institutions, and the risks involved, it is imperative that the necessary institutional structure be put in place without delay.

“In light of significant risks in the global economic environment that could adversely impact Rwanda’s exports and international reserves, the central bank should avoid any further encumbering of the central bank’s foreign assets as collateral for loans to finance the government’s strategic investments,” Mr. Shinohara concluded.