IMF Executive Board Completes Fourth Review Under the Policy Coordination Instrument (PCI) and Request of an Extension of the Policy Coordination Instrument for Rwanda

IMF News, July 6, 2021

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Published: July 6, 2021

Outlook and key macroeconomic projections

Real GDP contracted by 3.4 percent in 2020.
Real GDP is projected to rebound by 5.1 percent in 2021.
Growth is expected to return to its pre-pandemic trend by end-2023.
The outlook remains uncertain due to the protracted impact of the pandemic and uncertainty on adequate vaccine availability.

PCI status and program context

The Policy Coordination Instrument (PCI) was approved on June 28, 2019.
The Executive Board completed the Fourth Review under the PCI on July 1, 2021 and approved a one-year extension of the PCI.
The authorities requested a one-year extension of the PCI, which was initially set to expire on June 15, 2022.
The PCI provides a policy anchor for the next phase of the authorities’ COVID-19 response and for supporting a strong and inclusive recovery.

Policy response and near-term priorities

Authorities’ response focuses on: procuring vaccines, increasing fiscal support for households and businesses, and providing sufficient liquidity to the banking system.
To accommodate additional spending needs, authorities have relaxed fiscal program targets while enhancing efforts to contain fiscal risks and adopting gradual fiscal consolidation once the crisis abates.
The program has shifted priorities in response to COVID-19 to support the economy and people through the crisis.

Balance between recovery and fiscal sustainability

Given the protracted nature of the pandemic, an increase in the fiscal deficit should allow the authorities to accommodate further spending to cushion the impact of COVID-19.
Rising debt levels necessitate balancing recovery efforts with safeguarding fiscal sustainability.
The authorities are encouraged to contain fiscal risks from SOEs, PPPs, and state-guaranteed loans to support a growth-friendly fiscal consolidation once the crisis abates and gradually bring debt towards the authorities’ 65 percent of GDP target.

Financial sector and monetary policy guidance

Containing financial sector vulnerabilities is key to safeguarding financial stability.
Recommended actions include intensified monitoring of credit risk, prudent restructuring, timely recognition of problem loans, and continued data-driven monetary policy with monitoring of price developments.
Monetary policy has been accommodative to help keep the banking sector liquid and support borrowing.

Structural reforms and inclusive recovery priorities

Maintain momentum on structural reforms for an inclusive recovery, with attention to limiting the pandemic’s impact on women and children and advancing the Sustainable Development Goals.
Continue strengthening fiscal transparency, domestic revenue mobilization, and the monetary policy framework.
Measures to deepen financial markets, improve education and health care, sustain expansion of digital payments, and further financial inclusion should support transition to private sector-led growth.

Source: Press Release No. 21/206, IMF Executive Board Completes Fourth Review Under the Policy Coordination Instrument (PCI) and Request of an Extension of the Policy Coordination Instrument for Rwanda (July 6, 2021).