IMF Executive Board Completes the Sixth Review of the Policy Coordination Instrument for Rwanda
June 23, 2022
- Rwanda continues to implement its Economic Recovery Plan while confronting the lingering effects of the pandemic and the spillovers from the war in Ukraine.
- Rising inflationary pressures, exacerbated by rising commodity prices, are compounding the policy challenges of balancing economic recovery with maintaining price stability.
- The Policy Coordination Instrument (PCI) continues to support the authorities’ efforts in mitigating the impact of the ongoing external shocks, maintaining macroeconomic stability, and implementing medium-term fiscal consolidation, while advancing the structural reform agenda for more inclusive and sustainable growth.
Washington, DC : On June 22, 2022, the Executive Board of the International Monetary Fund (IMF) completed the sixth review of the Policy Coordination Instrument (PCI) [1] . The PCI was approved on June 28, 2019 ( Press Release No.19/258 ) to facilitate macroeconomic and financial stability, while advancing an ambitious reform agenda under Rwanda’s National Strategy for Transformation (NST). Program performance remains broadly satisfactory, with all quantitative and standard continuous targets through end-December 2021 met. However, the 12-month headline inflation average in 2021 fell outside the lower bound of the program’s inflation target band, triggering consultation with the IMF Executive Board. All six reform targets through end-April 2022 were also implemented.
Real GDP growth rebounded strongly to 10.9 percent in 2021, but spillovers from the war in Ukraine are compounding pandemic challenges by weighing down growth, increasing inflationary pressures and social needs, and straining fiscal balances amid high uncertainty and rising food insecurity concerns. Growth is expected to moderate to 6 percent in 2022 while headline inflation is projected to rise from 0.8 percent in 2021 to 9.5 percent in 2022. The near-term outlook is marred by uncertainty from the geopolitical risks that could prolong the spillovers from the war in Ukraine, but the medium-term outlook remains favorable, supported by the authorities’ commitment to macroeconomic stability and structural reforms.
Headline inflation has been on the rise since the beginning of the year. The National Bank of Rwanda (NBR) raised the policy rate by 50 basis points to 5 percent in February but kept it unchanged in May, though inflationary pressures persist. The fiscal deficit for FY22/23 is projected at 6.9 percent of GDP and envisages fuel, fertilizer, and public transport subsidies and social protection interventions to mitigate the impact of rising food and fuel prices. The current account deficit is projected to widen in 2022 but expected to narrow over the medium term financed by FDI and concessional loans. A medium-term fiscal consolidation, exchange rate flexibility, and reforms to strengthen Rwanda’s external competitiveness are expected to cement macroeconomic and financial stability.
Policies under the PCI continue supporting the recovery from the pandemic, the response to mitigate the headwinds from the war in Ukraine while maintaining macroeconomic stability, and the implement the medium-term fiscal consolidation strategy to preserve debt sustainability. The PCI also supports reform efforts, such as financial inclusion, digitization, and green public financial management (PFM) to deliver a more inclusive and sustainable growth .
Following the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, issued the following statement:
“Despite a strong economic rebound in 2021, the COVID-19 pandemic has left Rwanda with high unemployment, rising poverty, and learning losses that risk reversing hard-won social gains. These pandemic scars will likely be exacerbated by the spillovers from the war in Ukraine, which, through higher commodity prices and additional inflationary pressures, are raising social needs and food security concerns, putting pressure on fiscal balances, and limiting the policy space to support an inclusive recovery.
“The authorities’ plan to use the existing social safety nets to respond to economic fallouts from the war in Ukraine is commendable. They should focus on increasing the coverage and benefits of existing social protection programs in a targeted manner and phase out fuel subsidies as planned.
“In view of rising inflation, the National Bank of Rwanda should stand ready to tighten monetary policy more aggressively to anchor inflation expectations. Implementation of the interest-rate-based monetary policy framework should continue with greater exchange rate flexibility to ensure external sustainability. Closely monitoring and containing credit risks through targeted and time-bound interventions, without relaxing regulatory and supervisory requirements will be important to safeguard financial stability. The authorities should continue to enhance the AML/CFT framework.
“Anchoring medium-term fiscal discipline through a credible and growth-friendly fiscal consolidation plan should be fast-tracked. Authorities should step up efforts to broaden the tax base, phase out tax exemptions, enhance tax compliance, and identify cost-savings, including through digitalization, efficiency gains, and prioritization. These efforts should be complemented by measures to contain fiscal risks and enhance fiscal transparency.
“The authorities’ commitment to structural reforms should be sustained to minimize pandemic scaring, build resilience to climate shocks, and achieve higher and more inclusive growth.”
[1] The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors.
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Table 1. Rwanda: Selected Economic Indicators, 2019–27 |
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|
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
|||||||
|
Act. |
Act. |
5th Review |
Act. |
5th Review |
Proj. |
5th Review |
Proj. |
5th Review |
Proj. |
5th Review |
Proj. |
5th Review |
Proj. |
Proj. |
|
|
(Annual percentage change, unless otherwise indicated) |
|||||||||||||||
|
Output and prices |
|||||||||||||||
|
Real GDP |
9.5 |
-3.4 |
10.2 |
10.9 |
7.2 |
6.0 |
7.9 |
6.7 |
7.5 |
7.0 |
7.5 |
7.5 |
6.1 |
6.1 |
6.1 |
|
GDP deflator |
2.5 |
6.7 |
2.3 |
2.7 |
5.3 |
9.3 |
7.1 |
8.7 |
5.5 |
5.5 |
5.3 |
5.4 |
5.0 |
5.0 |
5.0 |
|
CPI (period average) |
2.4 |
7.7 |
0.7 |
0.8 |
5.7 |
9.5 |
6.8 |
8.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
|
CPI (end period) |
6.7 |
3.7 |
1.9 |
1.9 |
8.1 |
8.8 |
6.8 |
6.5 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
|
Terms of trade (deterioration, -) |
-1.8 |
-0.9 |
0.1 |
2.5 |
1.9 |
7.5 |
-0.5 |
-2.9 |
-0.8 |
-0.9 |
-0.5 |
0.3 |
-0.8 |
0.7 |
0.2 |
|
Money and credit |
|||||||||||||||
|
Broad money (M3) |
15.4 |
18.0 |
14.2 |
17.8 |
15.1 |
15.8 |
18.2 |
14.2 |
15.7 |
15.0 |
13.2 |
15.8 |
11.3 |
11.4 |
11.4 |
|
Reserve money |
16.0 |
21.7 |
14.7 |
30.7 |
15.1 |
4.8 |
16.1 |
12.2 |
15.7 |
15.0 |
13.2 |
15.8 |
11.3 |
11.4 |
11.4 |
|
Credit to non-government sector |
12.6 |
21.8 |
15.8 |
14.7 |
16.1 |
11.0 |
14.8 |
11.5 |
18.0 |
21.3 |
12.3 |
19.4 |
7.6 |
10.7 |
14.5 |
|
M3/GDP (percent) |
25.7 |
29.4 |
29.3 |
30.4 |
29.9 |
30.4 |
30.6 |
29.9 |
31.2 |
30.5 |
31.2 |
31.2 |
31.3 |
31.2 |
31.2 |
|
(Percent of GDP, unless otherwise indicated) |
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|
Budgetary central government, FY basis 1 |
|||||||||||||||
|
Revenue |
23.1 |
23.3 |
25.0 |
25.0 |
24.6 |
25.3 |
24.4 |
24.6 |
24.8 |
22.9 |
24.3 |
23.2 |
24.5 |
24.1 |
24.2 |
|
Taxes |
16.0 |
15.7 |
15.8 |
15.8 |
15.4 |
15.7 |
16.0 |
15.4 |
16.4 |
15.9 |
16.7 |
16.5 |
17.0 |
17.3 |
17.5 |
|
Grants |
3.0 |
4.6 |
5.5 |
5.5 |
5.5 |
5.9 |
5.8 |
6.6 |
5.9 |
4.4 |
5.1 |
4.1 |
5.0 |
4.0 |
3.9 |
|
Other revenue |
3.0 |
3.1 |
3.7 |
3.7 |
3.7 |
3.7 |
2.5 |
2.5 |
2.5 |
2.6 |
2.5 |
2.7 |
2.5 |
2.8 |
2.8 |
|
Expense |
20.5 |
20.2 |
20.3 |
20.3 |
20.6 |
20.6 |
18.8 |
19.3 |
18.0 |
18.2 |
17.8 |
18.4 |
17.1 |
18.1 |
18.0 |
|
Net acquisition of nonfin. assets |
11.2 |
11.0 |
12.2 |
12.2 |
12.0 |
12.4 |
11.8 |
11.0 |
10.5 |
9.6 |
10.5 |
9.5 |
10.5 |
9.6 |
9.6 |
|
Net lending (+) / borrowing (-) (NLB) |
-8.6 |
-7.9 |
-7.5 |
-7.5 |
-8.0 |
-7.6 |
-6.2 |
-5.7 |
-3.7 |
-4.9 |
-4.0 |
-4.7 |
-3.0 |
-3.6 |
-3.4 |
|
excluding grants |
-11.6 |
-12.4 |
-13.0 |
-13.0 |
-13.5 |
-13.5 |
-12.0 |
-12.4 |
-9.6 |
-9.3 |
-9.0 |
-8.8 |
-8.0 |
-7.6 |
-7.3 |
|
Net acquisition of financial assets |
0.8 |
4.5 |
1.5 |
1.5 |
1.1 |
1.1 |
1.0 |
1.3 |
1.7 |
1.5 |
0.3 |
0.5 |
0.3 |
0.3 |
1.4 |
|
Net incurrence of liabilities |
6.4 |
12.3 |
8.9 |
8.9 |
9.2 |
9.0 |
7.3 |
7.0 |
5.3 |
6.4 |
4.3 |
5.2 |
3.3 |
3.9 |
4.8 |
|
Domestic |
1.2 |
2.2 |
2.5 |
2.5 |
-0.2 |
-0.5 |
1.6 |
0.7 |
0.9 |
1.2 |
0.8 |
1.4 |
0.2 |
0.2 |
1.7 |
|
Foreign |
5.1 |
10.2 |
6.4 |
6.4 |
9.4 |
9.5 |
5.7 |
6.3 |
4.4 |
5.2 |
3.4 |
3.9 |
3.2 |
3.6 |
3.2 |
|
Overall fiscal balance (incl. grants, policy lending)2 |
-8.1 |
-9.1 |
-8.6 |
-8.6 |
-9.1 |
-8.7 |
-7.5 |
-6.9 |
-5.0 |
-6.1 |
-4.0 |
-4.9 |
-3.0 |
-3.6 |
-3.4 |
|
Debt-creating overall balance (excl. PKO)3 |
-5.5 |
-7.8 |
-8.2 |
-8.2 |
-9.1 |
-8.7 |
-7.4 |
-6.9 |
-5.0 |
-6.1 |
-4.0 |
-4.9 |
-3.0 |
-3.6 |
-3.4 |
|
|
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|
Public debt |
|||||||||||||||
|
Total public debt incl. guarantees |
56.8 |
72.4 |
74.6 |
73.3 |
77.2 |
73.1 |
77.9 |
75.2 |
75.7 |
75.9 |
73.1 |
74.2 |
71.1 |
73.6 |
71.7 |
|
of which : external public debt |
44.3 |
56.4 |
58.6 |
54.5 |
62.4 |
57.6 |
63.9 |
58.0 |
64.7 |
60.8 |
63.5 |
60.1 |
62.2 |
59.1 |
56.8 |
|
Total public debt excluding guarantees |
53.0 |
69.3 |
73.7 |
72.6 |
75.4 |
71.8 |
74.5 |
73.1 |
72.2 |
73.6 |
69.9 |
71.4 |
68.2 |
71.0 |
69.4 |
|
External public debt incl. guarantees, PV |
29.7 |
34.0 |
36.1 |
34.9 |
39.2 |
36.1 |
40.9 |
38.2 |
40.9 |
39.2 |
40.4 |
38.7 |
38.8 |
37.6 |
35.7 |
|
Gross domestic debt |
12.4 |
16.0 |
16.1 |
18.8 |
14.8 |
15.5 |
14.0 |
17.1 |
10.8 |
15.1 |
9.9 |
14.2 |
9.4 |
14.5 |
15.0 |
|
Total public debt incl. guarantees, PV |
42.9 |
51.1 |
52.9 |
54.4 |
55.3 |
53.0 |
56.1 |
56.6 |
53.5 |
55.3 |
51.4 |
53.7 |
50.0 |
52.9 |
51.3 |
|
|
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|
Investment and savings |
|||||||||||||||
|
Investment |
23.5 |
25.1 |
21.0 |
26.3 |
26.9 |
25.8 |
29.1 |
28.4 |
29.7 |
29.4 |
30.0 |
28.6 |
27.3 |
28.4 |
28.2 |
|
Government |
12.9 |
14.2 |
13.3 |
13.0 |
13.4 |
13.2 |
12.3 |
11.8 |
11.8 |
11.1 |
12.3 |
10.8 |
10.2 |
11.2 |
11.0 |
|
Nongovernment |
10.6 |
11.0 |
7.7 |
13.3 |
13.6 |
12.6 |
16.8 |
16.5 |
17.9 |
18.3 |
17.7 |
17.8 |
17.1 |
17.2 |
17.2 |
|
Savings (excl. grants) |
9.0 |
10.2 |
5.8 |
12.3 |
11.3 |
8.6 |
15.4 |
13.7 |
16.2 |
16.3 |
18.0 |
16.9 |
17.7 |
17.8 |
18.1 |
|
Government |
3.7 |
-0.5 |
-1.6 |
0.2 |
1.4 |
-0.2 |
1.8 |
0.8 |
2.6 |
1.5 |
3.5 |
2.8 |
1.8 |
3.4 |
3.6 |
|
Nongovernment |
5.3 |
10.7 |
7.4 |
12.1 |
9.9 |
8.9 |
13.6 |
12.9 |
13.7 |
14.9 |
14.5 |
14.1 |
15.9 |
14.4 |
14.5 |
|
|
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|
External sector |
|||||||||||||||
|
Exports (goods and services) |
21.8 |
18.9 |
18.9 |
19.1 |
24.4 |
23.4 |
26.7 |
25.3 |
27.7 |
27.1 |
31.5 |
28.5 |
33.3 |
28.8 |
29.2 |
|
Imports (goods and services) |
36.1 |
35.1 |
35.6 |
34.8 |
40.9 |
41.7 |
41.2 |
41.2 |
41.7 |
40.8 |
44.0 |
40.9 |
43.5 |
40.2 |
40.1 |
|
Current account balance (incl grants) |
-11.9 |
-12.1 |
-11.0 |
-10.9 |
-11.5 |
-12.6 |
-10.3 |
-11.7 |
-9.0 |
-10.3 |
-8.0 |
-8.9 |
-5.7 |
-7.8 |
-7.3 |
|
Current account balance (excl grants) |
-14.5 |
-14.9 |
-15.2 |
-14.0 |
-15.5 |
-17.1 |
-13.7 |
-14.7 |
-13.5 |
-13.1 |
-12.0 |
-11.7 |
-9.6 |
-10.6 |
-10.1 |
|
Current account balance (excl. large proj.) |
-10.6 |
-12.0 |
-10.0 |
-10.8 |
-9.3 |
-10.5 |
-7.9 |
-9.3 |
-7.0 |
-8.4 |
-6.7 |
-7.7 |
-5.7 |
-7.8 |
-7.3 |
|
Gross international reserves |
|||||||||||||||
|
In millions of US$ |
1,382 |
1,722 |
1,829 |
1,889 |
1,775 |
1,868 |
1,783 |
1,869 |
2,021 |
2,063 |
2,130 |
2,093 |
2,253 |
2,229 |
2351 |
|
In months of next year's imports4 |
5.6 |
5.9 |
5.2 |
5.0 |
4.6 |
4.6 |
4.3 |
4.4 |
4.3 |
4.5 |
4.4 |
4.3 |
4.4 |
4.2 |
4.1 |
|
|
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|
Memorandum items: |
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|
GDP at current market prices |
|||||||||||||||
|
Rwanda francs (billion), CY basis |
9,314 |
9,607 |
10,986 |
10,944 |
12,395 |
12,672 |
14,311 |
14,698 |
16,232 |
16,585 |
18,378 |
18,800 |
20,460 |
20,942 |
23,340 |
|
nominal growth |
12.2 |
4.6 |
12.7 |
13.9 |
12.8 |
15.8 |
15.5 |
16.0 |
13.4 |
12.8 |
13.2 |
13.4 |
11.3 |
11.4 |
11.4 |
|
Population (million) |
12.4 |
12.7 |
13.0 |
13.0 |
13.3 |
13.3 |
13.6 |
13.6 |
13.9 |
13.9 |
14.2 |
14.2 |
14.2 |
14.5 |
14.8 |
|
Sources: Rwandan authorities and IMF staff estimates. |
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1 From FY 19/20 (2020) to FY 25/26 (2026). Fiscal year runs from July to June. FY19/20 and FY20/21 are actuals. |
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2 For purposes of the PCI the overall balance (GFSM 1986, incl. policy lending) is used for monitoring. |
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3 Overall deficit excl. spending on materialized contingent liabilities and other items already incl. in the DSA. |
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4 Based on prospective import of goods (excluding gold) and services. SDR allocation included in 2021. |
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