Press Release No. 97/19

Press Release: IMF Approves Emergency Post-Conflict Assistance for Rwanda

April 22, 1997

The International Monetary Fund (IMF) today approved a loan for Rwanda equivalent to SDR 8.925 million (about US$12 million ), under the IMF’s emergency post-conflict assistance, to support the government’s economic program for 1997.

Background

Since the end of the civil war in July 1994, the efforts of the new government have focused on coping with its aftermath. A large number of internally displaced persons have been resettled, more than 2.5 million refugees have returned from neighboring countries, and considerable progress has been made in repairing the social and economic infrastructure and in rebuilding key economic institutions.

A technical assistance program coordinated by the IMF has been key in enabling the National Bank of Rwanda to resume basic central banking functions. The program has also contributed toward a strengthening of budgeting and revenue administration and resumed collection of financial and economic statistics. Moreover, donor-assisted efforts have resulted in the restoration of civilian administrative authority at the central and local government levels.

Under the IMF staff-monitored program in 1996, the macroeconomic situation improved, with real GDP rising by an estimated 13 percent, inflation falling to 9 percent, and gross official international reserves increasing to the year-end equivalent of five months of imports. Following a decline of 49 percent in 1994 and a rebound of nearly 25 percent in 1995, real GDP expanded by over 13 percent in 1996, reflecting a continuing recovery in food production, commercial services, and some manufacturing activities.

Medium-Term Strategy and the 1997 Program

The government’s 1997 program covers a transitional phase leading toward the possible adoption of a program that could be supported by loans under the Enhanced Structural Adjustment Facility (ESAF)¹. The authorities’ medium-term strategy seeks to promote economic and social reintegration of over 2 million former refugees, foster economic and financial recovery, and pave the way for sustained growth and development. For 1997, it envisages a real GDP growth rate of 12.7 percent, an inflation rate of 7 percent, and a level of gross international reserves equivalent to about four months of imports.

A key element in the reform efforts for 1997 will be fiscal consolidation through a reduction in the primary current budgetary deficit from 2.7 percent of GDP in 1996 to 0.9 percent in 1997. Budgetary revenue is projected to increase by about 26 percent to the equivalent of 10.3 percent of GDP, while expenditure will be allowed to increase by only 7.7 percent, implying a decline, in relation to GDP, from an estimated 14 percent in 1996 to 12.7 percent in 1997.

Approximately 70 percent of the expansion in revenue will derive from a broadening in the tax base. The government will take steps to contain budgetary outlays and to address problems in the areas where expenditure overruns were experienced in 1996. The relative share for military expenditure will decline in 1997, while that for essential social services will increase.

Structural Reforms

During 1997, the Rwandese authorities will put emphasis on civil service reform to increase the effectiveness of public administration; the elaboration of a comprehensive strategy and detailed implementation plan for the demobilization of soldiers; the reform or liquidation of several public enterprises and the privatization of the management of the electric, water, and telecommunications companies; and the elaboration of strategies for developing the health, education, and agricultural sectors.

Addressing Social Needs

The government has worked closely with the World Bank and other agencies of the United Nations system in developing an action program to support the reintegration of returning refugees. In this regard, a capital expenditure program, estimated at about US$163 million, has been identified and will be implemented as part of a public investment program totaling about US$210 million. Among the priority actions aimed at fostering the reintegration of the refugees will be the provision of housing, investments to increase the availability of primary health care and basic education, and "seed" capital to enable refugees to start productive activities.

The Challenge Ahead

Rwanda’s external outlook is susceptible to shocks, notably fluctuation in the terms of trade and the effects of adverse weather. In view of the country’s heavy dependence on foreign assistance, shortfalls in unrequited official transfers are also a matter of concern. These circumstances underscore the importance of strong adjustment efforts to diversify the export base as well as of initiatives to establish social conditions that would support a sustainable expansion of the export sector. They also underscore the need for continuous concessional assistance to alleviate the country’s debt burden and improve its economic prospects.

Rwanda joined the IMF on September 30, 1963, and its quota² is SDR 59.5 million (about US$81 million). Rwanda’s outstanding use of IMF credit currently totals SDR 17 million (about US$23 million).