Press Release No. 04/114

Press Release: IMF Completes Second and Third Reviews Under Rwanda's PRGF Arrangement, Approves US$1.68 Million Disbursement, and Grants Additional Interim Assistance of US$6.6 Million Under the Enhanced HIPC Initiative

June 10, 2004

The Executive Board of the International Monetary Fund (IMF) has completed the second and third reviews of Rwanda's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Rwanda will be eligible to draw an amount equivalent to SDR 1.14 million (about US$1.68 million), bringing the total amount disbursed under the arrangement to SDR 2.29 million (about US$3.38 million).

The Board also reviewed Rwanda's Annual Progress Report on Poverty Reduction Strategy Paper and concluded that it provides a sound basis for continued access to Fund concessional financial assistance. In addition, the Executive Board approved additional interim assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative of SDR 4.482 million (about US$6.6 million) through June 8, 2005.

In completing the reviews, the Board granted waivers for the nonobservance of quantitative performance criteria for end-June 2003 and end-December 2003, and structural performance criteria for end-December 2003, end-January 2004 and end-March 2004.

Rwanda's PRGF arrangement was approved on August 12, 2002 (see Press Release No. 02/36), for SDR 4 million (about US$6 million).

The PRGF is the most concessional facility for low-income countries. PRGF-supported programs is based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal.

In commenting on the Executive Board's discussion on Rwanda, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"The wide range of challenges faced by Rwanda in 2003, including the adoption of a new constitution and national elections, stretched its limited capacity. Macroeconomic performance and policy implementation fell short of the standards that had been maintained in preceding years. However, the authorities' renewed commitment to the program's objectives has been accompanied by some improvements in economic indicators in 2004.

"With the political transition completed, strengthened policy implementation will be needed to achieve the program's objectives during 2004. Under the program, real GDP growth is expected to accelerate to 6 percent, while monetary policy will aim at limiting inflation to 5 percent by year's end. Fiscal policy will center on consolidating recent gains in revenue mobilization and take advantage of increased external budgetary support to address critical social needs, including free primary schooling and extended health services, in line with the Poverty Reduction Strategy Paper. Spending under the program will be carefully monitored to ensure transparency and tightened management of public resources, as well as the appropriate funding of priority sectors, and will be complemented by a strengthening of procedures for public procurement. In addition, given the high debt burden the authorities will limit new external borrowing and promote higher domestic savings.

"Structural policies will focus on promoting growth by encouraging private investment, improving the legal framework, and strengthening public financial administration. Priority will also be given to privatization of state enterprises-including in the telecommunications, tea, banking, and hotel sectors-export promotion, and addressing weaknesses in financial sector supervision. It will be essential that the authorities work closely with external and domestic partners to achieve these objectives, tackle the serious capacity constraints facing Rwanda, and improve social conditions. In addition, growth and social progress will require Rwanda's continued commitment to securing a lasting peace in the Great Lakes area," Mr. Carstens said.