IMF pegs Rwanda growth at 6.5%

East African Business Week - - FRONT PAGE -

KIGALI, RWANDA-RWANDA is set to grow by 6.5% this fi­nan­cial year ac­cord­ing to a vis­it­ing In­ter­na­tional Mon­e­tary Fund (IMF) team which was re­cently in Kigali.

“Rwanda’s eco­nomic per­for­mance re­mains strong, with GDP growth of 6.5 per­cent in the first half of 2016. Growth pro­jec­tions for the year re­main at 6 per­cent, driven by ser­vices ac­tiv­ity, with some­what lower growth in agri­cul­ture due to the re- cent drought, and a con­trac­tion in man­u­fac­tur­ing/con­struc­tion fol­low­ing the end of a re­cent in­vest­ment boom. 12-month con­sumer price in­fla­tion has risen in re­cent months to about 6 per­cent, due mainly to higher food prices and, to a lesser ex­tent, higher im­port prices fol­low­ing re­cent de­pre­ci­a­tion of the Rwan­dan franc,’

The IMF team reached staff-level agree­ment with the gov­ern­ment, sub­ject to ap­proval by IMF Man­age­ment and the Ex­ec­u­tive Board, on poli­cies that could sup­port com­ple­tion of the sixth and first re­views of Rwanda’s PSI- and Scf-sup­ported pro­grams, re­spec­tively. The Ex­ec­u­tive Board is sched­uled to con­sider the re­views in Jan­uary 2017.

Ac­cord­ing to the team re­port is­sued last week, ‘The main near-term ob­jec­tive of the cur­rent pro­grams is to re­spond to ad­verse global de­vel­op­ments, most no­tably com­mod­ity prices, which has led to grow­ing ex­ter­nal im­bal­ances, re­sult­ing in pres­sure on the Rwan­dan franc and the banking sys­tem’s for­eign ex­change re­serves’.

To ad­dress ex­ter­nal im­bal­ances, short term ad­just­ment poli­cies have been put in place, com­prised of: con­tin­ued ex­change rate ad­just­ment, re­sult­ing in Rwan­dan franc

de­pre­ci­a­tion of about 9 per­cent so far in 2016; mod­est con­tain­ment of new public spend­ing to pro­tect pri­or­ity spend­ing while avoid­ing a spike in the fis­cal deficit de­spite re­cent short­falls of ex­ter­nal fi­nanc­ing; and a more pru­dent mon­e­tary pol­icy stance, con­sis­tent with less ex­pan­sive pri­vate sec­tor credit growth. IMF staff agreed with the gov­ern­ment’s as­sess­ment that longer term poli­cies should help re­store ex­ter­nal sus­tain­abil­ity. Th­ese in­clude ac­cel­er­at­ing poli­cies to sup­port larger and more di­verse ex­ports and pro­mot­ing do­mes­tic pro­duc­tion of cer­tain prod­ucts cur­rently im­ported, through the re­cent ‘ Made in Rwanda’ cam­paign.

“Per­for­mance un­der the pro­gram has been strong, with al­most all pro­gram tar­gets set through end-june 2016 be­ing achieved. Nas­cent signs sug­gest that ad­just­ment poli­cies are prov­ing suc­cess­ful at re­duc­ing the trade deficit for goods and ser­vices, fur­ther abet­ted by the re­cent com­ple­tion of sev­eral large public in­vest­ment projects.

Although th­ese de­vel­op­ments are likely to con­tain growth at a still-ro­bust 6 per­cent through 2017, by re­duc­ing ex­ter­nal im­bal­ances they should help main­tain of­fi­cial for­eign ex­change re­serves cov­er­age at ad­e­quate lev­els.

The IMF staff wel­come the early and de­ci­sive ac­tions al­ready taken by the gov­ern­ment, which will help to avoid a more se­ri­ous sit­u­a­tion. Th­ese poli­cies should thereby help safe­guard medium term growth prospects — around 7 per­cent –by avoid­ing po­ten­tially harsher ad­just­ment poli­cies that are more dis­rup­tive to growth. Depend­ing upon weather and agri­cul­ture, in­fla­tion is ex­pected to get back to­ward the gov­ern­ment’s medium term 5 per­cent target.

“To fur­ther sup­port pro­gram ob­jec­tives, the gov­ern­ment plans to im­ple­ment mea­sures aimed at deep­en­ing fi­nan­cial mar­ket ac­tiv­ity and im­prov­ing ef­fec­tive­ness of mon­e­tary pol­icy are wel­comed.

The mis­sion met with Min­is­ter of Fi­nance and Eco­nomic Plan­ning, Claver Gatete, Gover­nor of the Na­tional Bank of Rwanda, John Rwan­gombwa, Min­is­ter of Trade, In­dus­try and East African Com­mu­nity Af­fairs, François Kan­imba, Min­is­ter of Gen­der and Fam­ily Pro­mo­tion, Esper­ance Nyi­rasa­fari, Min­is­ter of In­fra­struc­ture, James Mu­soni, Mem­bers of the Par­lia­ment Bud­get Com­mis­sion, and other se­nior gov­ern­ment of­fi­cials, pri­vate sec­tor rep­re­sen­ta­tives, and de­vel­op­ment part­ners.

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