IMF pegs Rwanda growth at 6.5%
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.