IMF Keeps Rwanda’s Growth at 6.9%, Sees Cautious Monetary Policy

Kigali, Rwanda, Capital Markets in Africa — International Monetary Fund stated that Rwanda’s economic performance in 2015 remained robust, with GDP growth of 6.9 percent. Growth in 2015 was buoyed by strong construction and services activity, with agriculture and manufacturing also performing well. Consumer price inflation remained contained, averaging 2.5 percent for the year, though it increased in the second half of 2015 due to higher food prices and administrative price increases. In February 2016, prices were 4.4 percent higher than a year before.

“However, new challenges emerged over the course of 2015 as a result of global developments. Lower prices and demand for Rwanda’s minerals almost halved the country’s mineral exports, leading to a significant loss of export revenue. This was exacerbated by lower-than-projected inflows of private capital and remittances, which together led to downward pressure on the Rwandan franc and foreign exchange reserves.

The Brookings Institute commented that despite these developments, macroeconomic policy performance through end-December 2015 remained in line with program objectives. Most quantitative targets were met, and were supported by structural reforms, notably changes to boost domestic revenue collection, reduce liquidity overhangs, strengthen financial market supervision and functioning, and improve domestic revenue collection. Planned measures to revise the law for property taxes and improve the timeliness of public reporting on budget execution are taking somewhat longer than originally anticipated.

“Over the medium term, growth prospects remain in line with Rwanda’s high potential, and the mission welcomes ongoing initiatives to promote export diversification and encourage local production of what Rwanda currently imports, in order to improve Rwanda’s resilience to external shocks. These policies will, however, take time. In the near term, more immediate measures are needed to deflate external pressures and stem the drop in foreign exchange reserves. The mission welcomes, therefore, the authorities’ commitment to implement more cautious monetary policy and postpone some non-priority public spending to help dampen still-strong demand for imports. Allowing the exchange rate to continue to adjust as necessary will be critical in this regard. The mission expects that successful implementation of these policies will maintain economic growth at around 6 percent, while keeping inflation below 5 percent.

In addition IMF commended the authorities for decisive economic policies aimed at safeguarding external sustainability and reinforcing Rwanda’s long-term development potential. The mission also welcomes the authorities’ ambitious program of supporting forward-looking policy reforms aimed at strengthening the efficiency of public spending; and improving tax compliance.