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IMF Executive Board Completes First Review Under the Policy Coordination Instrument (PCI) and Monetary Policy Consultation for Rwanda

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Completes First Review Under the Policy Coordination Instrument (PCI) and Monetary Policy Consultation for Rwanda







January 17, 2020











  • Rwanda’s macroeconomic performance under the program remains strong.
  • The PCI-supported program focuses on creating budget space for the implementation of Rwanda’s National Strategy for Transformation.
  • The program also calls for improving fiscal transparency, boosting revenue, and supporting the implementation of the new interest rate-based monetary policy framework.

On January 9, 2020, the Executive Board of the International Monetary Fund
(IMF) concluded the first review of Rwanda’s program supported by the IMF’s
Policy Consultation Instrument (PCI). The decision was taken without an
Executive Board meeting.

[1]

Rwanda’s PCI-supported program was approved on June 28, 2019 (

Press Release No.19/258

) to support the implementation of Rwanda’s National Strategy for
Transformation (NST). Program modalities focuses on four main pillars: (i)
creating budget space for the implementation of the NST while preserving
fiscal and debt sustainability; (ii) improving fiscal transparency,
including the identification and management of potential government
liabilities, (iii) regaining momentum on domestic revenue mobilization; and
(iv) supporting the implementation of the National Bank of Rwanda (BNR)’s
new interest rate-based monetary policy framework.

Rwanda’s macroeconomic performance under the program remains strong. Growth
continues to beat expectations, averaging 10.3 percent in the first half of
2019, on the back of a booming construction sector, robust activity in
services, and a healthy agricultural output. As a result, the 2019 growth
projection has been revised up from 7.8 to 8.5 percent, with strong upside
risk—especially given the recently released GDP figures suggesting that the
economy grew in double digits in Q3 2019. The fiscal deficit in 2018/19 was
higher-than-expected due to accelerated implementation of investment
spending; but remained within the program limits. This, combined with
stronger demand for the capital-goods imports needed for construction, has
led to a widening of the current account deficit. Growth should remain
strong, at around 8 percent, over the next 2–3 years.

After a period of subdued price pressure, inflation has come back within
the BNR’s and the PCI’s Monetary Policy Consultation Clause (MPCC) targeted
range partly reflecting stronger domestic demand and dissipating base
effects.

[2]

BNR has appropriately set the monetary stance by reducing interest rates at
the trough of the inflation cycle in May and has since refrained from
further easing as price dynamics reversed. Headline inflation is expected
to peak in end-2019/early-2020 and should subsequently ease toward the
mid-point of the authorities’ target band. The BNR remains committed to
take action should trends deviate from expectations.

Looking ahead, the fiscal deficit path is forecasted to adhere to the
fiscal rule under the program, which provides space for the implementation
of the NST while safeguarding debt sustainability.

[3]

The government plans to finance the NST partly through public borrowing,
which should continue to be supported by careful debt management. There are
a number of plans underway to increase domestic revenues by boosting the
registration of new taxpayers as well as through innovative schemes and
greater use of technology to strengthen tax compliance. Further progress on
identifying and managing potential government liabilities—so called fiscal
risks—will be important to ensure that public resources are well protected
for use on priority spending.

The BNR continues to make progress in implementing its new interest-based
monetary policy framework. Domestic liquidity pressures over the summer
were met through increased activity on the interbank market and use of the
BNR’s reverse repo facility. There are signs that interest rate channels
are strengthening, with shorter term interest rates converging and
longer-term interest rates declining slightly. Further steps to develop
money markets will be needed to strengthen the new framework, along with
stronger forecasting capacity and an upgraded communication strategy.

The government continues to promote private sector activity and boost
productivity with encouraging results so far. A successful transition to a
private sector-led growth and higher productivity will be important for
sustaining Rwanda’s high growth while maintaining macroeconomic balances.



Table 1. Rwanda: Selected Economic Indicators, 2018–21

2018

2019

2020

2021

Prel.

Prog.

Proj.

Prog.

Proj.

Prog.

Proj.

(Annual percentage change, unless otherwise indicated)

Output and prices

Real GDP

8.6

7.8

8.5

8.1

8.0

8.2

8.0

GDP deflator

-0.8

4.2

1.8

5.0

5.6

5.0

5.0

CPI (period average)

1.4

3.5

2.3

5.0

5.4

5.0

5.0

CPI (end period)

1.1

5.0

5.7

5.0

5.0

5.0

5.0

Terms of trade (deterioration, -)

-0.7

0.7

-1.8

0.1

-0.1

0.2

0.0

Money and credit

Broad money (M3)

15.6

19.8

21.8

20.0

21.9

17.7

17.4

Reserve money

16.1

17.2

21.5

17.9

22.1

15.7

17.8

Credit to non-government sector

10.8

12.8

17.6

14.3

14.8

13.9

7.9

M3/GDP (percent)

25.3

27.0

27.9

28.5

29.8

29.5

30.9

NPLs (percent of total gross loans)

6.4

Budgetary central government

(Percent of GDP, unless otherwise indicated)

Total revenue and grants

24.1

23.1

23.6

22.2

23.1

21.6

22.9

of which
: tax revenue

16.2

16.1

16.6

16.3

16.9

16.1

16.5

of which
: grants

4.9

4.8

4.5

3.9

4.1

3.4

4.3

Expenditure

28.8

29.2

31.9

28.6

29.0

27.8

29.2

Current

15.3

14.7

15.9

13.9

14.5

13.7

14.6

Capital

11.5

12.0

12.7

12.3

12.1

12.1

12.7

Primary balance

-3.5

-4.9

-6.9

-5.0

-4.2

-4.8

-4.9

Overall balance

-4.7

-6.1

-8.2

-6.4

-5.9

-6.2

-6.3

excluding grants

-9.6

-10.9

-12.7

-10.4

-10.0

-9.6

-10.6

Debt-creating overall bal.(exc. PKO)1

-5.0

-6.0

-6.7

-6.3

-5.7

-6.4

-6.4

Net domestic borrowing

0.0

2.0

2.7

0.8

0.7

1.1

2.0

Public debt

Total public debt incl. guarantees

53.1

55.8

59.0

57.3

58.9

58.2

59.8

of which
: external public debt

41.6

43.4

46.0

44.6

48.1

45.5

49.8

PV of total public debt incl. guarantees

40.9

42.5

44.5

42.9

43.1

42.7

42.9

Investment and savings

Investment

24.4

27.7

28.4

28.4

28.2

28.2

28.8

Government

11.5

12.0

12.7

12.3

12.1

12.1

12.7

Nongovernment

12.9

15.7

15.7

16.1

16.1

16.1

16.1

Savings

12.9

14.6

14.6

16.4

15.5

18.0

16.6

Government

4.0

3.6

3.3

4.3

4.5

4.5

4.0

Nongovernment

8.9

11.1

11.2

12.1

11.1

13.5

12.6

External sector

Exports (goods and services)

21.5

21.2

21.5

21.4

21.8

22.1

22.6

Imports (goods and services)

33.1

33.6

34.9

32.8

34.1

31.8

34.3

Current account balance (incl grants)

-7.9

-9.6

-10.6

-9.4

-9.9

-7.9

-9.1

Current account balance (excl grants)

-11.5

-13.1

-13.9

-12.0

-12.7

-10.2

-12.2

Current account balance (excl. large projects)

-7.4

-9.0

-10.4

-8.3

-8.9

-7.4

-8.2

Gross international reserves

In millions of US$

1,319

1,428

1,367

1,566

1.553

1,637

1,654

In months of next year’s imports

4.5

4.7

4.4

4.9

4.6

4.7

4.6

Memorandum items:

GDP at current market prices

Rwanda francs (billion)

8,189

9,199

9,045

10,442

10,313

11,866

11,688

Population (million)

12.1

12.4

12.4

12.7

12.7

13.0

13.0

Sources: Rwandan authorities and IMF staff estimates.

1/
Overall deficit excl. spending on materialized contingent
liabilities and other items already included in the DSA.




[1]

The Executive Board takes decisions under its lapse-of-time
procedure when it is agreed by the Board that a proposal can be
considered without convening formal discussions.


[2]

The BNR’s targeted range corresponds to ± 3 percentage point range
around the BNR’s 5 percent target for the headline inflation
averaged for the past 12-month. Under the PCI’s MPCC, a
consultation with the Executive Board is required if headline
inflation, as previously defined, falls outside ± 4 percentage
point around the BNR’s target for given test dates. This
consultation focuses on (i) the appropriateness of the monetary
stance and whether the Fund-supported program remains on track,
(ii) the reasons for program deviation, and (iii) proposed remedial
actions, if deemed necessary. Headline inflation was below the
lower bounds of both the BNR’s target band the PCI’s MPCC at
end-June 2019, one of the program test dates.


[3]

The fiscal rule under the program corresponds to a fiscal deficit
limit of 5.5 percent on average over a rolling 5-year window.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Meera Louis

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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