- IMF staff and the Rwandan authorities reached staff-level agreement on policies needed to complete the fifth review of Rwanda's Policy Coordination Instrument.
- Rwanda's economy remains strong and resilient but faces increased macroeconomic pressures. The Bugesera airport construction will raise the debt-to-GDP ratio and heighten debt service pressures, while new tax measures will boost revenues.
- Rwanda needs to continue credible fiscal consolidation, strong domestic revenue mobilization, data-driven monetary policy, and exchange rate adjustment to reduce vulnerabilities, maintain low inflation, and mitigate debt pressures. Additionally, focusing on climate resilience and developing bankable climate projects is essential.
Washington, DC: From March 24 to April 4, 2025, an International Monetary Fund (IMF) team, led by Ruben Atoyan, discussed the authorities' policy priorities and progress on reforms within the context of the fifth review of Rwanda's Policy Coordination Instrument (PCI). Consideration by the Board is tentatively scheduled for May 2025.
At the conclusion of the mission, Mr. Atoyan issued the following statement:
"Notwithstanding challenging environment, Rwanda's economy grew by 8.9 percent in 2024, driven by strong services, construction, and food crop production. Inflation stabilized within the central bank's target range due to tight monetary policy and favorable food prices. Despite a recovery in coffee exports, the current account deficit widened due to high imports. The Rwandan franc depreciated by 9.4 percent against the US dollar, aiding external adjustment. International reserves covered 5.4 months of imports, providing a strong buffer against external shocks.
"Despite the challenging environment, macroeconomic policy performance through end-December 2024 remained in line with program objectives under the PCI arrangement. All quantitative targets were met, and reforms to enhance domestic revenue mobilization, strengthen SOE fiscal risk assessment, approval of the SOE corporate governance code, and the expansion and publication of the coverage of the monetary and financial statistics have been completed. Full rollout of measures to promote the efficiency of the interbank market is expected to be implemented in time for the completion of the current PCI review.
"While Rwanda's economic outlook continues to be positive, risks to the downside are significant. Deepening of geopolitical and global trade fragmentation, heightened volatility in global energy and food prices, decline in trading partners' growth, higher global trade barriers, or an intensifying aid flow decline would weigh on the outlook and adversely affect the availability and cost of external financing. Infectious disease outbreaks, regional conflicts, or another climate-related shock to Rwanda's predominantly rain‑fed agriculture sector may hinder economic activity, exacerbate inflationary pressures, and further strain the already constrained fiscal space.
"Recurrent shocks in recent years complicated the authorities' objective to rebuild policy buffers. The newly approved tax package will help to put the tax-to-GDP ratio on an upward trajectory. Despite this critical reform to enhance domestic revenue mobilization, the cost of the planned Bugesera airport construction will significantly intensify debt service pressures and raise public debt to 86.7 percent of GDP in 2026. To mitigate debt vulnerabilities and rebuild the much-needed policy space to react to shocks, the authorities will need to ensure the full and timely implementation of the newly adopted tax measures, contain fiscal spending through careful reprioritization of investment projects, and continue to strengthen their capacity to mitigate fiscal risks from state-owned enterprises and public-private partnerships. Risks of overruns on large infrastructure projects need to be vigilantly monitored.
"Monetary policy should anchor inflation around the center of the target band, while continued exchange rate flexibility will help absorb external shocks and support current account adjustment. Strengthening the FX intervention framework is needed to help develop the FX market and improve the effectiveness of monetary policy transmission. Monetary policy needs to remain forward looking and data-driven with clear communication to anchor expectations.
"Following the successful completion of the Resilience and Sustainability Facility (RSF) in December 2024, continued efforts are needed to ensure that RSF-related institutional improvements are durable. Development of green projects and lending operations need to be accelerated. With institutional reforms and a strong project pipeline, additional climate financing can be catalyzed, enhancing the RSF's impact.
"The mission is grateful for the authorities' excellent cooperation, and candid and constructive discussions, and reaffirms the IMF's support for the government's efforts to implement its economic reform program."
Links:
The Policy Coordination Instrument (PCI)
The Resilience and Sustainability Facility (RSF)
