- IMF staff and the Rwandan authorities reached staff-level agreement on policies needed to complete the fourth reviews of Rwanda's Policy Coordination Instrument and program under the Resilience and Sustainability Facility, and the second review of the Stand-by Credit Facility arrangement.
- Rwanda's economic growth continues to be among the strongest in the Sub-Saharan African region, but fiscal and external vulnerabilities remain high. Recurrent shocks in recent years exacerbated internal and external imbalances, making it more challenging for the authorities to rebuild policy buffers.
- To reduce vulnerabilities, contain inflation, and ensure debt sustainability, Rwanda needs strong fiscal consolidation, better domestic revenue mobilization, continued data-driven monetary policy, and exchange rate adjustments. Additionally, maintaining climate resilience and intensifying efforts to develop bankable climate projects are crucial.
Washington, DC: From October 7 to October 20, 2024, an International Monetary Fund (IMF) team, led by Ruben Atoyan, discussed with the authorities' policy priorities and progress on reforms within the context of the fourth reviews of Rwanda's Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF), and the second review of the Stand-by Credit Facility (SCF) arrangement. Consideration by the Board is tentatively scheduled for December 2024. Upon completion of the review by the Executive Board, Rwanda would have access to SDR 71.8 million (equivalent to about US$ 95.9 million) under the RSF and SDR 66.75 million (equivalent to about US$ 89.0 million) under the SCF.
At the conclusion of the mission, Mr. Atoyan issued the following statement:
"Rwanda's growth momentum remained strong, notwithstanding the challenging external environment. Real GDP is projected to grow by 8.3 percent in 2024, driven by strong performance of the services, and construction sectors, and recovery in food crop production. Inflation stabilized within the central bank's target range, owing to appropriately tight monetary policy and favorable developments in food prices. The current account deficit widened due to high capital goods imports and low coffee exports. The Rwandan franc depreciated by 6.6 percent against the US dollar in January-October, a necessary step towards facilitating the much-needed external adjustment. International reserves stood at 4.5 months of prospective imports at mid-2024, providing a buffer against external shocks.
"Despite the challenging environment, macroeconomic policy performance through end-June 2024 remained in line with program objectives under the PCI/SCF arrangement. All quantitative targets were met, and reforms to enhance the transparency of public investments and strengthen FX market functioning are progressing well. The authorities' commitment to implement climate-related reforms under the RSF arrangement remained strong, with measures to implement climate budget tagging, improve the climate resilience of public investment, adopt sustainability disclosure standards, and develop a green taxonomy being on track to be completed in the coming weeks.
"While Rwanda's economic outlook continues to be positive, risks remain tilted to the downside. Deepening of geopolitical fragmentation, another spike in global energy and food prices, or slowdown in trading partners' growth would weigh on the outlook and adversely affect the availability of external financing. As demonstrated by the poor harvests and floods last year, Rwanda's dominantly rain-fed agriculture is highly exposed to climate shocks. The recent Marburg virus disease outbreak showed Rwanda's vulnerability to infectious disease risks, but also the country's strong capacity to respond to such events.
"Recurrent shocks in recent years complicated the authorities' objective to rebuild policy buffers. Fiscal consolidation has been slower than envisaged under the program, failing to halt the continued increase in the public debt-to-GDP ratio, which is expected to reach 80 percent of GDP in 2025. Increased access to concessional financing is welcomed as it creates an opportunity to implement critical reforms but does not substitute for domestic revenue mobilization. Accelerating domestic revenue mobilization, expenditure rationalization, and mitigating fiscal risks from state-owned enterprises will be critical to preserve Rwanda's policy space to react to shocks and achieve its development objectives.
"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 a clear communication to anchor expectations.
"The authorities have made significant progress in integrating climate considerations into macroeconomic policies. Rwanda is set to complete all RSF commitments six months ahead of schedule. However, the development of green projects and lending operations needs 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 Resilience and Sustainability Facility (RSF)
The Policy Coordination Instrument (PCI)
The Stand-by Credit Facility (SCF)
