The International Monitory Fund (IMF) has said that for first time in many years, Rwanda Export revenues contributed strongly to economic growth due to sharp increase in minerals sales.
IMF’s Paulo Drummond made the revelation during his mission in Kigali to conduct the seventh and final review under the current Policy Support Instrument (PSI). The Mission also negotiated with the government on a new three-year PSI.
“For the first time in many years, the external sector contributed strongly to growth, reflecting the sharp increase in traditional exports, especially minerals, while import growth slowed. Inflation has remained subdued, standing at 4 percent in August,” said Drummond at the end of the mission.
IMF says that monetary aggregates have been moderate while exports grew substantially on account of strong performance of coffee and minerals.
According to the Permanent Secretary and Secretary to Treasury Pitchette Kampeta Sayinzoga, the government set in motion measures to encourage growth including boosting tourism, horticulture and tea expansion as some of the areas while also venturing into large scale public investments to facilitate more growth.
However, IMF pointed out that Economic growth slowed to 5.9 percent during the first half of 2013 as the government adjusted to a shortfall in donor budget support.
“The expansion in the services sector slowed and so did the pace of construction. However, improvements in the terms of trade, greater exchange rate flexibility, and a drawdown of foreign coffers helped cushion the economic impact of lower aid inflows,” he explained.
In its projections, the IMF says that the macroeconomic outlook points to a pick-up in growth in the second half of this year as domestic demand recovers with the resumption of aid flows.
“For the year as a whole, economic growth is projected at 6.6 percent and at 7.5 percent in 2014, supported by a resumption of strong growth in services.”
Furthermore, Inflation is expected to go up to 6.5 percent at end-year because of rising food prices. Over the medium-term, growth is projected to average about 7.5 percent per year and inflation to converge to the medium-term target of 5 percent.
IMF also says that growth over the medium-term is expected to reflect the start of a transition from domestic demand driven, public sector led, aid-reliant growth toward growth that is increasingly driven by net exports, the private sector, and the government’s own resources.
Implementation of the reforms agreed within the context of the new PSI is expected to underpin the transition toward private sector-led growth.
These reforms include the government’s objectives of enhancing revenue mobilization by broadening tax bases, removing exemptions, and improving tax administration.
Other reforms are strengthening public financial management, improving the effectiveness of monetary policy, increasing financial access, diversifying exports, and prioritizing the public investment program, while pursuing a prudent debt management strategy.
The IMF’s Executive Board is expected to consider the seventh PSI review and the request for a successor PSI in November 2013.