The International Monetary Fund (IMF) has praised Rwanda’s economic growth and poverty reduction strategies.
The observations were made during the seventh and final review under Rwanda’s Policy Support Instrument (PSI) where a new three-year PSI was also approved.
“The Rwandan authorities are to be commended for the strong implementation of their economic program under the Policy Support Instrument,” said Deputy Managing Director and Acting Chair Naoyuki Shinohara
He added that prudent and inclusive policies, good governance, and support from development partners have contributed to sustained economic growth and poverty reduction.
He however, advised that going forward, fiscal policy will need to focus on domestic revenue mobilization to finance the country’s ambitious development goals.
“Aligning spending with available resources and judicious selection and financing of investment projects will minimize risks to the budget. It will also be important to strengthen debt management capacity and follow a prudent approach to new borrowing to entrench long-term fiscal and debt sustainability,” said Shinohara.
He further noted that the central bank will need to closely monitor rising inflationary pressures and adjust the policy stance as needed while maintaining exchange rate flexibility. Efforts to increase financial inclusion and bolster the regulatory and supervisory frameworks should also be accelerated.
In completing the review, the Board approved Rwanda’s request for a waiver for non-observance of the continuous assessment criteria related to the ceiling on contracting non-concessional borrowing (NCB).
According to the IMF Executive Board press statement, Rwanda’s economic performance over the last decade has been an economic success story.
“Its macroeconomic performance has generally outperformed its peers in the region. Prudent fiscal and monetary policies geared toward maintaining macroeconomic stability, coupled with a strong emphasis on building institutional capacity, promoting good governance, and creating a business friendly environment.
This contributed to low inflation and average annual economic growth in excess of 8 percent over the last decade. Public debt remained modest and reserve buffers kept the economy resilient to shocks,” read the statement in part.
IMF however, says that Rwanda faces some key vulnerabilities, including its high dependence on donor aid, low government revenue, narrow export base, and weak infrastructure, with resulting high costs of doing business that arise from relatively high energy and transport costs.
For example, recent economic developments have been strongly influenced by the suspension and delays of aid flows last year, and their eventual resumption this year.
Reflecting on the slowdown in the first half of the year, IMF says that growth for 2013 is projected to be 6.6 percent. For 2014, growth of 7.5 percent is projected, supported by a recovery in agriculture and a pick-up in services.
Headline inflation is projected to rise to 6.5 percent by end-2013, reflecting rising food prices because of a relatively poor second harvest.
The IMF’s framework for PSIs is designed for low-income countries that need IMF financial assistance as well as advice, monitoring and endorsement of policies.