The service sector remains a key contributor to Rwanda’s economic growth, accounting for 7.7 percent in the first half of 2023, drawing from 9.2 per cent recorded in the first quarter and 6.3 per cent in the second quarter.

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Being a service-based economy, Rwanda’s tourism industry experienced a robust recovery, while also trade, information, and communication services also improved.

This was announced during the central bank’s presentation of the Monetary Policy and Financial Stability Statement which assessed the economic performance of the first half of the year and prospects for the rest of the year, on September 20.

John Rwangombwa, the central bank Governor, said that figures show a decline in economic performance when comparing the first two quarters of the year, which will lead to projected economic growth of 6.1 per cent at the end of the year.

"Overall, domestic economy is expected to remain strong throughout the year, though lower than what we achieved in the last two years,” he added.

In 2022, the economy grew by 8.2 per cent. The service sector grew by 11.3 per cent, industry by 7.5 per cent, and agriculture by 0.3 per cent.

The agriculture sector performed poorly for two consecutive years, attributed to bad weather conditions. In the first half of 2022, it only grew by 0.3 per cent, with food productivity performing negatively.

"While other agricultural subsectors, including export crops, livestock, forest, and fishery, grew by 6.4 per cent collectively, their growth was not sufficient to compensate for the poor performance of food crops which decreased by 3.2 per cent,” explained the central bank’s statement.

Exports revenue vs. import bill

In the first half of 2023, merchandise export receipts increased by 11.2 per cent to $784.4 million from $705.5 million in the first half of 2022, attributed to the strong performance of domestic manufacturing exports and higher quantities of exported traditional commodities, which compensated for the decrease in their prices.

Traditional exports such as minerals, coffee, and tea registered a 4.7 per cent growth while non-traditional exports (manufactured products and horticulture) increased by 29.5 per cent and re-exports by 2.7 per cent. Informal cross-border trade had a 29 percent surge.

On the other hand, merchandise import value increased by 18.5 per cent to $2.09 billion from $1.7 billion in the same period of 2022, driven by higher demand for food, capital, and intermediate goods.

This reflects the gap left by the low performance of the agriculture sector and the continued domestic economic recovery.

Imports bill was mostly from consumer goods which increased by 22.6 per cent, followed by intermediate goods (including industrial products, construction materials and fertilisers) at 20.2 per cent, capital goods at 18 per cent, all in volume.

As a result of this international trade, Rwanda’s total trade deficit widened by 23.3 per cent, amounting to $1.31 billion from $1.06 billion.

Inflation outlook

Inflation, which measures the rate at which commodity prices increase over a specific period, is calculated based on approximately 1,622 products in 12 urban centres across Rwanda.

It is worth noting that the speed at which prices rise or decline takes time to be reflected in the actual prices of purchased foodstuffs in the market.

"Last year, inflation was really challenging reaching a peak of 21,7 per cent in November 2022 and started easing from December, as we had projected, we see it going down, though still high, at 12.3 per cent in August this years,” said Rwangombwa.

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He said they expect consumer prices to increase to an average of 7.6 per cent at the end of the year and below five percent in 2024.

However, he pointed out that there are still risks associated with this given geopolitical tensions, effects of the Russia-Ukraine war, and climate change which remains the biggest challenge to the economic performance.

Linked to inflationary developments, the central bank tightened its monetary policy to curb inflation pressures to 7.5 per cent in August 2023, consequently, interbank rate rose from 5.4 per cent in first half of 2022 to 8.1 per cent this year.

The central bank has an inflation target range of between two per cent to eight percent and a benchmark of five per cent.