The financial year 2022/2023 was characterised by an increase in prices of services and goods, particularly foodstuff and fuel, which contributed to an increase in import bills and the cost of living, overall, according to the National Bank of Rwanda (NBR)’s annual report.

The 2022/2023 central bank report was presented by NBR Governor John Rwangombwa to a joint session of Parliament, on November 27.

Here are six key highlights from the report:

1. A rise in inflation

According to the report, in the financial year 2022/2023, NBR conducted its monetary policy in a challenging environment characterised by inflationary pressures rising from both global and domestic shocks.

These include the Russia-Ukraine war that led to disruptions in global supply chains, aggravating the already increasing international commodity prices due to the mismatch between demand and supply during the post-Covid-19 period.

Additionally, Rwanda, like most East African Community (EAC) member countries, faced domestic weather shocks that negatively impacted the performance of agriculture and led to an increase in food prices.

On average, headline inflation (total inflation in the economy) increased from 4.6 per cent in 2021/22 to 18.2 per cent in 2022/23. Specifically, fresh food inflation soared from 1.5 per cent to 41.8 per cent, while energy inflation increased to 14.7 per cent from the previous year’s 9.2 per cent.

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Rwangombwa said higher food prices were among the main drivers of inflation, and poor agricultural yields caused by climate change (mainly drought) were the cause.

MPs proposed that greater effort should be put into increasing farm output, such as through resilience to climate change by means including irrigation, and supporting farmers to get the required finance, including loans.

The main risks to the inflation outlook remain, such as weather-related challenges, geopolitical tensions, and reduced oil supply by the Organization of the Petroleum Exporting Countries (OPEC) and Saudi Arabia.

The publication indicated that NBR is committed to continuing to monitor global and domestic economic developments and stands ready to take appropriate actions to keep inflation low and stable.

2. Trade deficit widened as a result of higher import bill

Though exports grew by 29.8 per cent to more than $2.4 billion (approx. Rwf3 trillion) from more than $1.8 billion in the previous financial year, trade imbalance widened as import bill outweighed export earnings.

During the same period, imports grew by 28.0 per cent, to more than $5.1 billion (approx. Rwf6.3 trillion) from $3.9 billion. As a result, the trade deficit expanded by 29.7 per cent to over $2.2 million from more than $1.7 billion, which put pressure on the Rwandan Franc.

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In 2022/23, the Rwandan Franc depreciated significantly by 8.76 per cent against the US Dollar, a significant decline compared to the 3.78 per cent in 2021/22.

"This depreciation can be explained by the widening trade deficit, but also by the strengthening of the dollar following the US Federal Reserve’s monetary policy tightening,” the report reads in part.

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3. Financial sector recorded 18.3 per cent growth

Amidst challenging global and domestic economic conditions, the financial sector continued to perform well, with the total assets growing by 18.3 per cent to more than Rwf9.6 trillion from Rwf8.1 trillion as of June 2022.

Banking – the largest financial sub-sector – grew by 18.1 per cent, driven by retained earnings and growth in deposits. The pension sector, both public and private, increased by 16.2 percent, due to rising pension contributions and investment income.

Similarly, the microfinance sector experienced a 26.5 per cent asset growth, on the back of increased deposits and capital.

Meanwhile, the insurance sector’s assets expanded by 17.2 per cent, powered by retained earnings and capital injections.

4. Loans from financial institutions increased despite monetary policy tightening

As per the report, NBR tightened its monetary policy to curb inflationary pressures, including increasing the Central Bank Rate (CBR) – the interest rate at which the central bank lends money to other banks in the country – from 5 per cent in June 2022 to 7 per cent in June 2023.

ALSO READ: Increasing interest rate not the best antidote to inflation

Despite monetary policy tightening, the report exposed that new Authorized Loans (NALs) experienced significant growth of 37.2 per cent in 2022/23, compared to a decline of 1 per cent in the previous fiscal year, reaching more than Rwf1.6 trillion. This was attributed to the good performance of the economy, it pointed out.

The sectors with a big share in the total loans were commerce (10.6 per cent), services (9.2 per cent), public works and buildings (6.4 per cent), personal loans (5.9 per cent), and manufacturing industries (4.2 per cent).

5. Economic growth registered a slight decrease

In line with the high economic financing, Rwanda’s economy remained resilient, despite various economic challenges such as the slowdown in global demand, increasing inflation, and climate shocks, the report showed.

It indicated that the real gross domestic product (GDP) growth remained robust at approximately 8.1 per cent during 2022/23, slightly lower than the 8.9 per cent achieved in the previous year. This growth was mainly supported by a robust performance in the services sector, it added.

6. Performance of national reserves

In terms of reserve adequacy, the report showed that NBR maintained an adequate level of foreign exchange reserves to ensure resilience against external shocks.

As of the end of June 2023, the level of the bank’s foreign exchange reserves stood at more than $1.8 billion, enough to cover 4.4 months of prospective imports in terms of global shocks or disruption in access to the foreign currency needed for the country to meet its import needs.

However, the amount of reserve is lower than $1.9 billion recorded as of the end of June 2022. The report explained that the overall decrease in the level of reserves resulted from the delay in inflows from different partners that were expected during 2022/23.

Rwangombwa told parliamentarians that the country’s foreign reserves were safe and performing well, indicating that about 90 per cent of them are held in the US Dollar, which is a stronger currency compared to others globally, as of now.