Rwanda’s economy is expected to grow by 10.2 percent this year (2021) after its growth was revised upwards from the initial 5.1 percent, Central Bank Governor John Rwangombwa has said.
Rwangombwa made the disclosure on Thursday, November 18, 2021 while presenting the National Bank of Rwanda’s 202/021 activity report to Parliament’s both Chambers.
In 2020, Rwanda’s economy fell by 3.4 percent, representing the first economic slump since 1994. The factors for such economic slump is the Covid-19 pandemic, including measures to control it, such as lockdowns that sharply reduced economic activities in 2020.
"We continued having an accommodative monetary policy that supports economic recovery, and we are happy that the economy continued growing as indicated by the first and second quarter of this year,” Rwangombwa told legislators on Thursday.
"Even, in the estimates released this week, we are holding talks with the Ministry of Finance and Economic Planning and IMF and have revised the economic growth forecast from 5.1 percent to 10.2 percent,” he said.
In the second quarter of 2021, Rwanda’s economy expanded by 20.6 per cent to Rwf2,665 billion compared to Rwf2,177 billion in the same quarter of 2020, implying a major rebound from the Covid-19-induced recession.
The rebound in economic activity was largely driven by the service sector, which accounted for 47 percent of the Gross Domestic Product (GDP), and agriculture and industry which contributed 25 percent and 19 percent to the GDP respectively.
Rwangombwa said that the inflation, depreciation of the Rwandan Franc, the loan disbursements from banks, the imports and exports among other factors important to the country’s economy were considered while making the revised economic growth projection.
"We will maintain the monetary policy that supports economic recovery, and continue ensuring that it helps us achieve the intended results,” he said, citing the development of the capital market, the financial technology and financial stability.
Inflation expected to fall considerably
MP Minani Bizimana said that the prices of some goods increased by 50 percent, citing petroleum products [such as cooking gas], foodstuffs and construction materials.
"Prices continued to rise drastically [since January this year]. How will the economy grow yet prices are going up,” he asked the Central Bank Governor.
Rwangombwa explained that while gauging inflation, the National Institute of Statics of Rwanda looks at global changes over time in prices of a basket of goods and services needed by households. They include food items, health, transport, electricity, water, and education.
In this regard, he said that the rise in the price of one merchandise or service might not have a significant change in the overall inflation [depending on its importance in the daily lives of people].
He indicated that inflation between two and eight percent is okay for the economy. It motivates investments, indicating that the country’s inflation has been between two and seven percent for some years. He explained that when inflation is too low, investors lose interest in venturing into the country as prices are plummeting.
This year, he pointed out, the overall inflation is expected to be 0.7 percent, which he said is very low because it is below the recommended minimum of 2 percent.
This situation, he said, is due to two main reasons including the good performance of agriculture yields in the last two quarters, which drove food prices down compared to the previous year.
Another reason is the transport costs that had increased significantly in April 2020, but later were reduced thanks to Government subsidy.
Rwf776 billion loans restructured due to Covid-19
According to the Central Bank, banks were exceptionally allowed to restructure loans for customers that were performing before the pandemic (in normal classification before the Covid-19 outbreak; principal and interest due and unpaid for less than 30 days as at end of February 2020).
The restructuring consisted of extending moratorium – the time during a loan term when the borrower is not obligated to make any repayment.
As a result, banks restructured Rwf776 billion (equivalent to 28.5 percent of their total loans) due to the Covid-19 pandemic, the Central Bank report for the financial year ended June 2021 indicated.
According to the report, Rwf561.3 billion, or 20.6 percent of the Covid-19 related restructured loans, had resumed normal course of payment, while Rwf215.3 billion (7.9 percent of total loans) were still under moratorium.
According to the Central Bank, most of the loans still in the moratorium are in hotels and restaurants, water and energy; transport, and mortgage sectors that were highly impacted by the pandemic.
Business support from the economic recovery fund
Rwangombwa said that the Government set up an economic recovery fund to support businesses that were affected by the pandemic, indicating that 99.6 percent of the Rwf50 billion that was allocated to hotels was already disbursed.
He also said that the Government supported transport sector got their loan restructured, whereby 53 loans (amounting to Rwf7.3 billion) of transport companies were restructured.
In addition, he said that 108 private schools were helped to get Rwf4.7 billion worth of loans restructured.
Meanwhile, Rwangombwa said that IMF estimates indicate that the Covid-19 caused the Sub-Saharan Africa economy to contract by 1.8 percent last year, but that it will grow by 3.4 percent this year.
For the global economy, he said that IMF estimates suggest it will grow by 6 percent this year.