The economy remained relatively stable in the first half of the year despite turbulence in the global economic arena, the central bank has said.
Presenting the Monetary Policy and Financial Stability statement, central bank governor John Rwangombwa said leading economic indicators, such as turnovers in various sectors, show good economic performance.
However, this will be slower compared to that recorded over the same period last year, Rwangombwa said.
He said performance was largely driven by the growth in the industry and service sectors that expanded by 11.1 per cent, lower than 13.6 per cent registered in the same period last year.
Growth in the industry sector was largely in manufacturing and energy, which inched up by 65.9 per cent and 14.4 per cent, respectively.
The expansion of the services sector was driven by good performance of the financial sector; information and communication technology sector, as well as petroleum distribution, and hotels and restaurants.
Instability in the global economy characterised by falling international prices, political turmoil in some countries and uncertainty presented by Britain’s vote to exit from the European Union, however, continue to hold back chances of global economic growth.
Rwangombwa said the turbulence in the global arena have had a negative impact on Rwanda’s exports revenue, adding that despite an increase in the volumes of 16.5 per cent, the country’s export earnings dropped to $268.57 million, from $275.12 million in the same period last year.
He attributed the mismatch between imports and exports to reliance on low-value exports and dependence on global markets for most of the country’s products.
For instance, the value of Rwanda’s mineral exports dropped by 36.6 per cent, coffee earnings were down by 9.3 per cent, and tea revenue reduced by 5.7 per cent over the reporting period.
These and the growing demand for imports led to a 5.1 per cent trade deficit from $858.98 million up to $902.69 million in the first six months of the year.
The economy also continues to battle inflationary pressures, with July inflation rate recorded at over 6.9 per cent, which BNR chief economist Thomas Kigabo said was driven by rising food prices, and imported inflation largely due to imports of vehicles.
“The purchase of vehicles mainly imported from Japan edged up due to the effect of the Rwandan Franc depreciation, and appreciation of the Japanese Yen against the American dollar,” he said.
Prof. Kigabo, however, noted that inflation would reduce in coming months as food prices were likely to go down before the end of the year.
In recent months, a section of Rwandans have expressed concerns over the depreciation rate of the Rwandan franc against the greenback.
Yesterday, commercial banks were trading US Dollar at an average of 803/821, for buying and selling, respectively, with forex bureaus trading it at a high of 817/823.
Rwangombwa assured the country that the depreciation did not contribute much in driving up inflation and, therefore, not a cause for alarm at the moment.
Although the central bank has been intervening in the forex market, selling dollars to avoid a repeat of last year’s scenario which saw the Franc depreciate to about Rwf800 per dollar, experts say more should be done to cut on dollar demand and check speculations.
The central bank increased the amount sold to commercial banks from between $4 million and $5 million a week to about $8 million a week.
“Normally, we have been intervening once a week but now we are in the market twice and we have increased the amount from between $4 million and $5 million to about $8 million a week. This has brought the total sales to banks in the first half of the year to about $157 million,” Rwangombwa said.
The dollar shortage was explained to be stemming from big demand of foreign currency from a number of major investments the Government has been involved in, including KivuWatt and new entrants in the hotel industry.
Going forward, Rwangombwa said, the central bank would continue conducting policy-oriented research to ensure that developments on international, regional and domestic markets are understood and taken into consideration.
“This may also call for a more prudent monetary policy to ensure economic stability,” Rwangombwa said.
As an intervention to change status quo and reduce the trade deficit and increase foreign earnings, the Government has embarked on strategies to increase volume and value of exports, as well as reduce reliance on imports through import substitution strategies.
Emmanuel Hategeka, the permanent secretary at the Ministry of Trade and Industry, said among the intervention is promotion of processing of traditional exports to increase their value on international markets.
This will see minerals such as tin and coltan smelted and refined locally before they are exported, he added.
“We are also working to diversify our exports base to go beyond traditional exports into construction materials, garments, horticulture and flowers. There is ready demand for such products on the international market,” Hategeka said.
Commenting on the performance of the economy during the first half of the year, the United Nations resident coordinator, Lamin Manneh, commended the central bank for steering the economy through what he termed as ‘global headwinds’ characterised with lots of factors beyond Rwanda’s control.
On Kenya’s law that caps interest rate banks can charge clients, Rwangombwa said they are waiting to see how it unfolds and “its impact since this is the first decision of its kind in the region.”