Rwanda is maintaining financial reforms and diversifying its economic structures to mitigate the effects of the crisis
Effects of the prevailing global financial crisis on the country’s private sector are limited since Rwanda is not directly integrated into global financial markets, the governing body has said.
Officials of the Private Sector Federation (PSF) said recently that while the country’s private sector is yet to feel the pinch like their counterparts in the developed world, there could be a decrease in the commodity demand and prices for those dealing in international trade.
“The direct impact of the crisis on the private sector will be on the finance and banking sector. Though it will still be limited,” Manzi Rutayisire Antoine, the federation’s Director of Entrepreneurship Development and Business Growth told Business Times in an interview on Tuesday.
“It is still too early to predict all the impact of the current financial crisis on private sector. The effect will also depend on the extent of the current crisis and its duration,” he added.
Manzi also said that it was important to note that the major impact of the crisis on private sector might only emerge after some time. He said that the current crisis is still progressing and that it will not be possible to estimate the likely long-term impacts at this stage.
He cited a likely decline in remittances from abroad, capital withdrawal, decrease in demand for commodities as key areas where the private sector may be affected.
“Much also depends on whether private investors are reducing or increasing their engagement in Rwanda. While on one hand, it will lead to the withdrawal of capital, on the other hand, additional capital might flow to Rwanda as part of investors’ risk diversification strategies,” Manzi said. He also observed that the sector is likely to be affected by exchange rates that will have an effect on commodity prices.
The impacts on the inflation rate he said, depends on the degree of changes of commodity prices and the accompanying changes in the terms of trade.
According to the latest International Monetary Fund (IMF) World Economic Outlook update, world growth is projected to fall 6.25 percent in 2009.
The report also indicates that growth in emerging and developing economies is expected to slow sharply from 6.25 percent in 2008 to 3.25 percent in 2009, under the drag of falling export demand and financing.
Rutayisire advised that Rwanda should maintain financial reforms, diversify its economic structures to mitigate the effects of the crisis.
“In this context, it is crucial that Rwanda strengthens its capacity in the area of macroeconomic management and economic policy to better react and absorb external shocks,” he said.