• Agricultural output, balance of payments to improve, inflation to hit single digits
Though Rwanda’s Gross Domestic Product (GDP) growth is expected to fall to 5.3 percent this year from11.2 percent registered last year, the country will improve in other sectors.
The prediction was made in the latest report on Rwanda by the International Monetary Fund (IMF) released this week. The projection for Rwanda, caused by the spiralling current global financial crisis is slightly less than what the government expects.
In the 2009/10 budget framework paper, the Ministry of Finance and Economic Planning projected Rwanda’s growth rate to fall to 5.8 percent.
“The world economic crisis will likely result in falling exports, smaller foreign direct investment inflows, and lower tax revenues. In the medium term, growth is expected to rebound to six percent with the improvement in the external environment,” said the report.
It also mentions that a robust expansion in agriculture is expected to partly offset the slowdown in construction, mining, and services over the coming year.
The balance of payments is likely to improve, while international reserves are projected to stabilize at around 4 months of imports.
The report follows a recent IMF mission to Rwanda to conduct the sixth review of the country’s three-year program supported by the Poverty Reduction and Growth Facility (PRGF) and discuss economic policies for 2009/10.
“Downside risks would arise if the global crisis became deeper or more prolonged than currently envisaged,” the IMF warns.
According to the report, inflation is expected to decline to single digits in the second half of 2009.
“This will result largely from a reduction in import prices, lower domestic food prices, and an easing of domestic demand pressures,”
Headline inflation already fell from 22 percent at end-2008 to about 13½ percent in April 2009.
It predicted medium-term growth of 6 percent on the back of an improving global climate. The report calls for prudent fiscal and monetary management to safe guard inflation expectations to single digits in future.
The Bretton Woods institution said it supports the proposed expansion of the budget deficit in 2009/10. This will require use of government deposits in the central bank of up to 1 percent of GDP.
“The proposed budget provides a necessary stimulus to the economy without compromising the government’s inflation and debt sustainability objectives,”
As a result of the crisis, the IMF team also reported that liquidity pressures in the banking system have emerged this year, and this has weakened credit to the private sector.
However to mitigate the impact in the banking sector, “appropriately designed policy measures may be needed to stimulate bank lending.”