Stronger economy, but new taxes must be handled with care

The National Bank of Rwanda (BNR) has maintained its key lending rate at 6.5 per cent, signaling confidence in the economy’s stability while keeping inflation in check. This marks the third consecutive time the Monetary Policy Committee (MPC) has left the rate unchanged since August last year. By holding the policy rate steady, the central bank aims to prevent consumer prices from rising too quickly, which could weaken purchasing power. However, Rwanda’s fight against inflation began much earlier, about three years ago, when the Covid-19 pandemic triggered a surge in prices in 2022. To restore stability, the central bank tightened monetary policy, successfully bringing inflation within the target range of 2 per cent to 8 per cent. While this came at a cost as many households struggled under the weight of higher living expenses, it was a necessary step to strengthen the economy. As a result, Rwanda’s economy has bounced back strongly, approaching pre-pandemic growth levels. The economy grew by 8.2 per cent in 2023. It expanded by 9.2 per cent on average over the first three quarters of 2024, with particularly strong growth in the first two quarters (9.7 per cent and 9.8 per cent), before moderating to 8.1 per cent in the third quarter. Projections for 2024 were initially set at 8.3 per cent, but BNR Governor John Rwangombwa has hinted that the actual growth rate will likely exceed expectations. Despite this momentum, inflation remains a concern. It is now expected to average 6.5 per cent in 2025, up from the earlier forecast of 5.8 per cent, with risks including geopolitical tensions and extreme weather conditions. Alongside these economic developments, the government has introduced new tax reforms, sparking debate over their potential impact on household purchasing power. Many citizens worry that, despite enduring high inflation in 2022 and 2023, their salaries have remained stagnant, making it harder to absorb additional tax burdens. While tax reforms are crucial for revenue generation and economic growth, they must be implemented with caution to avoid placing excessive pressure on consumers. The government must ensure that these measures do not erode the financial stability of households, particularly at a time when inflationary risks still loom. A stronger economy is good news, but growth must be inclusive, ensuring that ordinary citizens feel the benefits, not just in numbers, but in their everyday lives.

Opinions

Stronger economy, but new taxes must be handled with care