As economies world-wide continue to navigate their way out of the global economic shocks in the last three years following the impact of Covid-19, Russia-Ukraine war, and climate change, economists are optimistic that there is hope at the end of the tunnel. The New Times’ Alice Kagina had an exclusive interview with the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva prior to her visit in Rwanda where she shared insights on Rwanda’s climate initiatives, potential economic growth and outlook on global economic trends. Below are excerpts. Rwanda is one of the first countries in the world that you are visiting in 2023. Why? And what is your main message to Rwandan policymakers and people? Thank you for inviting me to share a few thoughts with your readers. Kigali was a natural stop for me on the continent. President Kagame and I have often talked about my visit, most recently when I had the pleasure of meeting him when he was in Washington in December 2022. An important basis for my visit is the tremendous partnership we have between the IMF and Rwanda. So, it offers an important opportunity to discuss areas of continued cooperation—and one topic of particular interest to me and the IMF is policies that can help our members address climate change and its effects. And Rwanda is a very good place to explore this topic. Rwanda is a pacesetter for climate initiatives in the region. It is one of the first countries to access the IMF’s Resilience and Sustainability Facility (RSF), an important new financing instrument to help our low and vulnerable middle-income countries address longer-term structural challenges, such as climate change or pandemic preparedness. But climate is not the sole focus of my visit. It is also a great opportunity for me to hear directly from the Rwandan people and businesses what they see as key challenges and the ways that we can work together to resolve them. We live in a world that is changing at a much faster pace than in the past—a world that is much more dynamic, and also much more prone to shocks. Over the last years we have experienced two major shocks, Covid-19 and the war in Ukraine, leading to a cost-of-living crisis and upward pressure on interest rates with significant implication across the world. We need to deal with these immediate challenges but also build resilience to future shocks—resilience of people, the economy, and our planet. I look forward to discussing with our partners in Rwanda. The IMF is proud to be a partner to the Rwandese people and we will be there to support your efforts to adapt to this shock-prone world. As you mentioned, Rwanda is the first African country to benefit from the RSF climate finance. On what grounds did it qualify for the financing and how do you intend to gauge its proper allocation? This is an achievement Rwandans should be proud of. But not only was Rwanda the first country in sub-Saharan Africa to access the IMF’s Resilience and Sustainability Facility (RSF), it is also among the first few countries in the world to do so. This is a testament to Rwanda’s strong policy track record and its forward-thinking on climate issues. For example, Rwanda already had a comprehensive climate diagnostic that identified priority areas for reforms that could be supported by the RSF. In particular, the reforms that underpin Rwanda’s RSF-supported program include actions to strengthen the monitoring and reporting of climate-related spending thereby improving the transparency and accountability in the use of government resources to deliver on Rwanda’s ambitious climate measures. At the same time, we know that climate financing needs are massive and public resources alone will not be sufficient, so our hope is that the policies supported by the RSF—in Rwanda and elsewhere—will catalyze more climate financing from other official and private sources. In this regard, Rwanda’s RSF supported reforms also aim to support capital market development to help mobilize climate financing by enhancing climate-related risk management. The IMF had previously recommended Rwanda to cut some subsidies put in place to tame the burden of inflation. Do you still take this position and how would you explain the risks posed? During this cost-of-living crisis our recommendation to all countries has been to protect the vulnerable people and parts of the economy but do so through targeted and time-limited support. This way, governments can cushion the impact of rising food and fuel prices on the most vulnerable population, while managing the impact on the public purse. Cash transfers targeting the most vulnerable households is a good example of this. Why? Because untargeted subsidies are costly, benefit the wealthiest more than the poor, and put a burden on public finances and debt that is not sustainable in the longer term. So, we have supported the authorities’ efforts to move away from untargeted fuel subsidies towards more targeted support through the social safety net, subsidies to public transport operators to mitigate the impact of fuel price increases on urban poor, and fertilizer subsidies to support domestic food production that is essential for food security for Rwandans. According to your analysis, what is Rwanda’s competitive advantage in the region and how should it be leveraged to boost its economic growth? There is much I could say about Rwanda and opportunities for growth but let me mention two advantages. First, strong growth in the services sector over the past decade, particularly in construction and tourism, gives Rwanda a natural comparative advantage in services. In fact, the government has worked to turn Rwanda into a regional trade, logistics and conference hub. Second, high-potential sectors for agro-processing, such as sugar, horticulture, and tea, present strong opportunities to boost growth and the government is planning to develop these sectors. But let’s not forget another cause for optimism, Rwanda is particularly well placed to reap the benefits from its regional integration efforts, especially as it continues to pursue strong economic policies. Given the global economic trends, do you anticipate any future shocks? If the successive—and unprecedented—shocks of the past three years have taught us anything, it is to expect the unexpected. And we must all be prepared. Take this region. The medium-term economic outlook for Sub-Saharan Africa remains positive, but the region and Rwanda’s prospects are tied firmly to and will be shaped by developments in the global economy. We can see many instances of that at work today; the monetary policy response of the world’s largest economies to elevated inflation, Russia’s war against Ukraine, and the ongoing impact of supply chain disruptions. If global inflation persists, pressure to maintain high interest rates in advanced economies to contain inflation could slow global demand and further increase borrowing costs in sub-Saharan Africa, potentially harming debt sustainability and eating into the resources governments have to shield the most vulnerable. Tighter financial conditions could further reduce official development assistance from bilateral and multilateral donors and intensify pressure on local currencies. Should Russia’s war in Ukraine worsen or be more prolonged, or further restrictions on food and fuel exports to sub-Saharan Africa, it could add to the turmoil we have seen over the past year. Any thoughts on the country’s debt burden and how to manage it? Rwanda is going through a transformation that requires large investments to meet its development needs. And that requires managing public resources effectively. Like many other countries around the world, global pressures over the past few years—the multiple shocks I mentioned earlier—have seen Rwanda’s debt increase rapidly in recent years. Yet, debt here remains manageable and the risk of debt distress is moderate. This is because Rwanda’s debt is on generous terms, with low, or zero interest rates and long repayment periods. In fact, the authorities’ decision in 2021 to refinance the Eurobond –which is due in 2023 –on better terms has helped Rwanda minimize the risks that many other countries currently face due to increases in market interest rates. Continuing savvy debt management and appropriate economic policies will be crucial to ensuring that Rwanda’s debt remains manageable in the future. I would highlight three important factors that can help. Rwanda will need to continue its domestic resource mobilization efforts, attract private investment, and continue its strategy of securing low-cost external funding to reduce its debt burden while pursuing its development needs. Clearly there is a lot happening in Rwanda. During my visit, I am looking forward to hearing from the people of Rwanda, to get their perspectives on how we can continue to work together to strengthen Rwanda’s resilience and inclusive growth. Ultimately, that is our goal: good policies that deliver good outcomes for people.
