Like all economies, globally, Rwanda has been affected by the Covid-19 outbreak, leading to loss of business and employment. The New Times’ John Gahamanyi interviewed the Governor of the National Bank of Rwanda, John Rwangombwa, on a wide range of economic issues and the country’s post Covid-19 prospects. Excerpts: To what extent has the Covid-19 pandemic affected the Rwandan economy? As you’ve heard, the global economy is likely to shrink by 4.9 per cent this year although it’s expected to recover next year. In Rwanda the economy grew by 3.6 per cent in the first quarter of this year, lower than the 6.1 per cent that we achieved in the first quarter last year. Because of this pandemic, the economy is expected to grow by 2 per cent. That’s the lowest we would have had in 20 years. Projections keep changing because we don’t know how long this pandemic is taking, how deep it’s going to be. But at least the projection we have today is that this economy is going to grow by 2 per cent from the 9.4 per cent, which we achieved last year. What monetary policy strategies did you adopt to limit the Covid-19 impact and accelerate economic recovery? As the central bank, we expected this pandemic to hit us mainly through weakening the financial sector in terms of liquidity. The decisions taken on the monetary policy side were to support the liquidity of the financial sector. In March, we lowered the reserve requirements of banks from 5 to 4 per cent and that immediately injected Rwf23 billion into the banking system. We put up a facility of Rwf50 billion to support banks which may have liquidity challenges. We had to give room to the banks to facilitate borrowers that were affected by this Covid-19 by restructuring their loans. That has really helped many firms. Also, normally, we have facilities that banks can access. For example, in a normal situation, banks can access the reverse repo facility and borrow money from BNR for a maximum of one week. We extended it to at least 12-months. In April, the Monetary Policy Committee (MPC) lowered the central bank rate from 5 per cent to 4.5 per cent to encourage banks to lend to the private sector. Of course, working with other government institutions we see many positive results from the different initiatives taken. Today, our banks have sufficient liquidity to meet increasing demand for loans by the private sector. The uptake of the recovery fund remains low There’s the Economic Recovery Facility (ERF) put in place by the government of Rwf101 billion, which has specific criteria of lending to economic actors. The ERF by the government is also pumping money into the banking sector. Out of the Rw100 billion, we’ve disbursed slightly above Rwf20 billion. Businesses say that it’s still hard to access the funds? We’ve discussed that issue with all stakeholders involved in the management of the fund. There were two main problems. I think the biggest problem was awareness. We are working with Rwanda Development Board (RDB), the Ministry of Finance and other stakeholders on an education campaign for businesses. The other factor is that, of course, there’s a criterion to access this money. You need to prove that you have been affected by Covid-19, at least you’ve lost your turnover by 50%. You have to prove that you’re clean with Rwanda Revenue Authority (RRA), because we are using taxpayers’ money. We also had issues with bank officials understanding how to manage the facility. We trained them. Do you see any early signs of economic recovery? We see signs of recovery from the lockdown period. When you look at the composite index of economic activities, we had negative growths in April and May this year compared to the same period last year. In June, we saw a positive growth of 8.4 of the composite index of the economic activities. This gives us hope that as the economy opens up, economic activity will rebound back to pre Covid-19 performances. Despite the challenges in the hospitality and tourism industry the trends in trade and manufacturing are picking up. The economy will pick up in the third and fourth quarter. We just hope this current trend of the pandemic doesn’t create other bigger problems. Again, we see more borrowers coming to the banks, and with the opening of commercial flights, we have hope that we are going to receive more demand for loan compared to what we had in the second quarter of this year. Rwanda has adequate foreign exchange reserves, covering 6.3 months of imports. How did you manage this in the midst of the pandemic? There are two factors that contributed to that. One is that because of the pandemic, the government went out to mobilize resources to deal with the virus. The government was able to mobilize resources from different institutions including IMF and World Bank. These inflows really helped us to increase our reserves. Then starting from January when China had challenges, the import bill went down. In the first six months of the year, we had lower imports despite the rise in the import bill for food and medical supplies. Last year, our total import bill was $311 million per month. This year, we expect that to go down to $275 million per month. A combination of the reduction in the import bill and increased government inflows gave us a healthy reserve position. Of course, we continue using reserves to deal with the challenges but we expect it to remain high by the end of this year because of those two factors. Before the Covid-19, there were concerns over Africa’s debt. What’s your assessment of Africa’s current debt? In our African Central Bank Governors’ conference last year that was the main topic. The conclusion was that Africa’s debt is not yet alarming. We had some countries that had really gone far in terms of their debt to GDP ratios, but most countries were still far from that. By the end of 2019, Africa’s debt was around 57 per cent of GDP. Normally, anything below 60 per cent should be manageable. To limit the impact of Covid-19, many countries have gone out to mobilize resources in order to deal with the pandemic. This contributed to an increase debts and this could increase the debt to GDP ratio to around 60 per cent on average in Africa. That is expected because we are in a crisis period. Economies are shirking while debt numbers are rising. How each country will manage to deal with the crisis using these resources borrowed will determine how it will come out of the crisis. In Rwanda, we don’t have any debt distress at all. The pandemic has had a significant impact on Rwanda’s digital payment systems. Do you think the gains made will be sustained? I think the gains will be sustained. The pandemic gave momentum to the players to invest more in the infrastructure to support digital payments. Telecommunication firms and banks are investing more in modern points of sale. Government has mobilized citizens to use non-cash means of payment. Government is investing in RSwitch to put in place an interoperability switch. When this is up and running, most likely next year, all these fragmented payment channels will be connected to this switch and that will enable more people to use digital payments. In just two months of the lockdown digital payments increased more than five times. Mobile money transactions have bank accounts that show the float — the amount of electronic money being transacted within the population. Before the Covid-19 outbreak, this float was Rwf28 billion and by mid-May, it had grown to Rwf60 billion. Going forward, what’s your assessment of the economic outlook? We’ve had inflation pressures in this year with inflation going above our upper band of 8 per cent to an average of 8.2 per cent in the first quarter and 8.7 the second quarter. We expect this to slow down. We had expected it to start slowing down in the second quarter but we had the challenge of transport fees that were increased because of the Covid-19 distancing measures introduced in public buses. By the end of the year, inflation should be below our benchmark of 5 per cent. On average for the entire year, we expect it to be around 6.9 per cent. In the first half of next year, we expect it to be below our benchmark of 5 per cent. In the external sector, we expect the trade deficit to widen because exports were hit more due to the decline in global demand. However, we expect the foreign exchange market to remain stable, supported by enough level of foreign reserve as pointed out. Anything else you would want the public to know? We are dealing with the pandemic that we can’t tell where it will end globally. As a community, as a country and as economic actors we need to be more prudent during this period than we’ve ever been before. We need to plan better with the resources that we have. If we don’t have another lockdown we expect the economy to continue picking up. By next year we expect to have a good performance of the economy but it all depends on how we, the economic actors, behave. jgahamanyi@newtimesrwanda.com
