Why Rwanda is economic star pupil

Ms Christine Lagarde, Managing Director of the International Monetary Fund (IMF), is in town. This is a rare visit. It is not so often that the IMF boss visits small insignificant countries. But when that happens, it signifies any one of a number of things.

Ms Christine Lagarde, Managing Director of the International Monetary Fund (IMF), is in town. This is a rare visit. It is not so often that the IMF boss visits small insignificant countries. But when that happens, it signifies any one of a number of things.

First, the economy of that country is very sick and needs to be put in intensive care where it will be given massive infusions to bring it back to health. Or it is so terminally ill that its demise is imminent and the services of an undertaker will soon be required.

Now, we know that Rwanda is in such robust health that the attention of a physician is far from its thoughts. So that cannot be the reason for the visit.

Second, the economy must be important and attractive but has rejected the advances of the IMF, and the latter not used to being jilted, will use all means necessary, including the personal visit of its chief, to bring the economy within its embrace.

This cannot be the reason for Ms Lagarde being here because as she has said, Rwanda and the IMF enjoy a very good relationship. So there is no need for renewed courtship.

The third reason would be that the economy is healthy, strong and growing. It has taken all IMF prescriptions and survived. For that reason, it is worth a visit from the boss herself.

We all know that Rwanda’s economy is healthy and growing. It has even survived aid cuts and a bad agricultural season, and is now picking up again. This is the IMF’s own assessment. It has also administered IMF prescriptions diligently. In this sense Rwanda is a star pupil and deserves the personal commendation of the teacher.

But all good teachers will tell even their star students that they can do better; that there is room for improvement. Ms Lagarde is likely to say the same and, in private, point out the areas that need improvement - where the student has been either wilfully negligent or for some reason unable to perform according to expectations. There might even be arguments about methods used to arrive at certain solutions because good students are often quick to discover alternative ways their teachers might not know about. They also tend to have an independent streak even when they appear humble.

Certainly on one thing there is agreement – that good policies work and that Rwanda has such policies.

Indeed an IMF staff review of Rwanda’s economy noted that it was in good health. It repeated what every Rwandan can say, even in their sleep, that Rwanda’s economy has been growing at eight percent annually for a little over a decade since 2000.

It noted that the government has been successful in lowering poverty and the poorest have benefitted strongly from the growth performance over the period. 

The review also said farm productivity had been better due to a number of factors. Access to inputs, such as seeds and fertilizers, and to markets had improved. Community-based models and financial inclusion had also led to better productivity.

It noted fiscal policies remain prudent and the objectives of the 2014/15 budget are within reach. The central bank’s current monetary policy is also appropriate.

It is not only the IMF that recognizes Rwanda’s healthy economy. Rwandans are now familiar with the good reports from such international organizations as the World Bank, the World Economic Forum, Transparency International and others about improvements in doing business, competitiveness, zero tolerance of corruption and being one of the best destinations for investment.

Indeed Ms Lagarde’s visit coincides with two significant and related events.

Last Friday Fitch, an international credit rating agency, affirmed Rwanda’s long term credit rating at B+, meaning that the outlook is stable. This rating is usually a projection based on a country’s past performance and the current situation and how they affect the future. Fitch noted Rwanda’s coherent macro-economic management, improving business climate and inflation control as some of the indicators for its rating of Rwanda.

At the end of last week, the World Bank announced that it was giving Rwanda $70 million credit to support poverty reduction programmes. This, too, is in recognition of the success of this country’s social protection policies and lifting so many people out of poverty.

Clearly, Rwanda is not a small, insignificant country. Nor is it an economy on its deathbed. On the contrary, it is an example of good health and model of how sound policies work and change people’s lives.

The visit of the IMF boss is significant in another sense. It shows how times have changed.

Just over two decades ago, the IMF and World Bank were some of the most hated international lending agencies in the developing world. A visiting head of either would have been stoned by an angry public.

At the time both pushed what were called structural adjustment programmes as conditions for lending. Countries had to accept what came to be known as conditionalities, mostly cuts in public spending on social services, economic liberalisation, tax cuts on imports and on the rich, and so on, before they could get any loans. These caused a lot of pain.

That has given way to the IMF accepting country design and ownership of poverty reduction strategies. That, of course, does not mean that the IMF has given up on its conditions.

They still exist, but are perhaps a little more flexible depending on a country’s strength of argument, depth of conviction about its own policies and some amount of stubbornness.

These are perhaps the qualities you need to be a star pupil or a good partner of the IMF.


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