Experts optimistic of Rwanda economy despite WB negative global forecast

Economists have dispelled fears of Rwanda experiencing an economic slowdown this year.
Farmers in Kitabi pluck tea leaves. Global economy faces tough times. T. Kisambira. (File)
Farmers in Kitabi pluck tea leaves. Global economy faces tough times. T. Kisambira. (File)

Economists have dispelled fears of Rwanda experiencing an economic slowdown this year.

The experts were reacting to a World Bank Group report released Wednesday that predicted tough times for the global economy in 2016, which is likely to hold back major emerging markets and consequently have spillover effects to other developing and smaller emerging economies.

The report, ‘Global Economic Prospects; Spillovers amid Weak Growth,’ noted that the global economy’s growth had ‘disappointed’ in 2015 after dropping to 2.4 per cent against 2.6 per cent in 2014 and is expected to recover at a slower pace than previously envisioned.

Diagnosing the cause of the global economic slowdown, the authors said there had been sharp decline in global commodity prices such as oil and gold, reduced global trade and currency pressures among other factors that had made time hard for exporting economies.

It shows that with slowdown among large emerging economies, there is likely to be a spillover effect that could slow down developing economies, especially in Africa.

The unfavourable forecast comes at a time developing countries are focusing efforts on poverty reduction.

“Forecasts are subject to substantial downside risks. A more protracted slowdown across large emerging markets could have substantial spillovers to other developing economies, and eventually hold back the recovery in advanced economies,” the report says.

Kim Jim Yong, the Bank’s president, advised developing countries to focus more on building resilience to their economic environment to shield themselves from vulnerability.

“More than 40 per cent of the world’s poor live in the developing countries where growth slowed in 2015.

Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable. The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies,” Kim said.

With most of developing countries at ‘risk’ being in the sub-Saharan region, the report forecasted that the global economic environment will be less conducive to growth in coming days as opposed to the recent past.

This is due to factors such as lower commodity prices and tightening global financial conditions hindering economic activity.

The authors advised on the need for effective policies to respond to growing vulnerabilities, address domestic constraints to activity, as well as the promotion of non-commodity sources of growth such as service industry.

Most hit, the report predicted, will be exporters of oil, mineral and metal exports due to the decline of prices in the international market experienced in recent months.

The case for Rwanda

The Rwandan government recently predicted favourable performance of the economy in 2016.

In a recent interview with The New Times, Prof. Thomas Kigabo, the chief economist at the National Bank of Rwanda (BNR), said although they do not expect much improvement in the global economy this year, the home economy will maintain stable growth as experienced in 2015.

Economists say the confidence is justified due to Rwanda’s global trade structure and performance of non-commodity sources of growth such as the financial and service sectors.

Teddy Kaberuka, an independent economic analyst, told The New Times that the steady growth exhibited by the economy in 2015 was likely to persist as Rwanda’s export targets are less likely to be greatly affected by the economic slowdown.

“Most of the countries that Rwanda exports to are in the European Union and in the US. This, to a certain degree, reduces the shock to the economy as these countries are less likely to be greatly affected,” said Kaberuka.

He added that non-commodity sources of growth such as the financial and service industry had exhibited good performance last year and were likely to maintain the same trend.

The government’s move to mobilise more domestic revenue and reduce reliance on foreign aid was another reason the economy would be better cushioned against the slowdown, according to Kaberuka.

Sixty-six per cent of the current Budget is being financed through domestic resources, amounting to Rwf1.174 trillion, an increase of Rwf41.6 billion compared to last financial year.

Going forward, both the Bank and economists cite the need to develop the private sector to increase exports value, reduce volume of trade imbalance and create more employment opportunities.

editorial@newtimes.co.rw