The InternationalMonetary Fund remains positive that Rwanda’s economy will achieve the projected 6.0 per cent growth rate in 2016 despite the turbulent global economic times.
The institution’s confidence in projected growth is largely due to the relatively strong performance of the economy during the first half of the year, during which it grew 6.5 per cent.
Following IMF’s review of the country’s economic and financial programme, the team’s leader Laure Redifer said the economic performance remains strong.
“Growth projections for the year remain at 6.0 per cent which is one of the highest in Sub-Saharan Africa. We expected growth to be driven by services activity with somewhat lower growth in agriculture due to the recent drought and lower growth in industrial and construction activities following the end of several large projects,” Redifer said in Kigali yesterday.
The IMF Mission, which has been in the country since October 19, observed that inflation has in recent months risen largely due to food prices caused by the drought and, to some extent, higher import prices caused by exchange rate depreciation.
Redifer said Rwanda’s growth projections come at a time when most economies in the continent are battling the global economic turbulence.
She said IMF currently projects one of the slowest growth rates for the sub-Saharan region in 20 years, at 1.4 per cent, largely due to activities in oil exporting economies which have either contracted or stagnated this year.
In a few cases, Redifer added, there were adverse effects because countries have resisted taking adjustment measures that Rwanda is currently taking.
“That is part of the reason Rwanda will register higher growth than other economies,” Redifer said.
In June, the Executive Board of IMF Fund approved a $204-million credit facility (about Rwf160 billion) support for the country’s reserve capacity.
The facility is often extended to low-income countries with short-term balance of payment needs.
So far, half the amount has been drawn from the facility with another $50 million to be disbursed on the completion of the current review. The rest will be drawn in installments of $25 million to the end of 2017.
“Rwanda negotiated a short-term credit with IMF to deal with growing external imbalances which have been putting pressure on the Franc and also on the country’s foreign exchange reserves. The credit facility should help bolster the credit reserve position and facilitate Rwanda’s adjustment programme to address the imbalances,” IMF official said.
Rwanda’s tackling of economy
The IMF team said, to address the short-term imbalances, adjustments had been put in place such as continued exchange rates and containment of public spending to protect priority spending.
They further observed that more prudent monetary policy stances consistent with expansion of private sector credit growth had been implemented.
“The IMF also agrees with the government’s long-term policies that should help restore external sustainability such as supporting more diverse exports and promoting domestic production of certain products currently being imported. This is through the Made-in-Rwanda campaign,” Redifer said.
The global financial institution remains confident that the interventions will reduce the trade deficit and external imbalances to help maintain foreign exchange reserve coverage at adequate levels.
“Nascent signs suggest that the adjustment policies are proving successful at reducing the trade deficit for goods and services. Although these developments are likely to contain growth at a robust 6 per cent through 2017 by reducing external imbalances they should also help maintain official foreign exchange reserve coverage at adequate levels,” Redifer added.
These policies being rolled out by the Government are also expected to contribute towards medium term growth projections, at around 7 per cent, by avoiding potentially harsher adjustments policies that are more disruptive to growth.
The IMF team said, depending on weather and agriculture, inflation is expected to get back towards the government’s medium term 5 per cent target.
Commenting on what the Government was doing to curb inflation in the long term, Finance and Economic Planning; minister Claver Gatete said the Government has taken a decision to invest in agriculture to increase food security.
“If the inflation is from the demand side, the central bank can use their instruments to make sure they deal with it. If it is from the supply side, the Government can take decisions, we now must go for irrigation systems for small and large holder farmers, as well as increase production and storage,” the minister said.
The IMF’s confidence in the projections follows quarterly meetings by the Monetary Policy Committee and the Financial Stability Committee in September, during which, upon considering several indicators, the central bank governor John Rwangombwa said that they remain positive on their initial projection.