Rwanda’s trade deficit narrowed by 25.2 per cent in the first two months of 2017 compared to the same period last year, signaling optimism about the financial year’s performance.
Trade deficit is the difference in value between the imports and exports and are often used as a measure of a country’s external trade performance.
In this case, the value of imports is still higher than exports.
The deficit reduced from about $296.57 million in the first two months of 2017 to about $221.8 million facilitated by a decrease in formal imports by 11.9 per cent and growth in exports by 39.1 per cent.
The development was revealed during yesterday’s quarterly financial stability committee and monetary policy committee meetings chaired by central bank governor John Rwangombwa.
The reduction in trade deficit consequently eased pressure on the Rwandan Franc and reduced depreciation, Rwangombwa said.
“The franc depreciated by 0.7 per cent as of March 24, compared to about 2.7 per cent in the same period in 2016,” he noted.
Based on the trends and reduced pressures, Rwangombwa is optimistic that the Franc will depreciate at an average of about 4 per cent by the end of the year compared to about 9.7 per cent in 2016.
The country’s trade deficit also showed signs of improvement in 2016 compared to 2015 by a 5.9 per cent improvement from $1752.5 million to $1649.8 million driven by increase in value and exports.
Experts attributed the trends to a growing manufacturing and production base and value addition to a number of exports.
According to statistics from the National Institute of Statistics of Rwanda (NISR), local industries, buoyed by Made-in-Rwanda campaign, grew 10 per cent, while processing increased by 8 per cent.
The Made-in-Rwanda campaign aims at promoting production and consumption of locally-made goods and services which have for long faced stiff competition from imports.
The rising inflationary pressures have been brought about by rising food prices due to weather conditions and transport inflation.
These pressures are expected to persist till June during the harvest season.
“There have been inflationary pressures for a while now and was mainly due to pressures from food and transport. We expect these pressures to persist until the harvest in June. Overall, we expected to see inflation averaging at about 7 per cent at the end of the year,” Rwangombwa said.
Inflationary pressures have been experienced across the region and have also been attributed to poor performance in the agriculture sector and increase in crude oil prices.
Kenya’s inflation in February stood at 9.0 per cent, Uganda at 6.7 per cent, Burundi at 20.7 per cent and Tanzania at about 5.5 per cent.
In 2017, the main drivers of growth are agriculture, financial services, which have been growing steadily over the years, as well as tourism and exports.
“We see commodity prices improving positively and we think that this year and next year, it is going to contribute to the rebounding of the economy,” said the governor.
The committees further noted that the financial sector remained stable and sound, to continue to support private sector development.
“In view of the above key developments and outlook, and to cement the outcomes of the previous decisions, the monetary policy committee decided to maintain its policy stance for the second quarter of 2017 by keeping the key repo rate unchanged at 6.25 per cent,” Rwangombwa said.
Repo rate is the discount rate at which commercial banks borrow from central bank.
A reduction in the repo rate means banks get money at a cheaper rate, while an increase means borrowing from the central bank becomes more expensive.
The rate was adjusted in December last year from 6.5 per cent as the central bank signaled to commercial banks to consider increasing loans issuance.