Rwanda’s huge infrastructure gap particularly in areas of energy and transportation dampens private sector productivity and is a constraint to growth, a senior executive at the International Monetary Fund (IMF) has said.
This is in addition to higher transport, water and power costs that are also a major obstacle to economic development.
In an interview with Business Times on Wednesday at the ongoing annual meetings of the World Bank / IMF, McAuliffe Catherine, IMF Mission Chief for Rwanda said that addressing these gaps is essential to raising the country’s growth potential and maintaining momentum towards achieving the millennium Development Goals (MGDs).
“They are also an obstacle to getting out of poverty,” McAuliffe said.
While government has also already embarked on bridging the infrastructure gap, the Mission Chief noted that the central objective of the recently approved IMF program for Rwanda –PSI, is to ensure that the higher levels of investment spending achieved in recent years are maintained.
“The key is to ensure that the borrowing does not endanger fiscal and debt sustainability,” she said.
Currently, Rwanda is deemed to be at a low risk level for debt distress by the IMF though the latter asserts that there are gaps in public financial and debt management.
However McAuliffe pointed out that IMF is currently providing technical assistance to improve public financial and debt management capacities.
According to World Bank, the estimated cost of bringing sub-Saharan Africa’s low-income countries’ infrastructure up to the level of other low-income countries and maintaining it ranges from 10–30 percent of current Gross Domestic Product (GDP).
However, while most of the funding comes from development assistance, the Bank says it remains insufficient.
The Mission Chief pointed out that Rwanda, like many countries in the sub – Saharan region has to explore alternative sources of finance to bridge the gap in infrastructure funding.
“Many of these financing sources are new to countries like Rwanda and they need to consider all the benefits and risks of these financing options,” she cautioned.
McAuliffe pointed out mobilizing more domestic revenue as not only critical to generating more “own resource” for infrastructure spending but also reduces the country’s dependency on aid.
Under the PSI program, government is allowed to source non-concessional borrowing capped at $240 million tied to two specific projects (Kigali Convention Center and RwandAir.
Government is also expected to increase its domestic revenues from 12 to 14 percent of GDP, with the corresponding reduction in fiscal deficit.