Despite rising food and fuel prices coupled with lower harvests registered during the first part of the agricultural season, there is a cautious optimism for higher growth in 2011, according to the World Bank.
The bank said in its latest report that gives the key indicators of Rwanda’s growth prospects for this year based on previous year’s performances that the economy grew by 7.5 percent, two percent higher than the rest of the East African Community (EAC) member states.
The current edition of Rwanda Economic Update titled “Seeds for Higher Growth” says that the optimism is based on reviews of recent macroeconomic developments registered last year.
The growth was occasioned by prudent fiscal measures that ware assisted by continued high grant financing from donors. Both factors combined, according to the report, to produce Rwanda’s economic stability that was registered during a difficult external post global financial crisis environment.
“The outlook for a full recovery of Rwanda’s economy during 2011 is cautiously optimistic as some lead growth indicators, like credit to the private sector shows,” the report reads in part.
The measured optimism is dependent on the effects of increasing international fuel and food prices and the outcomes of the second agricultural harvest.
The World Bank says that recovery from the financial crisis has been high paced. This level of growth is seen through increasing Gross Domestic Product (GDP) as at December 2010. GDP is the measure of value of all goods and services produced within an economy less the imported goods.
“GDP in Rwanda increased due to a sizable fiscal stimulus that increased expenditures from around 3 percent of GDP between 2008 and 2009/10 to around 26 percent by last year,” the report states.
This stimulus was partly financed by an increase in donor funds. Fiscal stimulus refers to government measures put in place to check on the effects of the global financial crisis. Such efforts focused mainly on increasing public spending while lowering taxation.
The stimulus package was undertaken through large public investment programmes on a number of key strategic projects, all in the infrastructure sector. Consequently, inflation declined while the export sector benefited from the recovery in international prices for Rwanda’s key export goods, tea and coffee.
The report says that tourism receipts recovered fully in 2010 and reported record levels of non African tourist arrivals. As a result, the trade deficit narrowed and this brought about the economic stability in the face of challenging external environment.
Rwanda’s growth rate is predicted to grow at 7 percent this year. If that happens, the report says that, such growth figures will be 5.5 percent higher that the Sub-Saharan African average or 5.9 percent higher than rates predicted for the EAC.
“It is expected that all sectors are likely to grow at comparable pre-crisis levels again, but there is reason for a cautious positive outlook. The first 2011 harvest season was disappointing, and agriculture growth might turn out to be moderate.”
The caution note in the report says that while manufacturing is expected to attain recovery, growth within the services sector might be less rapid due to less government spending in health or education sectors than was the case during the time when the economic stimulus package was rolled out.
The cautiousness in the report can also be seen through indicators highlighted, such as higher interest rates likely to be registered this year and uncertainties on rising fuel and food prices.
Both factors, the report states, are likely to render the balance of payment position to be vulnerable to export shocks, due to the dependence on a few export products.