The Executive Board of the International Monetary Fund (IMF) applauded Rwanda’s macroeconomic stability but warned that economic growth could be threatened by rising global food and fuel prices.
This follows the second review under the three-year Policy Support Instrument (PSI) for Rwanda, a program aimed at consolidating macroeconomic stability in the country.
While commenting on the IMF findings, John Rwangombwa, the Minister of Finance and Economic Planning told Business Times that it is an achievement and a sign of government’s commitment to reform.
“We are happy to have the second review, we never had any problem during both reviews and progressively implementing the recommendations,” Rwangombwa said.
The IMF says that all quantitative assessment criteria for December 2010 were observed, and structural reforms are advancing at a good pace.
With real GDP growth estimated at 7.5 percent in 2010, up from 4.1 percent in 2009, driven by a favourable external environment and the PSI-supported fiscal stimulus, the IMF says that Rwanda’s macroeconomic performance has been strong, overall, and that the country’s economic programme supported under the PSI remains on track.
The IMF, however, warned that rising global food and fuel prices, slower pick-up in credit to the private sector and raising financing to implement the government’s investment plan to close the infrastructure gap continue to pose policy challenges.
According to the statement from IMF, the authorities are committed to tighten monetary policy in 2011, if needed, to contain any second round effects of higher global food and fuel prices on inflation.
“Structural reforms will continue to focus on improving access to financial services while safeguarding financial stability, further improving monetary policy implementation, further strengthening the Public Financial Management (PFM) system, enhancing revenue administration, improving the quality of national accounts statistics and enhancing policy coordination and capacity building,” the statement says.
It adds that stepped up efforts will be needed to ensure that the risks of the large roll-out of Savings and Credit Cooperatives (SACCOs) is addressed adequately through hiring and training of inspectors and the early adoption of a sustainable institutional structure for SACCOs.
Over the medium term, sustaining the growth momentum would depend on securing financing for the key growth catalytic investments, a favourable external environment, and a strong recovery in credit to the private sector, the statement says.
IMF projects that the financial year 2011/12 would further anchor macroeconomic stability and support growth as government streamlines expenditures, while protecting priority spending and introducing further reforms in revenue administration and PFM.
Domestic financing slid from Rwf73.3 billion in 2010/2011 to only Rwf11.6 billion, showing a decline of Rwf61.7 billion.
However, in the 2011/12 budget government introduced measures to widen the tax base and reduce the cost of compliance especially to the Small and Medium Enterprises.
Some of the measures include Introduce e-filing and payment to improve on time spent, reduce burden to taxpayers and service delivery, operate electronic cargo tracking equipment to ensure the protection of cargo from source to destination and fully automate collection of pension funds and RAMA contributions and bring those out of the PAYE net into the system.
The PSI program focuses on maintaining sustainable, fiscal position, strengthening monetary and exchange rate policies and supporting growth with structural reforms to diversify the export base and improving the business environment.
The Rwandan PSI , approved on June 16, 2010 also targets achieving sustained broad-based growth, and reducing Rwanda’s aid dependency.