Rwanda’s inflation for the year 2012 is expected to rise due to uncertainties in global economy and further price shocks, the International Monetary Fund (IMF) said Monday.
IMF’s Deputy Managing Director and Acting Chair, Naoyuki Shinohara, said, Monday, after the completion of the third review of Rwanda’s economic performance under the Policy Support Instrument (PSI), a programme designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks.
“Rwanda’s economy in 2011 is poised for high growth—but also high inflation—with elevated risks for 2012. While strong agricultural output and exports are driving high real Goss Domestic Product (GDP) growth, aggregate demand pressures are also building up and have already pushed up core inflation,” Shinohara said in a statement.
“Growth is expected to slow in 2012, although risks from could bring lower growth and higher inflation. Structural reforms efforts will have to be stepped up to boost growth prospects,” Shinohara predicted.
Rwanda’s inflation rate surged to 7.76 per cent in the month of October 2011, up from 0.23 per cent in December 2011 due to the increased in the cost of housing, water, electricity, gas and other fuels.
Moreover, the country maintained the lowest inflation in the region largely on account of central bank’s tight monetary policy.
“The authorities have begun to tighten monetary policy in late 2011 to contain inflation. However, further tightening may be needed in 2012 to prevent the erosion of recent gains in macroeconomic stability,” Shinohara noted in the statement.
He added that monetary policy implementation is expected to be enhanced further, including preparing an action plan to develop the interbank money market.
“Fiscal consolidation in FY2011/12 and FY2012/13 remains on track and is expected to further anchor macroeconomic stability. The authorities have introduced additional revenue measures for FY2012/13 to preserve the revenue objective of PSI.
The new requirement for State-Owned Enterprises (SOEs) to seek prior approval of the Ministry of Finance before contracting new external debt will help further consolidate recent improvements in Rwanda’s debt management capacity,” the statement said.
“The establishment of a transparent and sustainable institutional structure to supervise Savings and Credit Cooperatives (SACCOs) needs to be fast-tracked. The hiring and training of 60 supervisors was an important first step.
The statement further noted that given the speed of rolling out these cooperatives as full-fledged lending institutions, and the risks involved, it is imperative that the necessary institutional structure be put in place without delay.
“In light of significant risks in the global economic environment that could adversely impact Rwanda’s exports and international reserves, the central bank should avoid any further encumbering of the central bank’s foreign assets as collateral for loans to finance the government’s strategic investments,” Shinohara added