The International Monetary Fund (IMF) has approved a new three-year Policy Support Instrument (PSI) for Rwanda, under which government can secure advice from the Fund without necessarily borrowing.
The instrument, initiated by IMF in 2005 as a voluntary policy support for developing countries that do not want or need financial assistance from donors,
will help guide Rwanda on its path to self-reliance.
Under the instrument, the government and IMF will design programmes to strengthen the country’s economy and improve homegrown solutions for challenges such as poverty, unemployment and accountability.
Naoyuki Shinohara, the deputy managing director and acting chair of the IMF Executive Board, lauded government for its strong implementation of the economic programme under PSI that are prudent and inclusive in the fight against poverty.
“Going forward, fiscal policy will need to focus on domestic revenue mobilisation to finance ambitious development goals. Aligning spending with available resources and judicious selection and financing of investment projects will minimise risks to the budget,” Shinohara said
“It will also be important to strengthen debt management capacity and follow a prudent approach to new borrowing to entrench long-term fiscal and debt sustainability.”
He also advised the central bank to closely monitor rising inflationary pressures and adjust its policy stance while maintaining exchange rate flexibility.
“The government’s new poverty reduction strategy aims to sustain high and inclusive growth,” Shinohara said.
“The authorities should maintain their commitment to prudent policies and pursue their broad reform agenda to tackle structural impediments.”
In particular, Shinohara added, further reducing the costs of doing business and addressing infrastructure deficiencies would support economic diversification, foster private sector development, and broaden the export base.”
Rwanda GDP growth
The Minister for Finance, Amb. Claver Gatete, said Rwanda’s economy has performed well under the PSI since its introduction in June 2010, with key achievements in GDP growth, poverty reduction, low inflation and increased domestic revenue collection.
“Financial stability is being strengthened and financial markets deepened: The banking system in Rwanda has recovered from a period of restructuring in 2007 and 2008, leading to profitable, well capitalised and liquid banks,” Amb. Gatete said in a statement.
“With regards to debt management capacity, Rwanda graduated from a low capacity country to a higher public resource management capacity country and from moderate-risk to low-risk of debt distress,” he added.
The new programme is expected to focus primarily, on key features in EDPRS2 and Vision 2020 to accelerate Rwanda’s vision of becoming a middle income country by 2017.
IMF said whereas Rwanda’s economic and macroeconomic policies over the last decade have been successful and generally outperformed its peers in the region, the country still faces vulnerabilities, including high dependence on donors, low government revenue, narrow export base, and weak infrastructure.