ISTANBUL - As the global economic crisis continues to take a toll on developing economies, Finance Minister James Musoni says that Rwanda’s real growth will reach seven percent this financial year, beating government’s earlier projections.
Rwanda’s economy is proving to be more resilient to exogenic shocks than her African counterparts due to higher government expenditure.
Government had projected that Gross Domestic Product (GDP) growth will drop to 5.3 percent from 11.2 percent registered last year due to external shocks of the global financial crisis.
“The economy has responded to the increase in government spending while some sectors of the economy were not as affected as we had anticipated.
The agricultural sector has performed very well and we have also seen an increase from agro-processing industries,” Musoni said in an exclusive interview with Business Times.
The Minister is attending the World Bank/ International Monetary Fund (IMF) Annual Meetings in Istanbul, Turkey.
Rwanda has already felt the pinch of the crisis with export receipts dropping by 32 percent in the first six months of 2009.
Musoni observed that the 24 percent increase of government spending in the financial year 2009/10 has revamped the economy and mitigated the impact of the global financial crisis.
“Injecting more money in the economy has stimulated demand. We have also continued to reform the financial sector to make sure that real sector growth is not affected by the crisis,” he said.
Musoni also observed government’s move through the Central Bank to inject liquidity into the banking sector has facilitated recovery of the economy as it restored confidence in commercial banks to avail long –term finance to the private sector.
“This has increased credit to the private sector from commercial banks.”
Statistics by the National Bank of Rwanda show that credit to the private sector dropped by as much as 24 percent or from Rwf94.4 billion in the first half of 2008 to Rwf71.7 billion in same period this year.
Inflation also cooled drastically in the month of August 2009, dropping to 4.86 percent from 22.3 percent in December last year.
This has been supplemented by a 6.5 percent increase in agricultural production between February and June as compared with the same season in 2008.
To sustain recovery, government will keep allocating resources in high priority areas such as infrastructure, agriculture, trade, industry and investment.
“We shall also continue to invest in social sectors such as health and education to make sure that they are not affected and ensure that there is equitable growth across the country,” Musoni said.
While in the medium term government will depend on donor support, he said the issue of scaling up resources that are not tied will be aligned to national priorities.