The International Monetary Fund (IMF) has approved a new three year policy program for Rwanda that will involve semi annual assessments of the country’s economic and financial policies.
The program, referred to as Policy Support Instrument (PSI) was approved by the IMF Board, last week, in Washington, following negotiations for the program by the IMF team that visited Kigali in March.
According to a press statement Rwanda has achieved high growth and macroeconomic stability under three successive IMF arrangements.
The IMF also notes that though volatile inflation is now in single digits international reserves are at comfortable levels.
“To consolidate these gains, Rwanda is making a transition to a new three-year Policy Support Instrument, the natural progression following a successful stabilization program, and given the lack of need for IMF financial support at this time,” says Murilo Portugal, Deputy Managing Director and Acting Chair.
PSI focuses on fiscal sustainability, raising additional revenues in order to reduce aid dependency, price stability and structural reforms to deepen the financial sector, diversify exports and improve the business environment.
Commenting on the approval of the Program, Catherine McAuliffe, IMF Mission Chief for Rwanda observed that successful implementation of the program is expected to sustain Gross Domestic Product (GDP) growth at 6-7 percent per year.
It will also consolidate macroeconomic stability, scale up investment and support growth of private sector.
In addition it will reduce vulnerabilities arising from the country’s narrow export base, and achieve progress in poverty reduction.
“The PSI focuses on strengthening Rwanda’s fiscal position, maintaining low and stable inflation, and continuing structural reforms,” McAuliffe told Business Times.
Under the program, McAuliffe said government has committed to increase domestic revenues from 12 to 14 percent of Gross Domestic Product (GDP).
“With the corresponding reduction in fiscal deficit; after 2010/11, the government will not resort to domestic financing of the budget,” she said.
Government will also ensure that non-concessional borrowing (borrowing with the grant element of less than 35 percent) by the public sector will be tied to two specific projects and capped at $240 million.