Rwanda’s economy is going strong amidst global shocks, euro zone crisis and regional economic turbulences characterised by high food and fuel prices, the World Bank has revealed.
The resilience, according to Johannes Zutt, the World Bank’s Country Director for Rwanda, is a result of sound macroeconomic management which has helped the country to beat global shocks and regional crisis.
Commenting on the bank’s latest report on Rwanda’s economic outlook, Zutt noted that the country has, through the central bank, continued to tighten its monetary policy, a move that helped tame the prices of food and imported goods and contain overall inflation below 10 per cent.
The report titled “Resilience in the face of Economic Adversity: policies for growth with a focus on household enterprises” was launched on Friday last week.
The World Bank forecasts that the country’s economy will grow by 8.8 per cent which is consistent with the government’s projected growth rate.
“Rwanda’s growth outlook is robust, but remains contingent upon sustained prudent macroeconomic management,” Birgit Hansi, a senior economist at the World Bank said.
The country’s neighbours within the EAC bloc are head on with tough times of souring inflation that has shifted to double digits, high commodity prices and drought that has affected the region’s food basket.
The report further indicates that Rwanda’s growth for 2011 will be stronger than that of other sub-Saharan countries and greater than its EAC counterparts.
Combined EAC growth is projected at slightly above six per cent while sub-Saharan projection stands below six per cent.
“Moderate global growth in 2012 and declining fuel and imported food prices will help improve Rwanda’s current account position and enhance growth prospects,” Birgit said.
However, World Bank warns that Rwanda will need to rebuild its fiscal shield, mostly depleted following the 2009 crisis and subsequent stimulus programme, to be ready for the next big global shock.
Therefore, any shock in international commodities prices for Rwanda’s main export or import products would severely hamper the balance of payments and growth out look, the report said.
Experts are buoyant that enhancing export promotion will help bridge the import- export trade deficit and bolster the forex exchange needed to keep the economy pliant.
Currently tourism, one of the country’s top forex revenue earner and exports balances only 45 per cent of imports in total accruing from goods and services.
Economists believe that despite a promising economic outlook, the economy may still face external risks related to yet another anticipated potential global slowdown and its high dependence on foreign aid.
Almost 40 per cent of the national budget is foreign aided.
Nevertheless, Zutt is optimistic that despite the likelihood that donors, especially in the euro zone may stop funding oversees projects, Rwanda’s good economic and donor funds management would still attract aid flow.
The report takes into account several recommendations to the government to attain fiscal consolidation such as cutting expenditure as no new revenue measures are planned for this year and the 2012/2013 fiscal year as projection indicates a decline in revenues due to the permanent loss of fuel tax revenue.
Strong economic fiscal management and careful monitoring of the various channels through which inflation might be transmitted, enabled price increases for the year to remain in check, the report reads.
The report also recommends that promoting household enterprises will rally round government’s initiatives to transform from agrarian based to private sector service led economy.
Household enterprises are a source of 30 percent of households and accounts for nine percent of the labour force.
“They (household enterprises) provide an important second income source, which in rural areas can help cushion shocks brought on by adverse weather conditions and temporary declines in agricultural production,” Louise Fox, world Bank’s lead economist said.
And urban areas can compliment formal wages allowing greater household consumption and investment, she added.
The World Bank notes that considering the significant contribution household incomes have made and can make in the future to create income and employment; the government could broaden its policy framework to provide specific and targeted support.
Household enterprise often referred to as non-farm activity business which is a subsector of small and medium enterprises are seen as the best option to stir a private led economy ahead, which is government’s ultimate objective.