世界发展银行-Rwanda-Economic-Update,-June-2021---The-Role-of-the-Private-Sectorin-Closing-the-Infrastructure-Gap_72页_7mb

Rwanda Economic Update Summary

Core Content

The Rwanda Economic Update (REU), Edition No. 17, published in June 2021, focuses on the role of the private sector in closing the infrastructure gap in Rwanda. It provides an overview of recent economic developments, analyzes the current state of public investment and its financing, and offers policy recommendations to ensure sustainable growth and development.

Main Economic Developments

• Impact of the Pandemic: The pandemic caused Rwanda's economy to contract by 3.4% in 2020, the first recession since 1994. Key sectors such as tourism, mining, and construction were severely affected. While agricultural production rebounded in the second and third seasons, services output continued to decline.

• GDP Growth in 2021: Rwanda's GDP increased by 3.5% year-on-year in the first quarter of 2021, with industrial and agricultural output rising. However, the unemployment rate dropped, likely due to a reduction in the labor force participation rate.

• Current Account Deficit: The deficit widened in 2020 but remained within a manageable range at 0.3% of GDP. It is projected to stay between 11 and 13% of GDP until 2024 due to increased imports.

• Fiscal Deficit: The fiscal deficit increased to 9.1% of GDP in FY2019/20 and 10.2% of GDP in the first half of FY2020/21. Foreign borrowing, much of it concessional, helped finance the deficit.

• Growth Outlook: GDP growth is expected to remain below the pre-pandemic average through 2023, constrained by uncertainty over the pandemic, travel restrictions, and labor market weaknesses. The government has signaled a move towards fiscal consolidation once the crisis subsides.

Public Investment and Debt Sustainability

• Public Investment Levels: Rwanda has maintained a high rate of public investment, averaging 13% of GDP in 2019. This is higher than most East African countries and nearly double the Sub-Saharan Africa (SSA) average.

• Infrastructure Investment Gap: To meet the 6.5% annual real GDP growth target and achieve the Sustainable Development Goals (SDGs), infrastructure investment needs to rise by 8.4% of GDP from 2019–2024 and 6.9% of GDP from 2024–2040 compared to the 2007–15 average.

• Debt Levels: Public debt to GDP rose from 62.9% in 2019 to 71% in 2020, and is expected to reach 84% by 2023. The debt sustainability status was downgraded from low to moderate in the 2020 IMF/World Bank analysis, and further downgrades are possible with new shocks.

• Debt Financing Risks: If infrastructure investment is fully financed by borrowing, public debt would reach 132% of GDP by 2030, far exceeding the medium-term target of 65%. Grants and tax increases are also not realistic solutions due to their high costs and potential negative impacts on private investment.

Private Sector Participation in Infrastructure

• Role of the Private Sector: Private sector investment is critical to closing the infrastructure gap. If public financing is maximized, it would cover only 45% of the required resources, leaving a significant portion to be filled by private financing.

• Private Investment in Infrastructure: Private investment in infrastructure has been higher than regional comparators, reaching 4.1% of GDP in 2019. FDI inflows have grown from US$119 million in 2009 to US$420 million in 2019, with electricity and ICT being the main beneficiaries.

• PPP Framework: Rwanda has made progress in establishing a PPP legal and regulatory framework, including the 2016 PPP Law and guidelines issued in 2018. Over 24 PPPs have been implemented in sectors such as ICT, energy, transport, and logistics, generating over US$900 million in investment.

• PPP Challenges: Despite progress, the PPP framework has received mixed reviews, with strong performance in preparation and procurement but poor scores in contract management and unsolicited proposals (USPs). The government is advised to improve standardization, competitive bidding, and fiscal commitment control.

Policy Recommendations

• Debt Management: Maintain public debt at sustainable levels to reduce vulnerability to external shocks and liquidity pressures. Improve debt sustainability assessments (DSA) and monitor fiscal commitments and contingent liabilities (FCCL).

• Efficiency in Public Investment: Focus on improving the efficiency and quality of existing infrastructure projects. Streamline the public investment pipeline, set prioritization criteria, and identify cost-saving opportunities.

• Enhance Private Sector Involvement: Encourage private sector participation through regulatory reforms, transparent SOE debt practices, and innovative financing mechanisms. Expand FDI inflows by improving investment promotion and regulatory impact assessments.

• Rebalance Investment Strategy: Shift from large capital-intensive projects to projects with broad-based social returns, particularly in agriculture, rural infrastructure, and allied activities, to improve growth elasticity of poverty and reduce inequality.

• Strengthen Institutions: Improve the quality of the regulatory framework, public investment management, and institutional capacity to enhance PPP effectiveness and private investment attractiveness.

• Investor Relations: Use the Rwanda Development Board's (RDB) investor relationship management (CRM) system to compile challenges and identify systemic issues. Ensure regular reviews of incentives and avoid negative impacts on investors.

• Dispute Resolution: Improve monitoring of projects to avoid disputes, especially with state-owned enterprises (SOEs) and private developers. Address contract delays and performance issues to reduce additional costs and disputes.

Key Sectors for Infrastructure Investment

• Transport, water and sanitation, waste management, irrigation, and housing are identified as immediate focus areas for PPPs due to clear service needs.
• Logistics is another sector where PPPs can offer value for money.
• Electricity generation and social housing are potential candidates for pure private provision.

Conclusion

Rwanda's economic recovery is ongoing but constrained by the pandemic's lingering effects and debt sustainability challenges. To achieve its development goals, the private sector must play a larger role in financing infrastructure. This requires institutional reforms, policy support, and improved regulatory frameworks to attract and manage private investment effectively. The government must also rebalance its investment strategy to ensure inclusive growth and poverty reduction.