20220112-IMF-Rwanda_2021_Article_IV_Consultation_and_Fifth_Review_Under_the_Policy_Coordination_Instrument-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Rwanda_121页_2mb

2021 Article IV Consultation and Fifth Review Under the Policy Coordination Instrument – Rwanda

Core Content

The 2021 Article IV Consultation and Fifth Review Under the Policy Coordination Instrument (PCI) for Rwanda were completed by the IMF Executive Board on January 10, 2022. The consultation highlights Rwanda's strong economic recovery in 2021, driven by accelerated vaccination efforts, increased external demand, and accommodative macroeconomic policies. The recovery is expected to continue in 2022, with real GDP growth projected at 10.2% and inflation moving towards the central bank's tolerance level.

Despite the recovery, significant risks remain due to the high portion of the population still unvaccinated and the potential for new variants of the virus. These risks could undermine the growth outlook and increase fiscal and external financing needs. Structural and economic reforms are emphasized to mitigate pandemic scars and ensure more inclusive and sustainable growth over the medium term.

The PCI continues to support Rwanda's macroeconomic and structural reform agenda, as well as its economic recovery. The program performance has been broadly satisfactory, with quantitative targets met by June 2021, although some reform targets were delayed.

Main Points

• Economic Recovery:

  • Real GDP growth in 2021 was 10.2%, supported by vaccination efforts, external demand, and accommodative policies.
  • Inflation is expected to remain within the central bank's upper tolerance level in 2022.
  • The current account deficit is projected at about 11% of GDP in 2021 and is expected to narrow over the medium term through FDI and concessional loans.

• Fiscal Policy:

  • The fiscal deficit in FY21/22 is expected to remain at around -8.6% of GDP, supported by the partial use of the SDR allocation (US$219 million) and an August Eurobond issuance (US$620 million).
  • Fiscal consolidation is needed to ensure debt sustainability and maintain macroeconomic stability.
  • Urgent temporary needs, such as social protection and health-related expenditures, are being addressed through the SDR allocation.

• Monetary Policy:

  • Monetary policy has been appropriately accommodative to support economic activity.
  • The central bank is advised to maintain a data-dependent monetary policy and closely monitor credit risks to safeguard financial stability.
  • The AML/CFT framework should be enhanced to improve financial integrity.

• Structural Reforms:

  • Continued efforts are needed to strengthen Rwanda's external competitiveness through exchange rate flexibility and reforms.
  • Structural reforms to improve financial inclusion, digitization, and green public financial management (PFM) are crucial for inclusive and sustainable growth.
  • Policies to mitigate pandemic scars, especially on human capital, are recommended to limit long-term social and economic setbacks.

• External Sector:

  • The current account balance is projected to improve over the medium term.
  • International reserves have been increasing, with coverage of imports reaching about 4.5 months in 2022.

Key Information

• Debt Sustainability:

  • Total public debt (including guarantees) is projected to remain around 74.6% of GDP in 2021.
  • External public debt (including guarantees) is expected to reach about 62.4% of GDP in 2021.
  • Rwanda is advised to implement a credible fiscal consolidation plan to ensure long-term debt sustainability.

• Social Progress:

  • Rwanda's per capita income almost tripled over the past two decades, and life expectancy increased substantially.
  • However, the pandemic has led to rising poverty, unemployment, and gender inequalities, which could reverse these gains.
  • Human capital development, particularly in education and health, has lagged behind regional peers, and there is a need for targeted investments to address this.

• Reform Targets:

  • Some reform targets were not met due to delays in procurement processes.
  • A third reform target on automation of VAT refunds was completed with a one-month delay.

• Support Mechanisms:

  • The SDR allocation and Eurobond issuance are expected to help reduce near-term liquidity pressures.
  • Concessional financing and private sector support are critical for achieving the Sustainable Development Goals (SDGs).

• IMF Engagement:

  • The mission included experts from AFR, SPR, and other departments, and discussions were held remotely with Rwandan officials.
  • The report includes various annexes and appendices detailing the pandemic's impact, policy commitments, and risk assessments.

Conclusion

Rwanda has made significant economic and social progress over the past two decades, but the pandemic poses a risk to these gains. The IMF's 2021 Article IV Consultation and Fifth Review under the PCI highlights the need for continued structural reforms, fiscal consolidation, and support for social and economic recovery. The country's strong recovery is supported by accommodative policies and increased external demand, but maintaining macroeconomic stability and addressing pandemic-related challenges will be critical for long-term growth and development.