The International Monetary Fund (IMF) said it expected Rwanda’s economy to grow a projected 7.2 percent this year, up from 6.1 percent last year.
“Growth averaged 8.6 percent in the first half of 2018 and, despite a temporary deceleration in Q2, remains in line with projections for 7.2 percent for the year,” it said in a statement
The east African nation’s economic growth in the medium term was expected to remain at, or higher than, historical averages, based on tourism, new mining operations, more resilient agriculture, new and more diversified exports and the construction of a new airport.
Recent Economic Developments
Real GDP growth has been recovering over the past four quarters and averaged 8.6 percent in the first half of 2018. The rebound was in line with the projected growth rate of 7.2 percent for 2018.
Growth was robust in most areas, except construction, with pronounced pick-ups in non-traditional exports and services. Over the medium term, investment in public infrastructure and interventions to promote structural transformation and diversified exports, underpinned by strong DRM efforts and PFM reforms, should sustain growth in line with or above historical averages.
Inflation remains low and expectations are anchored within a ±3 percentage points range of the medium-term target of 5 percent. The monetary policy stance remains broadly neutral. The central bank has maintained its policy rate at 5.5 percent so far in 2018, after a cumulative 100 basis point reduction in 2017. Money supply growth, at 9.6 percent y/y in August, remained broadly in line with economic activity.
The headline FY17/18 fiscal deficit was unchanged from the previous year, at 4.6 percent of GDP. However, the primary deficit excluding grants and UN peace keeping operations (PKO) was reduced, from 8.2 to 8.0 percent of GDP.
External balances and reserve buffers continued to improve, while the financial sector remains healthy. The trade deficit has continued to decline, by 6 percent from October 2017-September 2018. The current account deficit has been revised modestly upward, including in projections, reflecting an updated methodology for estimating travel expenditures.
At the conclusion of the Executive Board discussion on Rwanda, Mr. Tao Zhang, Deputy Managing Director and Acting Chair stated:
“Rwanda’s macroeconomic conditions have continued to improve owing to the strong implementation of reforms underlying the authorities’ economic program. Over the past four quarters, economic activity has gained momentum and was broad-based, inflation remains low, and the economy’s resilience to shocks has been boosted.
“Rwanda has made substantial progress toward the original objectives of its economic program supported by the IMF’s Policy Support Instrument. Rapid, inclusive growth has resulted in sustained poverty reduction. Revenue mobilization efforts have increased resilience to declining aid flows. Headline inflation remains anchored within the authorities’ medium-term target range and supported by implementation of several reforms to modernize Rwanda’s monetary policy framework. Despite numerous shocks, adjustment policies have restored external stability and public debt has remained sustainable.
“The authorities have demonstrated a strong commitment to fiscal discipline while scaling up investment spending needed to implement their development plans. The new Vision 2050 and National Strategy for Transformation (NST) lay the foundation to help meet the SDGs and propel Rwanda to middle-income status over the longer term. Fiscal discipline has been complemented by efforts to bolster domestic revenue mobilization and improve fiscal transparency, but there is scope for additional progress on resource mobilization.
“Despite the notable achievements, external risks could pose hurdles to Rwanda’s quest toward achieving middle-income status. It will be important to cement macroeconomic stability by preserving low inflation and debt sustainability. The structural reform agenda should continue encouraging more private investment. The Fund remains committed to help the authorities manage the risks as they move toward achieving middle-income status.”