IMF, Rwanda successfully conclude agreement on economic and monetary policy

On 5 April 2023 at 10:00

An IMF mission led by Haimanot Teferra conducted meetings with Rwandan authorities from March 22 to April 4, 2023, to evaluate the first reviews of Rwanda’s Policy Coordination Instrument (PCI) and program under the Resilience and Sustainability Facility (RSF). The PCI and RSF arrangement was approved on December 12, 2022, with the latter providing a total amount of SDR 240.3 million (approximately US$ 319 million).

After concluding the mission, Ms. Teferra, who led the IMF mission, announced that the team and Rwandan officials have come to an agreement at the staff level regarding the economic and financial policies required to complete the first reviews under the PCI and RSF arrangement. However, this agreement is still subject to approval by the IMF Management and Executive Board, with the Board’s consideration scheduled tentatively for May 2023. If the Board approves, Rwanda would have access to SDR 55.46 million (about US$ 74.6 million) under the RSF.

Performance under the program has been strong, with all quantitative targets for end-December 2022 met and all reform targets under the PCI and RSF progressing well and anticipated to be completed ahead of the Executive Board discussion.

Despite the strong growth of the economy, macroeconomic imbalances have emerged. GDP growth was 8.2 percent in 2022 due to robust output in the manufacturing and services sectors that outweighed weaker-than-expected agricultural production and a significant slowdown in construction activity.

Rising food prices, strong domestic demand, and weak agricultural performance due to unfavorable weather conditions have kept headline inflation persistently above 20 percent in recent months. High core inflation, which was at 14.4 percent in February, indicates broad-based and persistent inflationary pressures in the economy. Robust import demand coupled with high commodity prices and tightening global financing conditions have weakened Rwanda’s external position, causing foreign reserves to decline to 4.1 months of prospective imports at end-2022.

Given Rwanda’s vulnerability to external shocks, Ms. Teferra emphasized the urgent need to rebuild policy buffers. Another spike in global energy and fertilizer prices, a steeper decline in trading partners’ growth, or global financial market and geopolitical developments that adversely affect the availability of concessional resources will further strain external buffers and limit the policy space to confront developmental challenges and address climate change. To rebuild policy buffers, the authorities need to further tighten the fiscal and monetary stance.

To maintain fiscal sustainability, the government needs to raise domestic revenues while containing non-priority current and capital expenditures. Additionally, reforms to adopt effective and transparent public financial and investment management practices should accelerate, and institutional capacity to assess and manage state-owned enterprise fiscal risks needs to be strengthened. The National Bank of Rwanda should pursue a more decisive monetary policy tightening to contain inflationary pressures and promote exchange rate flexibility to ensure external stability.

Structural reforms should be sustained to tackle pandemic scarring and enhance socioeconomic resilience. More efforts are required to enhance access to healthcare and education, address learning losses, promote regional trade integration, and scale up and better target social protection. Continued reforms to allocate climate resources more effectively and transparently will be critical to mobilizing additional climate funding and achieving Rwanda’s ambitious climate agenda.

Ms. Teferra expressed her gratitude for the authorities’ excellent cooperation and candid and constructive discussions and reaffirmed the IMF’s support for the government’s efforts to implement its economic reform program.

IMF and Rwanda have successfully concluded agreement on economic and monetary policy.