The Executive Board of the International Monetary Fund (IMF) completed today the first reviews of Rwanda’s Policy Coordination Instrument (PCI) and program under the Resilience and Sustainability Facility (RSF). The Board’s decision allows for an immediate disbursement of SDR 73.95 million (about US$ 98.6 million) under the Resilience and Sustainability Facility. The PCI and RSF arrangement were approved on December 12, 2022, the latter with a total amount of SDR 240.3 million (about US$ 319 million or 150 percent of quota).

Rwanda’s economy continued with fast-paced post-pandemic growth in 2022, but macroeconomic imbalances have emerged. Rising food prices and strong domestic demand fueled by high credit growth contributed to a persistent inflation which stood at 17.8 percent in April. Robust import demand coupled with high commodity prices and tightening global financing conditions have weakened Rwanda’s external position. The uncertain external environment and the reduced prospects for external concessional financing are compounding the challenges from the legacy of the recent global crises. A strong and carefully calibrated policy mix—including frontloaded fiscal policy adjustment, corrective actions to address delays in domestic revenue mobilization, a decisive monetary policy tightening, and greater exchange rate flexibility—is needed to correct domestic imbalances, promote external stability, and channel resources to the authorities’ ambitious development and climate agenda. The outlook is subject to high uncertainty, mainly stemming from the risks of deepening geopolitical fragmentation, volatility in global energy and fertilizer prices, a steeper-than-projected decline in trading partners growth, or a funding squeeze. The costs of humanitarian response and reconstruction following the recent floods will generate further spending needs.

Notwithstanding the challenging environment, reforms remained broadly on track under the PCI, while the authorities’ commitment to advancing the climate agenda has been very strong. The PCI supports Rwanda’s macroeconomic policies and reforms, with emphasis on policies to ensure macroeconomic stability and reforms to mitigate pandemic scars and to build socioeconomic resilience to shocks and insure against downside risks. The RSF-supported program, the first for an African country, will advance the authorities’ efforts to build resilience to climate change by improving the transparency and accountability in the planning, execution, reporting, and oversight of budget resources dedicated to addressing climate change. Continued reforms to allocate climate resources more effectively and transparently will be key to mobilizing additional climate funding and achieving Rwanda’s ambitious climate agenda.

At the conclusion of the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director, and Acting Chair, made the following statement:

“1. The Rwandan authorities are to be commended for their commitment to macroeconomic stability and the satisfactory implementation of reforms supported by the Policy Coordination Instrument (PCI) and the Resilience and Sustainability Facility (RSF), notwithstanding a challenging environment. Economic activity expanded at a strong pace, but macroeconomic imbalances have emerged reducing the room for maneuver. Implementing an appropriate and carefully calibrated policy mix is key to prevent imbalances from becoming entrenched. The recent natural disaster is expected to take a heavy toll on Rwanda’s economy, and it is a testament of the country’s high vulnerability to climate change shocks.

“2. Continued fiscal consolidation, including ensuring the credibility of domestic revenue mobilization, will provide space to withstand future shocks. To address delays in implementing the Medium-Term Revenue Strategy, the authorities need to promptly implement revenue-raising measures aimed at broadening the tax base, streamlining exemptions, and enhancing tax compliance. Adopting a more prudent, transparent, and credible public financial management and investment frameworks, should also remain a priority.

“3. Tighter and forward-looking monetary policy is needed to help contain persistent inflationary pressures and preserve external stability. Strengthening communication, pursuing greater exchange rate flexibility and implementing reforms to deepen financial and government securities markets will improve the effectiveness of the interest rate-based monetary policy framework. Vigilance is needed to ensure that financial risks remain contained with continued efforts to promote financial inclusion. Further strengthening of the AML/CFT framework is also important.

“4. Rwanda’s commitment to building socio-economic resilience and efforts to transition to greener growth is commendable and should be sustained. Rwanda continues to be at the forefront of tackling the climate change adaptation and is the first country in the sub-Saharan region to benefit from the RSF. Pressing ahead, it will be important to advance reforms in green public finance management and climate-focused public investment management with a view to create an enabling environment for attracting climate finance and support private green investment.”