IMF staff and the Rwandan authorities reached staff-level agreement on policies needed to complete the third reviews of Rwanda’s Policy Coordination Instrument and program under the Resilience and Sustainability Facility, and the first review of the Stand-by Credit Facility arrangement; The economy continued its robust growth in 2023, while inflation decelerated sharply. The authorities are focused on safeguarding macroeconomic and external stability by rebuilding policy buffers in the aftermath of compound shocks, including devastating floods; Strong fiscal consolidation, proactive and data-driven monetary policy, and continued exchange rate adjustment are necessary to rebuild buffers, contain inflation, and safeguard debt sustainability. Rwanda’s commitment to building climate resilience should be maintained and efforts to develop bankable climate projects will need to intensify.

An International Monetary Fund (IMF) team, led by Ruben Atoyan, visited Kigali from March 11– March 22, 2024, to discuss the authorities’ policy priorities and progress on reforms within the context of the third reviews of Rwanda’s Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF), and the first review of the Stand-by Credit Facility (SCF) arrangement. Consideration by the Board is tentatively scheduled for May 2024. Upon completion of the review by the Executive Board, Rwanda would have access to SDR 57.5 million (equivalent to about US$ 76.6 million) under the RSF and SDR 66.75 million (equivalent to about US$ 88.9 million) under the SCF.

At the conclusion of the mission, Mr. Atoyan issued the following statement:

“Rwanda’s growth momentum remained strong, notwithstanding the challenging external environment. The 2023 GDP growth continued to be robust at 8.2 percent year-on-year, on the back of strong performance in services and construction, as well as recovery in food crop production in the second half of the year. Inflation decelerated sharply in recent months. Headline inflation was 4.9 percent in February 2024, down from the peak of 21.7 percent in November 2022, owing to appropriately tight monetary policy stance and favorable developments in food prices as agricultural production rebounded at the end of last year. The current account deficit widened due to strong food and capital goods imports, along with lower-than-expected coffee exports. The Rwandan franc depreciated by 18 percent against the US dollar in 2023, a necessary step towards facilitating the much-needed external adjustment. International reserves stood at 4.4 months of prospective imports at end-2023, providing a helpful buffer against external shocks.

“Despite the challenging environment, macroeconomic policy performance through end-December 2023 remained in line with program objectives under the PCI/SCF arrangement. All quantitative targets were met, and reforms to advance expenditure rationalization, build resilience through social safety nets, and strengthen FX market functioning are progressing well. The authorities’ commitment to implement climate-related reforms under the RSF arrangement continued to be strong, with measures to implement climate budget tagging, integrate climate risks into fiscal planning, and strengthen disaster risk management being on track to be completed in the coming weeks. 

“While Rwanda’s economic outlook continues to be positive, risks remain tilted to the downside. Deepening of geopolitical fragmentation, another spike in global energy and food prices, or slowdown in trading partners’ growth would weigh on the outlook. Longer-than-expected tight global financial conditions could adversely affect the availability of external financing. Also, already committed grants under the UK Migration and Economic Development Partnership continue to face legal uncertainties and could result in some budget pressures and lower FX inflows if they do not materialize. As demonstrated by the poor harvests and floods last year, Rwanda’s dominantly rain-fed agriculture is exposed to climate shocks.

“A carefully calibrated fiscal stance is necessary to cushion the effects of the 2023 May floods, while also supporting the credible and balanced fiscal consolidation over the medium term. Comprehensive tax reforms that leverage synergies between tax policy and tax compliance will be critical to help create fiscal space for the country’s much-needed developmental spending. Expenditure rationalization will need to focus on enhancing the efficiency of public investment, better targeting of subsidies, and digital delivery of public services. The medium-term fiscal framework should be improved by further strengthening fiscal risk management and enhancing the transparency of fiscal accounts.

“Monetary policy should anchor inflation around the center of the target band, while continued exchange rate flexibility will help absorb external shocks and support current account adjustment. Strengthening the FX intervention framework is needed to help develop the FX market and improve the effectiveness of monetary policy transmission. Monetary policy needs to remain forward looking and data-driven with a clear communication to anchor expectations.

“The authorities continued to make good progress with strengthening their institutional capacity to integrate climate-related considerations in the design of macroeconomic policies and frameworks. Maintaining the strong reform momentum under the RSF will help strengthen the resilience of the economy to future climate shocks, while also showcasing Rwanda as a forerunner in the region on climate initiatives. To build on the positive momentum following the COP28 announcement of scaling up climate finance, it will be important to accelerate the development of the pipeline of green projects and the lending operations by the private and public green investment facilities (Ireme Invest and Intego). Together with RSF-supported reforms, a well-developed project pipeline should play a critical role in catalyzing additional climate financing, further leveraging the RSF’s catalytic role.

“The mission is grateful for the authorities’ excellent cooperation, and candid and constructive discussions, and reaffirms the IMF’s support for the government’s efforts to implement its economic reform program.”

Links:

The Resilience and Sustainability Facility (RSF)

The Policy Coordination Instrument (PCI)

The Stand-by Credit Facility (SCF)

Rwanda and IMF