Low yields, bad weather to slow economic growth
Posted Friday, November 9 2012 at 12:19
- The International Monetary Fund (IMF) is working closely with revenue authorities on how to improve tax policies, tax administration and how to mobilise taxes and revenues to substitute aid in an attempt at getting Rwanda out of the aid dependency.
- The fund is also looking at Value Added Tax, investment code, property taxes, corporate taxes as well as income taxes and a number of recommendations are being made.
- So far the biggest impact that has been experienced on the economy due to the aid delay is on the rate where the Rwandan franc has depreciated against the dollar.
- Currently, the dollar is selling at Rwf627, down from Rwf657 two months ago, the highest exchange rate for the greenback in recent months.
Rwanda’s economic growth in the second half of this financial year is expected to slightly slow down as a result of poor agricultural harvest stimulated by bad weather conditions, the International Monetary Fund (IMF) says.
Growth surged at 8.6 per cent in the first half of the financial year, driven by construction and services and exports finding their way into new markets, but in the second the IMF estimates growth to slow by almost two percentage points to 7.7 per cent.
“There is going to be a decline in economic growth in the last half of this year and it is partly due to heavy rains which caused floods that destroyed crops for ordinary farmers,” said Mitra Farahbaksh, the IMF resident representative.
Agriculture is the backbone of Rwanda’s economy with over 70 per cent of the population employed in this sector. Its major cash crops include tea and coffee, which are mainly exported to Europe, while crops such as beans, Irish potatoes and maize are consumed domestically.
“For countries like Rwanda whose major sector employer is agriculture, the performance of the sector will have an impact on the performance of the economy,” she added.
However, for exported major cash crops revenues will not be affected, with coffee targeting $78 million of revenues from exports this year up from $75 million last year while the sector projects 24,000 metric tonnes of production.
The government is also targeting $69 million in exports from 26,000 metric tonnes of tea, up from $61 million from 24,000 metric tonnes in 2011.
However, IMF also attributes the economic regression to the suspended and delayed disbursement of aid to Rwanda from donors.
Some donor countries such as the United States, Sweden and the Netherlands suspended aid to Rwanda over accusations in a leaked UN report that the government was arming and training the M23 rebels who are fighting the Joseph Kabila regime in the Democratic Republic of Congo (DRC).
IMF cites aid dependency, as the biggest challenge to Rwanda’s economic growth as it gets about 40 per cent of its budget support from donors. But Ms Farahbaksh said: “If the aid is restored in the first half of the next fiscal year the impact will not be that big.”
Still well ranked
Two weeks ago, ratings agency Standard and Poor’s (S&P) lowered its outlook for Rwanda to ‘stable’ from ‘positive’, citing the weakening in the country’s external environment due to suspension or delay in disbursing aid.
Ms Farahbaksh however said Rwanda is still well ranked, at “B” standing, even higher than many countries in Europe.
Finance Minister John Rwangombwa however admits that continued aid suspension is likely to slow down Gross Domestic Product (GDP). He said: “GDP would drop by two percentage points as inflation increases slightly to 7.5 per cent should aid suspension spill over to the first half of 2013.”
IMF notes that although Rwanda’s annual growth has been among the best in sub-Saharan Africa, its current account increased in the first half of the year, partly for there were a lot of imports.