IMF warns Rwanda on external borrowing

Rwanda's capital Kigali. The IMF has warned the country on external borrowing. PHOTO | CYRIL NDEGEYA | NATION

What you need to know:

  • Data by the Rwanda Revenue Authority (RRA) shows the country managed to finance 66 per cent of its $2.3 billion national budget from domestic revenues.
  • A draft Bill in parliament seeks to boost domestic revenue by widening the tax base.
  • IMF advises the government to continue building foreign exchange reserve buffers to enhance resilience while working to identify and mitigate potential fiscal risks.

Unless Rwanda grows domestic revenue and stops dependence on lenders and donors, it will not meet its ambition to transform into a middle income economy by 2035, the International Monetary Fund (IMF) has warned.

Data by the Rwanda Revenue Authority (RRA) shows the country — listed among the fastest growing economies in the world — managed to finance 66 per cent of its $2.3 billion national budget from domestic revenues. Lenders and donors financed the deficit.

Mobilising domestic revenue

“To help achieve the objective of middle income status, it will be important for Rwanda to regain momentum in mobilising domestic revenue as a reliable source of financing for development,” said IMF deputy managing director Tao Zhang.

Mr Zhang made the comments after the IMF executive board approved the disbursement of $28.5 million to Rwanda under the Standby Credit Facility, bringing total disbursements under the arrangement to $206.6 million over the past two years.

Rwanda can tap into the facility in case of external shocks to the Franc.

Widening the tax base

Meanwhile, a draft Bill in parliament seeks to boost domestic revenue by widening the tax base, bringing evaders under the net and aligning tax laws to East African Community policies.

The RRA collected $1.28 billion in the 2016/2017 fiscal year against a target of $1.27 billion.

According to the IMF, Rwanda’s economic growth is projected to recover after a slowdown in 2016 and early 2017 driven by agriculture and services. The GDP growth for 2017 is projected at 5.2 per cent and 6.5 per cent in 201,8.

However despite the anticipated growth, Rwanda’s economy remains vulnerable to external shocks and fiscal risks, the IMF warns in its Rwanda Country report for January 2018.

It advises the government to continue building foreign exchange reserve buffers to enhance resilience while working to identify and mitigate potential fiscal risks.