Even as the International Monetary Fund (IMF) approved $109.4 million to be drawn under the Rapid Credit Facility (RCF), Rwanda’s economic managers are under pressure to craft new measures to restore productivity needed to support growth in the coming months.
The lockdown to contain covid-19 has sent shockwaves in a country that largely depends on the service sector which contributed 49 per cent of GDP in the third quarter of 2019 according to the National Institute of Statistics of Rwanda (NISR).
At the same time, the IMF, in a statement on Thursday, reviewed downwards the country’s economic outlook, with real GDP now expected to shrink to 5.1 per cent in 2020, down from 10.1 per cent registered in 2019.
“The covid-19 pandemic has ground Rwanda’s economy to a halt, creating an urgent balance of payments need. To contain and mitigate the spread of the virus, the government swiftly implemented measures that have affected all sectors of the economy. With uncertainties surrounding the duration and spread of the pandemic, the economic fallout could intensify further,” said Tao Zhang, deputy managing director and acting chair of International Monetary Fund (IMF) in a statement on Thursday following the approval of the $109.4 million.
The credit facility is expected to help Rwanda boost its international cash reserves, which have come under intense pressure due to the pandemic, increasing the country’s exposure to financial turbulence.
This is despite the National Bank of Rwanda saying that the country had enough reserves—4.3 per cent of imports or the number of months of imports the reserves can pay for.
Although the reserves are still above the IMF’s critical threshold of three months of import cover, there is concern that if the pandemic is prolonged, this will add pressure on the country’s financial well being.
“It improves our reserves and is available for government programmes to limit the impact of the pandemic,” said John Rwangombwa (pictured), Rwanda’s central bank governor on the IMF facility.
The central bank recently unveiled a Rwf50 billion ($54 million) and reduced the reserve requirement ratio for commercial banks from 5 per cent to 4 per cent to support the country’s banking sector. The IMF emergency support under the Rapid Credit Facility is expected to help with Covid-19-related pressures on trade, tourism and foreign exchange reserves, and will provide much-needed resources for health expenditure and for households and firms affected by the crisis.
The IMF says it continues to monitor Rwanda’s situation closely and “Additional donor support is critical to close the remaining financing gap, ease the adjustment burden, and preserve Rwanda’s development gains over the past two decades.”
The lockdown which was announced on March 15, a day after the country announced its first Covid-19 case, has been extended to April 19. As of Friday, Rwanda had reported a total of 89 coronavirus cases.
Restrictions on the movement of people are hitting the service sector hard, particularly retail trade, leisure and hospitality and conference tourism. Collectively, these sectors account for most jobs in the country.
The Private Sector Federation chief executive Stephen Ruzibiza said some businesses are struggling with getting imports though the organisation is currently negotiating with the government to offer relief packages including giving tax holidays to companies that have been adversely affected by the crisis.
While Rwanda was scheduled to host 147 events in 2020, so far at least 20 conferences, initially scheduled for March and April were postponed, denying the country approximately $8 million in revenues, according to the Rwanda Convention Bureau which has a revenue target of $88 million in 2020.
Berna Namata, Ivan Mugisha and Moses Gahigi.