IMF gives Rwanda $165m, urges slowdown

Thursday May 23 2024
imf pic

The International Monetary Fund logo. PHOTO | REUTERS


Rwandans may be set for dearer borrowing and loan-servicing costs in the coming months after the International Monetary Fund (IMF) asked the government to exercise “vigilant oversight” on rapid credit growth, which means further monetary tightening potentially increasing loan interest rates.

The multilateral lender this week released $165 million in fresh funding to Kigali, after a satisfactory review of three different credit facilities, but pushed for new measures to foster financial stability and reduce exposure to growth risks in the medium-term.

The review by the Fund’s executive board, looked at how Rwanda performed under the special $319 million Resilience and Sustainability Facility (RSF), which was approved in December 2022 alongside the Policy Coordination Instrument (PCI).

The PCI is an agreement that member countries enter with the IMF to demonstrate commitment to a reform agenda.

Read: IMF approves Rwanda’s economic reforms

The lender expressed satisfaction with Rwanda’s progress with the reforms under this programme, the RCF, and the $268 million Standby Credit Facility (SCF) approved in December last year.


“Under the PCI/SCF, all quantitative targets were met, and reforms on the social safety net and spending rationalisation were implemented,” the lender said.

“RSF measures to implement climate budget tagging, integrate climate risks into fiscal planning, and strengthen disaster risk management were also implemented, contributing to Rwanda’s resilience to climate shocks and positioning the country as a leader in regional climate initiatives.”

Thanks to the reforms and new measures, Rwanda’s economy has outperformed expectations, and the recovery from the recently experienced floods in the country has been strong, IMF said.

The GDP surpassed the predicted 6.9 percent to hit 8.2 percent last year, supported by a strong growth in the services and construction sectors, as well as recovery of the food production sector after the floods.

“While fiscal consolidation may temporarily dampen growth, a rebound to 7.3 percent is anticipated in the medium term. Inflation has declined steadily since January 2023 to 4.2 percent in March, thanks to a slowdown in food prices and core inflation,” IMF said.

This was the first review under the SCF arrangement and the third under RSF, allowing Kigali to immediately access $88.4 million and $76.2 million in new loans under both programmes respectively.

The new funds are not without conditions. IMF wants Rwanda to implement stricter policies that “prioritise macroeconomic and financial stability, fiscal sustainability, and restoration of buffers. ... Monetary policy should target inflation within the desired range, while maintaining exchange rate flexibility to manage external shocks. Alson oversight of financial stability risks, particularly concerning large exposures and rapid credit growth, is important,” it said.

Oversight of rapid credit growth could mean further monetary tightening, coming at a time the National Bank of Rwanda is set to review its policy rate next week, after the last review in February when it increased the rate by 100 basis points to 7.5 percent.

Rwanda’s central bank rate (CBR) is currently higher than only Tanzania’s, which is at 6 percent, with the rates in most countries, including Kenya, Uganda and South Sudan being double digits, in efforts to tame rising inflation.

Read: EA states raise key rates to tame inflation

Despite the lower CBR, however, Rwanda’s lending and deposit rates have been almost as high as Kenya’s, whose CBR has been almost double Kigali’s.

For instance, in December last year, Kenya’s lending rates averaged at 14.63 percent while Rwanda’s was 15.78, even though their CBRs were 12.5 percent and 6 percent respectively.

Similarly, Kenya’s average deposit rate was 10.1 percent while Rwanda’s was 10.05 percent.

This means that an upward revision of Kigali’s CBR could result in much higher interest rates for Rwandan borrowers, but seeing that private sector credit has been growing, a raise might be imminent.

According to the latest statistics by NBR, credit extended to the private sector increased by 19.9 percent in December last year, surpassing the 13.6 percent growth recorded in a similar period in 2022.