IMF staff give thumbs up to Rwanda’s economic reforms
Friday March 22 2024
Logo for the International Monetary Fund as seen in the global lender's headquarters building in Washington DC, US. PHOTO | AFP
The International Monetary Fund (IMF) board is expected to make a decision in May on whether Rwanda qualifies to access SDR 124.25 million ($165.5 million) in fresh financing to deal with its balance of payments constraints and climate-related risks.
This is after the IMF team led by Ruben Atoyan visited Kigali from March 11 to March 22, 2024 to assess the country’s economic reform progress within the context of the third review 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.
“Upon completion of the review by the Executive Board, Rwanda would have access to SDR 57.5 million ($76.6 million) under the RSF and SDR66.75 million ($88.9 million) under the SCF,” the fund said in a statement Friday.
“Consideration by the Board is tentatively scheduled for May 2024.”
The (RSF) is an IMF programme that provides affordable long-term financing to countries undertaking reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness.
While Stand-by Credit Facility (SCF) provides financial assistance to low-income countries (LICs) with short-term balance of payments needs. It is one of the facilities under the Poverty Reduction and Growth Trust (PRGT).
Following the review of Rwanda’s economic progress, the IMF staff concluded that the country’s growth momentum remains strong, notwithstanding the challenging external environment, and that the Rwandan authorities have met all quantitative targets, while reforms to advance expenditure rationalisation, build resilience through social safety nets, and strengthen the forex market functioning are progressing well.
“Despite the challenging environment, macroeconomic policy performance through end-December 2023 remained in line with program objectives under the PCI/SCF arrangement,” said Mr Atoyan.
“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.”
The fund noted that Rwanda’s economy continued its robust growth in 2023, inflation decelerated sharply, while 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,” the fund said.
“Rwanda’s commitment to building climate resilience should be maintained and efforts to develop bankable climate projects will need to intensify.”
Rwanda’s economy grew by 8.2 percent in 2023 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, while international reserves stood at 4.4 months of prospective imports.
“The Rwandan franc depreciated by 18 percent against the US dollar in 2023, a necessary step towards facilitating the much-needed external adjustment,” said IMF.
The IMF team, however, noted that while Rwanda’s economic outlook continues to be positive, risks remain tilted to the downsides.
These risks include the deepening of geopolitical fragmentation, another spike in global energy, and food prices, slowdown in trading partners’ growth, which could weigh on the country’s economic 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 materialise,” said IMF.
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“As demonstrated by the poor harvests and floods last year, Rwanda’s dominantly rain-fed agriculture is exposed to climate shocks.”