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Rwanda’s GDP declines by 12.4pc in the second quarter

Saturday November 28 2020
Uzziel Ndagijimana.

Minister of Finance and Economic Planning Uzziel Ndagijimana. PHOTO | CHRISTOPHE HITAYEZU | NMG

By CHRISTOPHE HITAYEZU

Rwanda’s economy has been hit severely by the pandemic with various sectors registering a significant drop in production and consumption of services despite ongoing efforts by the government to revamp the economy.

While there has been an increase in economic activity, it is yet to significantly improve the country’s economic prospects as some sectors of the economy remain closed while the country’s hospitality and tourism sectors are yet to recover.

From July to September, the second quarter, Rwanda’s Growth Domestic Product (GDP) dropped by 12.4 per cent compared to the same period in the previous year, partly due to the prolonged impact of the total lockdown imposed in March for almost two months.

“The decline in GDP of Q2 was due to poor performance in transport, trade, education, construction, exports, hotels, restaurants and agriculture subsectors,” said Mr Uzziel Ndagijimana, Rwanda’s Minister of Finance and Economic Planning. He spoke in Parliament on Monday while presenting the status of the economy and budget in the first quarter of the financial year 2020/21.

The Agriculture sector that contributes over 30 percent to GDP, dropped by 2 per cent in the second quarter of 2020 compared to the same quarter in 2019, “due to impact of climate related disasters of 2019 which affected Season A 2020,” Mr Ndagijimana said.

Although the gradual reopening of the economy started on May 4, some businesses remained closed including bars and entertainment facilities.

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The Ministry of Finance figures show that after a drop in May 2020, employment is back to its level pre-Covid-19, with trade, manufacturing, accommodation and food service activities contributing to the employment growth between May and August 2020.

“However, this is not the case for all sectors as employment in arts, entertainment and recreation as well as education are taking long to recover,” Mr Ndagijimana said.

Rwanda’s private sector says it is still struggling to recover from the pandemic with many businesses scaling down operations to save costs.

For Nilla Muneza, the Chief Executive Officer of Royal Express, a transport company in Kigali which owns a fleet of 92 buses and employs over 240 people, the company has been forced to scale down its operations, reducing the number of buses to 55 due to a significant reduction in traffic due to the pandemic.

“For other businesses, you can reduce the products and employees to help reduce expenses, but this is not applicable in the transport business. People must move regardless of your financial challenges,” he said.

According to credit rating agency Fitch Ratings, a return to strong GDP growth and fiscal consolidation consistent with stabilising government debt/GDP will enable Rwanda to absorb the adverse impact of the coronavirus pandemic.

“We expect GDP growth to slow sharply as a result of coronavirus-related disruptions to economic activity. Economic activity could still expand by 1 per cent in 2020 (from over 9 per cent in 2019) reflecting high trend growth, although risks are skewed to the downside,” Fitch Ratings said in August this year.

While Rwanda’s debt outlook has shifted from low to moderate due to lower projected economic performance, the government maintains that debt is sustainable.

Covid-19-related interventions are estimated to have cost the government over Rwf882 billion ($934 million) over the two fiscal years 2019/20 and 2020/21, equivalent to an increase in fiscal deficit of about 4.4 per cent of GDP on average per year according to government.

Specifically, this includes health-related spending, social protection, support to state-owned enterprises, the government’s contribution to the Economic Recovery Fund, and other measures to mitigate the economic consequences of Covid-19.

“External debt stock remains essentially concessional,” Mr Ndagijimana said, allaying fears that the country may be at risk of default.

Government gross debt (at face value) rose to about 63 per cent of GDP in financial year 2019/20, up from about 55 per cent in the financial year 2018/2019, according to Fitch Ratings. 

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