Unemployment and poverty threaten Rwanda growth, says IMF

Saturday January 15 2022
International Monetary Fund

According to the latest International Monetary Fund( IMF) figures, Rwanda's economy is projected to expand by 7.0 percent, slightly below the anticipated 10.2 percent. PHOTO | AFP


Rwanda’s economy is recovering and growing fast, but problems loom including rising unemployment and poverty.

This year the country’s economy is projected to expand by 7.0 percent, slightly below the anticipated 10.2 percent, according to the latest International Monetary Fund( IMF) figures released this past week.

Still the projected rate is well above the initial forecast of 5.1 percent, signaling a strong rebound as key sectors of the economy reopen after a 3.4 percent contraction in 2020.

The government now faces the twin challenge of mitigating the pandemic-induced increase in unemployment and poverty.

The World Bank estimates that because of the lockdown, social distancing rules and increased costs associated with the pandemic, the number of poor people is likely to rise by 5.1 percentage points (more than 550,000 people) in 2021, with over 80 percent of the new poor in rural areas.

Despite the government acting swiftly to mitigate the shocks, including setting up a multi-million dollar Special Economic Recovery Fund and expanding its social protection programmes, analysts say more interventions are needed to get more Rwandans back to work.


Risks remain

According to Bo Li, deputy managing director and acting chair at the IMF, the Covid-19 pandemic has raised unemployment and poverty in Rwanda, which risks reversing hard-won gains.

“With the acceleration of vaccinations and the resumption of economic activities, a strong economic rebound is underway, although risks remain tilted to the downside given the still low vaccination rate and the prospect of repeated Covd-19 waves,” he said in statement.

Rwanda’s successful vaccination campaign has allowed it to reopen key sectors of the economy, including service sectors. Conference tourism and hospitality, which employ a majority of Rwandans, were hard hit during the pandemic.

Recovery is also being supported by regional trade, in particular with the Democratic Republic of Congo.

Analysts are, however, cautiously optimistic. They expect the economy to enjoy a strong recovery in 2022 but say new Covid restrictions implemented in the latter part of the year pose a risk.

“I suspect that one of the main drivers of growth in 2022 will be a revival of the tourism and MICE sectors. Rwanda stands out in the region in terms of the high share of the population which has been vaccinated, particularly in the capital Kigali, and it is reasonable to believe this will give Rwanda a head-start in terms of being able to welcome back visitors from both the region and globally,” said Andrew Mold, chief, regional integration and AfCFTA Cluster, United Nations Economic Commission for Africa.

For business executives, last year was tough, with revenues shrinking from the adverse effects of the prolonged pandemic.

Optimistic businesses

As the government accelerates deployment of vaccines, business leaders say the worst of the virus might be over. They expect the government to keep the economy open despite the emergence of new variants.

“We have the liquidity so we shall expand our loan book this year and look into financing sectors like mining, agriculture, and traditional exports, which are performing well during this time,” said Hannington Namara, the CEO of Equity Bank Rwanda.

But despite the positive outlook, there are headwinds. New waves of infections and new variants of the virus create uncertainty and continue to undermine confidence and could lead to higher fiscal and external financing needs, according to the IMF.

The recent sharp increase in public debt — estimated at 70 percent of GDP in 2021 up from 55 percent in 2019 — limits financing options for the government.

The IMF says additional fiscal spending is expected in FY 21/22 for urgent social needs and to support the recovery.

Rwanda was allocated $219 million under the IMF’s Special Drawing Rights which is expected to ease liquidity pressures and help stabilise national reserves.

However, analysts at Fitch Ratings say the ongoing impact of the pandemic will delay any improvement in Rwanda's public finances.

“We forecast the general government deficit to narrow to 8.6 percent of GDP for the fiscal year ending June 2022 (FYE22), lower than the 9.2 percent estimated for FYE21 but much higher than the current 'B' median forecast of 5.3 percent.”