Economic growth rate slows but inflation falls

Friday December 14 2012

Rwanda’s economic growth slowed in the third quarter of this year, demonstrating the country’s over-reliance on external aid to finance its budgetary needs.

The economy grew by 7.3 per cent in the three months ended September 30, down from 11.9 per cent in the same period last year, dragged down by weaknesses in the industrial sector.

According to the National Institute of Statistics of Rwanda (NISR) the industrial sector grew by seven per cent, a sharp fall from 22 per cent last year — hit by faltering performances in manufacturing and mining.

‘The mining sector fell by 16 per cent growth, while the manufacturing sector fell by 11 per cent,” the statistics body said last week in a brief report on Rwanda’s economic outlook for the third quarter.

Economists said that the deterioration in manufacturing was not surprising, given the recent rise in manufacturing costs for products meant for sale on the local market.

The index for products manufactured for sale in the local market increased by 1.21 per cent in the third quarter. This, they said, may have translated into low domestic consumption.


The statistics body warns that mineral exports could drop this year following a temporary ban on mining in Western Province as well as due to volatility of prices on the international market.

The government suspended mining in the region after firms failed to put in place conservation measures to protect the River Sebeya. It expressed its concern that human activity was discharging residual deposits into the river.

This year’s export revenues from minerals are projected to fall to Rwf62.4 billion from Rwf98.6 billion last year. Significant positive contribution to the industrial sector came from construction, which grew by 25 per cent, and electricity, gas and water — which expanded by 15 per cent.

The agricultural sector—the biggest employer of Rwanda’s households expanded by two per cent, occasioned by growth in food crop production, which has also been instrumental in keeping inflationary pressures low.

Rwanda’s year-on-year urban inflation rate fell to 5.36 per cent in October from 5.63 per cent a month earlier. Instructively, the country weathered the high inflation and sharp currency declines last year better than other East African Community countries.

Although activity in livestock, forestry and fisheries industries expanded, the performance of export crops plummeted by 27 per cent.

The service sector, which makes up 44 per cent of the country’s GDP, however expanded by 12 per cent, the same pace of growth it recorded in the third quarter last year.

The Minister of Finance and Economic Planning, John Rwangombwa, told delegates at a recent conference in Kigali organised by the Economist that the government had heavily invested in the service sector in its bid to become a regional service hub.

Rwanda’s economic growth is projected at around six per cent this year, as compared with the 7.5 per cent that was projected before some donors decided to withhold their aid to the country following allegations that the government is supporting the M23 rebels operating in eastern Democratic Republic of Congo.

READ: Rwanda’s GDP growth could slow down over aid suspension

The decision by Rwanda’s development partners to withhold aid to the country prompted the authorities to postpone some spending.

This is expected to destabilise the country’s macroeconomic environment, which has been characterised by stable and continued economic growth rate, low inflation rates and declining poverty levels.

Although fiscal and monetary policies remain appropriate, the IMF has warned that delays in budget support have required postponing some government spending, and fiscal policy during the remainder of the fiscal year will need to be carefully executed in order to minimise recourse to domestic bank financing and avoid crowding out the private sector.

“Meanwhile, the central bank has appropriately tightened the monetary stance to slow credit growth and mitigate exchange rate and inflation pressures,” Naoyuki Shinohara, the IMF’s deputy managing director and acting chair, said during his recent visit to Rwanda.

Mr Shinohara’s visit was aimed at reviewing the country’s economic outlook under the policy support instrument — a programme supported by the fund but which does not require funding.