An International Monetary Fund (IMF) mission, led by Haimanot Teferra, held virtual meetings with the Rwandan authorities during October 5 – 23, 2020, to discuss the third review under the PCI.
At the conclusion of the mission, Ms. Teferra issued the following statement: “The IMF mission held productive discussions with the authorities and reached staff-level agreement on policies needed to complete the third review under the PCI.
The successful completion of the review is subject to approval by the IMF Executive Board. Consideration by the Board is tentatively scheduled for mid-December 2020. “Economic activity has started to show signs of recovery following a sharp contraction in the second quarter of 2020 caused by the COVID-19 pandemic and the stringent containment measures.
The monetary and financial measures and large fiscal package deployed in response to the crisis have played an important and welcome role in supporting the economy. Given the size of external shocks and the domestic shock caused by containment measures , real GDP growth is now projected to contract to -0.2 percent in 2020 and rebound to 5.7 percent in 2021. However, the outlook remains highly uncertain at global level, reflecting the unpredictable course of the pandemic and its related economic disruptions in Rwanda and in trading partners. Inflation remained high, partly reflecting supply disruptions, but it is expected to stay closer to the upper bound of the National Bank of Rwanda inflation benchmark band in 2020.
The banking system has remained stable, liquid and well capitalized. “Program performance has been affected by the pandemic. The associated spending needs, and revenue losses have caused deviations from the earlier fiscal targets under the program. Reform targets, while well advanced, were partly hampered by the pandemic and the need to divert resources to address its impact.
“Tax revenues have been stronger than expected at the time of the second IMF emergency financing under the Rapid Credit Facility (RCF), but expenditures are also expected to be higher, as the fiscal measures to support vulnerable families and hard-hit firms were extended, and public investment execution will be fast-tracked. In this context, the overall fiscal deficit is projected to be 8.5 percent of GDP in FY20/21, with public debt projected at 67 percent of GDP at end-2020.
“The mission agreed with the authorities that the fiscal stance for FY20/21 and FY21/22 has to strike a balance between sustaining the economic recovery and maintaining fiscal responsibility. Given the economic impact of the pandemic and the uncertain outlook, fiscal risks, including from public corporations, public-private partnerships, and loan guarantees provided by the government, need to be monitored and managed closely, and any support should be provided transparently through the budget. The fiscal path in the post-COVID period should bring debt level to 65 percent of GDP within a reasonable timeframe.
“After some delays due to the pandemic, the implementation of structural reforms needs to be accelerated to secure strong and stable growth in the medium term. Ongoing efforts to strengthen domestic revenue mobilization, fiscal transparency, and the monitoring and management of fiscal risks need to be stepped up. Medium-term priorities to create conditions for faster private sector growth, including promoting regional integration to increase market size will be important.
“The mission is grateful for the authorities’ close cooperation.”