Rwanda: IMF, Rwanda Reach Agreement on Economic, Monetary Policy

The government of Rwanda and the International Monetary Fund (IMF) mission team on Tuesday, April 4, reached a staff-level agreement on successful implementation of the economic and financial policies required to complete the first reviews under both the policy coordination instrument (PCI) and the resilience and sustainability facility (RSF).

The agreement, which is subject to approval by the IMF Executive Board in May, will allow Rwanda to access the first tranche of the financial arrangement of about $74.6 million under the RSF programme.

In a statement, the IMF mission team noted that Rwanda’s economic performance under both RSF and PCI programmes has been strong, with all reform targets and measures envisaged for the reviews progressing well and expected to be completed ahead of the Executive Board discussion.

Speaking at the conclusion of the mission, Haimanot Teferra, the IMF Mission lead, said: “The mission is grateful for the authorities’ excellent cooperation and candid and constructive discussions and reaffirms the IMF’s support for the government’s efforts to implement its economic reform program.”

After two weeks of deliberations with various government officials, the IMF mission highlighted Rwanda’s strong economic growth in 2022 supported by manufacturing and services sectors which offset weak agricultural production and slowdown in construction activity.

Monetary policy tightening to contain inflationary pressures

It noted, however, that inflationary pressures caused by rise in food prices as well as high commodity prices and tight global financing conditions have weakened Rwanda’s external position.

Rwanda’s economy registered strong growth at 8.2 percent in 2022, while headline inflation remained elevated at 20.8 percent in February.

The IMF mission pointed out that Rwanda remains vulnerable to economic shock from the external environment, necessitating the urgent need to re-build policy buffers.

It called for timely implementation of the revised excise and corporate income tax laws to raise domestic revenues, while containing non-priority current and capital expenditures.

On monetary policy, the mission urged speeding up reforms to enhance monetary policy operations and deepening money and government securities markets to improve the efficiency of monetary policy transmission.

It noted that while the banking sector remains well-capitalized and liquid, authorities need to continue monitoring credit risk and prudent loan classification and provisioning.

“The National Bank of Rwanda should pursue a more decisive monetary policy tightening to contain inflationary pressures and promote exchange rate flexibility to ensure external stability,” Teferra said.

“Data-dependent monetary policy and strengthening communication would help to contain the second-round effects and anchor inflation expectations.”

The IMF team commended sustained reforms to tackle pandemic effects and enhance socioeconomic resilience.

It underscored the need to enhance access to health care and education, addressing learning losses, promoting regional trade integration, and scaling up social protection.

On climate change, the team acknowledged the government’s continued reforms to allocate climate resources more effectively and transparently which is key to mobilizing additional climate funding and achieving Rwanda’s ambitious climate agenda.

It noted that the Rwandan authorities made good progress with strengthening their institutional capacity to integrate climate-related considerations in the design of macroeconomic policies and frameworks.