Ratio Magazine :: The Inside Track to East Africa’s Economies - Rwanda: News Analysis: IMF Projects Slowdown in GDP Growth to 6%

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Rwanda: News Analysis: IMF Projects Slowdown in GDP Growth to 6%

Thursday, 13 November 2008

The IMF’s last visit to Rwanda attests to sound economic performance during the first half of the 2008 calendar year, noting that the forecast of 8.5% GDP growth for the entire year had been driven by agriculture, construction and services. Strong revenue collection had been accompanied by prudent fiscal management. However, price increases in imported commodities will widen the current account deficit. The IMF also noted a sharp upswing in inflation to 21% by September 2008 as a consequence of high food and fuel prices as well as domestic demand pressures. High inflation, the widening current account deficit and a global economic downturn will, according to IMF estimates, lead to a slowdown in GDP growth to 6%. However, the Fund expects consumer price increases to ease on the back of falling commodity prices. Rwanda has drawn up a six-month budget for January to June 2009 and will then follow the July-June financial year of East African Community (EAC) member states Tanzania, Kenya and Uganda.

The IMF mission held the annual Article IV consultations combined with the fifth review of Rwanda’s current Poverty Reduction and Growth Facility (PRGF).
Commentary and Outlook

Like recently reviewed Uganda (see Uganda: IMF Optimistic on Uganda’s Ability to Withstand Global Crisis), Rwanda anticipates a slowdown in GDP growth, but the projected growth rates are still above 5%, with 6% for Rwanda, and 7% to 7.5% for Uganda. Tanzania’s economy is expected to grow by 7% to 8%. Kenya, in contrast, faces not only the impact of the global financial crisis and result economic downturn, but also got lost around two months of productivity in January and February 2008 when the post-election violence paralysed the country. Kenya remains one of Rwanda’s most important trading partners, and as a landlocked country, Rwanda depends on the transport routes through its EAC member countries. Despite Kenya’s slump – GDP growth is forecast at around 4% to 4.5% at best – prospects for the EAC are still largely encouraging, an important factor for Rwanda that has keenly pursued its membership in the Anglophone regional bloc, acknowledging that its small and landlocked market will benefit from regional integration.

Around 90% of Rwanda’s population depend on agriculture, and mostly on subsistence agriculture. Growth in this sector had been below the population growth rate of 3%, and while productivity in this sector clearly needs to be improved, the government also recognizes that the agricultural sector in itself cannot lead to a sustained reduction in poverty rates. Rwanda’s national development policy therefore aims to attract more investment in the services and particularly technology sector, and one plan is turn Rwanda into a regional banking and IT platform.

Despite these ambitious plans, Rwanda is still very dependent on donor support, and this is a lever that donors might decide to use if more details on Rwanda’s alleged involvement in the worsening conflict in eastern DR Congo transpire.

The full IMF notice on Rwanda is here: http://www.imf.org/external/np/sec/pr/2008/pr08273.htm

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