Rwanda: Cautionary Note from the IMF on 2012
Thursday, 12 January 2012
In the third review of Rwanda’s current Policy Support Instrument (PSI), an unfunded monitoring agreement approved in mid-June 2010, the IMF gave a nod to Rwanda’s high 2011 GDP growth, but noted that it came accompanied by high inflation, and warned of elevated risks in 2012:
  • GDP growth will slow down in 2012, which may be exacerbated by global uncertainty. The IMF reminds Rwanda that structural reforms need to be deepened to improve growth prospects. The Fund estimates 7% GDP growth for 2011, and forecasts a slowdown to 6.3% for 2012. Inflation stood at 3.9% in 2011 and is forecast to accelerate to 6.5% in the current year.
  • Monetary tightening initiated in late 2011 to address rising inflation will need to be carried over into 2012 to safeguard macroeconomic stability.
  • On the upside, fiscal consolidation for the current (2011/2012) and the coming fiscal year is on track, which will support macroeconomic stability. Additional revenue measures will be introduced for the coming fiscal year, and state-owned enterprises are now obliged to seek Ministry of Finance approval before contracting new external debt.
  • To improve access to financial services, Rwanda is rapidly rolling out 416 district Savings and Credit Cooperatives (SACCOs) that will serve as full lending institutions. The IMF cautioned that the authorities urgently need to build supervisory capacity beyond the hiring of 60 supervisors.
  • Bearing in mind the significant risks in the global economic environment that could negatively affect Rwanda’s exports and international reserves, the IMF also asked the central bank to avoid any further encumbering of its foreign assets as collateral for loans to finance the government’s strategic investments.

Find the full press release here.

Inflation is low by regional standards where Uganda, Kenya and Tanzania ended the year well into double digits, driven by drought-related food and hydroelectricity shortages. Rwanda had planned a second reduction in fuel taxes in January 2012, which will offset pressure on consumer prices. However, at the same time, it also lowers revenue collection.

The IMF’s insistence that Rwanda create supervisory capacity for the new SACCOs is a reflection of Rwanda’s often very ambitious development plans and the challenges of implementing them with limited capacity. An estimated 14% of the population have access to formal financial services, so the developmental objective of this initiative is clear. However, there are concerns over how these SACCOs will be managed and whether they are sustainable in the first place. Supervisory capacity does not yet exist. In fact, in its previous PSI review report, the IMF notes that, while the rollout of the 416 SACCOs was already ongoing, the Rwandan authorities were yet to create such supervisory capacity and intend to use a donor-funded study on the sustainability of the SACCOs to develop a supervisory structure.

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