• IMF staff and the Rwandan authorities reached staff-level agreement on policies needed to complete the second reviews of Rwanda’s Policy Coordination Instrument and program under the Resilience and Sustainability Facility. An agreement was also reached on a new 14-month Stand-by Credit Facility with total access of 125 percent of quota (SDR 200.25 million, or about US$ 262 million) to help mitigate the balance of payment pressures arising from climate-related shocks.
• The Rwandan economy registered strong post-pandemic growth, but also was accompanied by domestic and external imbalances. Repeated droughts, the severe floods in May 2023, and tightening global financing conditions are compounding the challenges from the legacy of the pandemic.
• Carefully calibrated fiscal consolidation, proactive and data-driven monetary policy, and continued exchange rate adjustment are necessary to rebuild buffers, curb inflation, improve debt sustainability, and enhance socioeconomic resilience.
• Rwanda’s commitment to building climate resilience is commendable. The agreed acceleration of RSF-supported climate reforms and the addition of new measures demonstrate Rwanda’s strong dedication to the climate agenda. These efforts will help Rwanda further mobilize private financing for its green initiatives.

An International Monetary Fund (IMF) team, led by Ruben Atoyan, visited Kigali during October 17–31, 2023, to discuss the authorities’ policy priorities and progress on reforms within the context of the second reviews of Rwanda’s Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF), and the 2023 Article IV consultation. The mission team and the authorities also reached understandings on economic policies that will be supported under a new Stand-by Credit Facility (SCF). Consideration by the Board is tentatively scheduled in December 2023. Upon completion of the Executive Board review, Rwanda would have access to SDR 36.97 million (equivalent to about US$ 48.5 million) under the RSF and SDR 66.75 million (equivalent to about US$ 87.5 million) under the SCF.

At the conclusion of the mission, Mr. Atoyan issued the following statement:

“Rwanda withstood overlapping recent shocks well, but external and domestic imbalances have intensified. Economic growth remained robust at 6.3 percent in the second quarter of 2023, notwithstanding repeated droughts and the severe floods in May 2023. Headline inflation decelerated in the first semester, but inflationary pressures resurfaced in August 2023 due to increased food prices.Rwanda’s policy space to advance developmental objectives is constrained by diminished policy buffers, tight global financing conditions, and the structural decline in external concessional financing. Worsening external environment due to global geopolitical tensions and consecutive climate-related shocks have put further strains on international reserves and narrowed policy space. Balance of payments pressures are expected to persist in the coming months amid the high food import bill, while the post-flood reconstruction costs are projected to be substantial, at 3 percent of GDP over the next five years.

“Despite the challenging environment, macroeconomic policy performance through end-June 2023 remained broadly in line with program objectives under the PCI. Most quantitative targets were met, and reforms to boost domestic revenue mobilization, advance expenditure rationalization, enhance fiscal transparency, and strengthen foreign exchange market functioning are progressing well.

“Going forward, increasing imbalances require further recalibration of policies to safeguard macroeconomic and external sustainability. Continued fiscal consolidation, proactive and data-driven monetary policy, and further exchange rate adjustment will help rebuild buffers, curb inflation, and improve debt sustainability.

“A slower pace of fiscal consolidation in the near term will be appropriate to support recovery from the recent floods, while a more credible policy effort is necessary to safeguard fiscal and external sustainability and help achieve developmental objectives. This means that timely implementation of the agreed reforms to broaden the domestic tax base and improve tax compliance are critical for achieving the authorities’ revenue objectives. Expenditure rationalization will need to continue, with a focus on enhanced efficiency of public investments, better targeting of subsidies and transfers, and digital delivery of public services. The fiscal risk management framework needs to be further enhanced.

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“Monetary policy needs to remain appropriately tight, while the exchange rate should continue to be allowed to play its shock absorber role and mitigate external pressures. The recent tightening of the monetary policy stance is appropriate, but further policy adjustment would be necessary should second-round inflation effects from shocks to domestic food supply prove to be more pronounced, exchange rate depreciation result in stronger-than-expected inflation passthrough, or external pressures accelerate. Given the more accommodative fiscal stance in the near term, continued nominal exchange rate flexibility will be needed to support the external adjustment. Efforts to develop foreign exchange market and strengthen the intervention framework are needed to improve monetary policy transmission.

“To address short-term balance of payment needs and smooth out the necessary macroeconomic adjustment, while they undertake flood-related reconstruction efforts, the authorities requested a 14-month arrangement under the SCF with total access of 125 percent of quota (SDR 200.25 million, or about US$ 262 million) to be implemented concurrently with the current PCI. The PCI will remain the main policy framework to support the authorities’ medium-term policy objectives.

“Progress on the climate agenda under the RSF remains exceptionally strong. Rwanda’s recently established green investment facilities will start lending operations before the end of this year. Reforms under the RSF will improve the transparency and efficiency of allocation of climate-related public spending and create a conducive environment for attracting climate finance. Establishing guidelines for financial institutions on climate-related risk management and introducing sustainability disclosure standards for financial institutions will also support private green investment. To further demonstrate their unwavering commitment to the RSF-supported climate agenda and to fully capitalize on the catalytic effect of the RSF, the authorities decided to accelerate the implementation of the originally agreed reform measures and enhance the reform agenda by introducing new measures, including the implementation of an internationally recognized green taxonomy.

“Rwanda sustained remarkable socio-economic progress in the last two decades, but development and climate-related needs remain high. Structural reforms to enhance socioeconomic resilience should be fast-tracked to speed up access to health care and education, promote regional trade integration, and the scale up and better targeting of social protection in a targeted manner.

“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 agenda.”