IMF predicts lower economic growth for Rwanda in 2012

Share it
IMF predicts lower economic

Kigali City Tower at night

After defying global economic hardships to post impressive growth in 2011, Rwanda’s economic growth will be lower this year largely due to external factors, the International Monetary Fund (IMF) has said. In a statement issued after completing the third review of Rwanda’s economic performance under the Policy Support Instrument (PSI), the IMF said that “risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation” to the economy. The PSI was approved in June 2010 and aims to consolidate macroeconomic stability achieve sustained bro-based growth and reduce the country’s dependency on aid.

The PSI is designed for low-income countries that may not need financial assistance from the IMF, but seek vice, monitoring, and endorsement of their economic policies

Although the jury is still out, experts expect Rwanda’s 2011 growth rate to top 8.8% – well above the national target of 7% and the highest in the east African region.

However, the IMF deputy managing director, Naoyuki Shinohara, said in a January 9, 2012 statement that even though strong agricultural output pushed up GDP growth in 2011, growth in 2012 is expected to slow down as aggregate demand also builds and pushes inflation upwards.

He advised the government to step up of structural reforms to boost growth prospects in the wake of uncertainty in the global economy.

“The authorities have begun to tighten monetary policy in late 2011 to contain inflation. However, further tightening may be needed in 2012 to prevent the erosion of recent gains in macroeconomic stability. Monetary policy implementation is expected to be enhanced further, including by preparing an action plan to develop the interbank money market,” he said.

The National Bank of Rwanda recently increased its lending rate to 7% from 6.5% in a bid to keep inflation under check. The move paid off when inflation eased to 7.4% in November compared to 7.6% in October 2011.

Shinohara advised the Central Bank of Rwanda to avoid any borrowing that would encumber its foreign reserves. “In light of significant risks in the global economic environment that could adversely impact Rwanda’s exports and international reserves, the central bank should avoid any further encumbering of the central bank’s foreign assets as collateral for loans to finance the government’s strategic investments,” Shinohara added.

He noted that Rwanda’s fiscal policy is on track which the Fund says it will ensure economic stability. He cited the new rule that requires state-owned enterprises to get approval from the ministry of finance before contracting any foreign debt as one of the new tighter fiscal policies designed to ensure macro-economic stability. “The new requirement for state-owned enterprises to seek prior approval of the ministry of finance before contracting new external debt will help further consolidate recent improvements in Rwanda’s debt management capacity,” he said.

Other measures recommended by the Fund include establishment of structure to supervise Savings and Credit Cooperatives (SACCOs). “The hiring and training of 60 supervisors was an important first step. Given the speed of rolling out these cooperatives as full-fledged lending institutions, and the risks involved, it is imperative that the necessary institutional structure be put in place without delay,” Shinohara said.

 

 

About the author

Mr. Sina is the Managing Partner & Chief Editor of RwandaEye. After completing his post-graduation from the Faculty of Economics and Management, National University of Rwanda,he worked in various consulting capacities for equity and business firms in Kigali. A shrewd strategist, he is an Economic Pundit, entrepreneur and Investment Banker.

More posts by | Visit the site of Emmanuel

 

0 Comments

You can be the first one to leave a comment.

Leave a Comment

 




 

 
 

Warning: Illegal string offset 'id' in /home/wp_ts2em7/rwandaeye.com/wp-content/themes/manifesto/footer.php on line 4

Warning: Illegal string offset 'id' in /home/wp_ts2em7/rwandaeye.com/wp-content/themes/manifesto/footer.php on line 4

Warning: Illegal string offset 'id' in /home/wp_ts2em7/rwandaeye.com/wp-content/themes/manifesto/footer.php on line 4