Public investment programmes must be tilted toward reducing the cost of doing business and making Rwanda more competitive, the International Monetary Fund (IMF) has said.

This will enable the country consolidate economic success and also to register an impressive economic growth of 6 per cent by the end of the year.

According to IMF, high cost of electricity, interest rates, and transport and labour costs could affect private sector’s productivity and ultimately slow down the country’s economic growth rate.

Speaking during a media briefing on Rwanda’s policy support instrument and economic outlooks in Kigali, yesterday, Paulo Drummond, the IMF Mission chief for Rwanda, said domestic interest rates and bank operation costs must come down for the country’s private sector to drive a much more sustainable growth.

Drummond said Rwanda has passed its entire Policy Support instrument for the first half of 2014 assessment criteria.

"Performance under the policy support instrument has been excellent; and the country has met all the assessment criteria and all the economic reforms agreed upon under the programme,” he said.

"However, for economic success, Rwanda must continue mobilising its domestic sources while prioritising its investment projects to be able to achieve an impressive economic growth.”

Prioritising investments

Rwanda has indentified its national and regional investment projects; however, according to IMF, ensuring proper project implementation is crucial.

Emphasising a timeline for the implementation that is well-understood by all stakeholders is critical, the IMF chief said.

Amb. Claver Gatete, the minister for finance and economic planning, said efforts to raise domestic resources are ongoing.

"Working with the external partners, and creating a conducive investment climate while investing in our capital markets will play a critical role in sourcing for resources to fund government projects,” he said.

The government will this financial year spend Rwf1.75 trillion and 62 per cent of it will have to be raised domestically.

However, mobilising domestic resources in support of the ambitious agenda embodied in the second Economic Development and Poverty Reduction Strategy (EDPRS2) is critical and yet significant scaling up of investment requires careful project selection and prioritisation.

The government must, therefore, consider other non-concessional sources of financing while making some adjustments to be able to deliver on these investments.

Economic growth projections

According to IMF preliminary basis, the country’s economic growth rate is projected at 6 per cent in 2014 and 7.5 per cent 2015.

Inflation is projected at 3.2 per cent by end of December partly reflecting the issue of aid disbursements but also on how the agriculture sector will perform.

Figures from the National Institute of Statistics of Rwanda indicate that the country’s economic growth rate for the second quarter 2014 is established at 6.1 per cent.

The bigger unanswered question is how the country will be able to achieve annual growth rate of 11.5 per cent as prescribed in the EDPRS2 blueprint.

According to IMF, the National Bank of Rwanda will have to at least maintain the traditional target of four months of reserves to support the economy in case of external shocks.

It said the central bank must keep the current stance of the monetary policy appropriate and should closely monitor the economy so that there is no build up of pressures in foreign exchange markets.

"We agree with IMF’s analysis of cost of doing business in the country and there is need to increase on our competitiveness in our finance sector so that we can embrace more efficiency,” Monique Nsanzabaganwa, the deputy governor of the National Bank of Rwanda, said.

The need to support growth and preserve the level of foreign reserves requires a cautious fiscal stance while maintaining priority spending and leaving scope for private sector credit expansion, Nsanzabaganwa added.

Rwanda was ranked as the most competitive economy in the region by the World Bank Economic Forum report 2014.