We got it wrong, economists have admitted about forecast for 2014. However, the World Bank and government are happy nonetheless with the better-than-expected economic performance. 

This revelation was made during yesterday’s launch of the Rwanda Economic Update report in Kigali.

A 5.7 per cent growth had been predicted by World Bank, while government economists had settled for 6 per cent. Both projections, though, have turned out to be wide off the mark following a better-than-expected economic performance last year.

The World Bank now puts Rwanda’s actual economic growth in 2014 at 7.1 per cent. The government also expects a figure at that range when the National Institute of Statistics of Rwanda (NISR) releases its data for the year next month.

"Our projection had been 5.7 per cent but it seems that actually the economy in 2014 grew much higher than what we thought so we want to look much closer why we got it wrong,” said Toru Nishiuchi, an economist with the Bank.

The timid projections by both the Bank and government could be attributed to what had happened in 2013 when economic growth slumped to 4.6 per cent down from 8.8 per cent in 2012.

Factors behind the poor performance in 2013 included delayed/suspended donor aid which affected public spending patterns, limited lending to private sector, and poor harvest; the effects of these factors had been expected to continue being felt in 2014.

"We all got it wrong and it’s not the last time we will get it wrong. But there is a consolation for us because growth went up, which is even better,” said Leonard Rugwabiza, the chief economist at the Ministry of Finance and Economic Planning.

It was a moment of self-appraisal and the mood was light as the economists made fun of their own misprojections.

"As government, however, we normally like to be modest in our projections. It’s good for us to expect less and be rewarded with more as the case was in 2014, that way, we can all laugh and enjoy the surprise,” Rugwabiza added.

Yusuf Murangwa, the director-general of NISR, also threw in a jibe when he observed that unlike economists, statisticians don’t have to guess.

"When they ask us what we think, I tell them for us we don’t think, we don’t know, we just wait and see,” said Murangwa, whose highly anticipated statistics will be released early next month.

Without firm statistics, investors normally rely heavily on projections by government and other respected agencies such as World Bank and the International Monetary Fund (IMF) to inform their investment decisions.

And although the economic growth forecasts/projections, figures are normally expected to be close to being accurate, it wasn’t the case for 2014 predictions.

What spurred growth in 2014?

The World Bank attributes the economic rebound in 2014 to mainly two factors, the favourable agricultural harvests as well as higher government expenditure which contributed to growth recovery in the services sector through government consumption of private services.

Wholesale and retail trade services were reportedly the main drivers of growth in the services sector, generating about 17 per cent of real GDP growth in 2014, says the economic update report.

In 2013, the services sector, one of the main drivers of the economy grew by just 5.4 per cent but saw a renaissance in 2014 when it posted a 9.1 per cent growth.

However, Rugwabiza said last year’s growth was also boosted by the increased lending to the private sector which boosted investment and consumption.

According to statistics from the National Bank of Rwanda (BNR), new authourised loans increased by 38.2 per cent to Rwf652.9 billion from a 5.3 per cent decline posted in 2013 when banks lent out Rwf472.5 billion to the private sector.

Thomas Kigabo, BNR chief economist, attributed the increased lending to private sector to the central bank’s accommodative monetary policy of a reduced key repo (rate at which BNR lends to commercial banks) as a result of low inflationary pressures enjoyed last year.

Kigabo said the central bank intends to continue with the same accommodative policy into 2015 to ensure that banks sustain lending to the private sector.

However, Apurva Sanghi, the World Bank’s lead economist for Rwanda, Kenya and Eritrea, expressed concern when he pointed out that commercial banks in Rwanda are yet to respond to BNR’s accommodative policy of a low key repo, saying interest rates on credit are still very high.

Nonetheless, based on the factors behind the faster economic growth seen in 2014, the World Bank is revising its earlier projections for 2015 up wards, from 6.6 per cent to 7.5 per cent.

Projections not endorsed

Whereas government officials present at the report’s launch were reassured by the World Bank’s high projections that showed confidence in the economy, they shied from endorsing the figures.

"We can’t project growth for this year before we know how last year actually performed,” said Kigabo.

Rugwabiza provided a hint that the government’s own projection for this year could be lower than that of the World Bank.

He said he would rather be more comfortable with a figure around 7.1 per cent.

Last year, World Bank showed doubt with a 5.7 per cent projection where government showed optimism with a 6.0 forecast.

However, Caroline Turk, the World Bank’s country manager, explained the confidence behind their higher projections for this year, saying the economic indicators on which they have based are stronger than they were previously.

"The signs are stronger than the last time, we believe the economy will manage to grow near what we think is its potential, of 7.8 per cent,” Turk said.

Turk also added that falling oil prices are expected to contribute to lower inflation but also a more stable by AdBlocker Manger" href="#">exchange rate, an improved balance of payments and smaller electricity subsidies which will promote economic stability and increase policy flexibility.

editorial@newtimes.co.rw