The government and International Monetary Fund (IMF) have jointly forecast a 6.5 per cent economic growth for Rwanda in 2015.

The projection is lower than actual economic growth in 2014, but higher than what had been anticipated for that year.

Last year, Rwanda’s Gross Domestic Product (GDP) expanded by 7 per cent, according to National Institute of Statistics of Rwanda (NISR), although government had earlier forecast a 6.0 per cent growth.

In other words, the economy grew better than expected.

Yesterday, the Minister for Finance and Economic Planning, Amb. Claver Gatete, flanked by IMF resident representative Mitra Farahbaksh, said government expects the economy to post faster growth this year.

"After considering all factors, we forecast a 6.5 per cent growth as the minimum for this year,” Gatete said.

After posting an actual GDP growth of 7 per cent last year, many observers had expected the government to be in a boisterous mood and announce a more ambitious figure but clearly, yesterday’s announcement shows that officials are not letting themselves be carried away.

"But this is just a minimum growth forecast, which means we could surpass it as was the case last year,” said Dr Thomas Kigabo, the chief economist at National Bank of Rwanda (BNR).

Low inflation factor

Low inflationary pressures (low commodity prices) is what both government and its IMF development partners are banking on most, to spur faster economic growth this year.

Since last year, global commodity prices have been on a downward-spiral.

Because Rwanda imports most of the commodities consumed, it means in spite of a huge volume of imports, the country will pay less for them because of their low prices.

In his quarterly monetary policy statement issued last month, central bank governor John Rwangombwa observed that the country’s headline inflation remained low in January and February at 1.4 per cent and 0.7 per cent, respectively, mainly because of falling international commodity prices.

Economists see this as good news for a country like Rwanda that imports heavily as it means saving foreign currency. A good example is fuel.

The price of crude oil hit its record lowest in a long time and the situation remains unchanged. Experts say that for oil importing countries such as Rwanda, they will be able to save foreign currency as they pay less for their oil supplies.

Foreign currency reserves basically mean dollars, the main currency used in international transactions.

Countries earn their dollars through selling exports to their trade partners.

However, Rwanda’s exports don’t earn the country enough dollars to pay for its bill of imported goods, which results into a trade deficit, a negative balance of trade in which a country’s imports exceeds its exports.

Because of this, the limited dollars in the national reserves must be used sparingly in order not to be overspent and low global commodity prices helps Rwanda to achieve that purpose, paying less for more imports.

Central bank statistics indicate that Rwanda’s trade deficit widened by 7.5 per cent in 2014, this, reportedly reduced in the first two months of 2015, by 12.9 per cent and that reduction was attributed to a 9.0 per cent decline in the value of the formal imports during that period.

Poor export earnings

However, low global commodity prices also pose a threat to Rwanda’s exports such as coffee, minerals and tea.

So, as long as prices on the international market remain low, it will mean that even if Rwanda’s export volumes increased in 2015, they would earn less because of low prices.

But low export earnings, it’s hoped, will benefit from the low priced imports as BNR statistics seem to suggest for the first two months of 2015.

In January and February, earnings from formal exports only grew by 6 per cent, but managed to pay for 24.5 per cent of formal imports; which was an improvement compared to the 21.1 per cent that export earnings covered for imports in the same period of 2014.

That is because, during the first two months, the value of imported goods dropped by 9 per cent due to low prices.

The entire year of 2014 saw earnings from formal exports paying for 25 per cent of total formal imports against 25.5 per cent in 2013.

If the value of Rwanda’s exports manages to gain in 2015, they could pay for more imports given the low global commodity prices and reduce the trade deficit.

editorial@newtimes.co.rw