A challenging but successful year,” is how central bank governor John Rwangombwa described 2015 yesterday as he presented the Financial Stability and Monetary Policy Committee statements for the third quarter period running from July to September.

The central bank has spent the big part of the last eleven months battling effects of an erratic global economy characterised by low growth that inspired weak commodity demand, consequently pushing international prices into a nosedive.

In its forecast, last month, the International Monetary Fund cut global growth prospects announcing that this year’s economic activity will amount to an average expansion of just 3.1 per cent year-on-year and will only register a tiny recovery, to 3.6 per cent in 2016.

This slow global economic growth is on the one hand, blamed on the upcoming normalisation of monetary policy by the US Federal Reserve and on the other, the slowdown in China’s economy, which is projected to grow at 6.8 per cent this year, against 7.3 per cent seen last year.

China and the US are seen as the two major engines that drive the global economy and recent developments, especially in the Asian economic giant, have grossly affected world prices for commodities such as minerals and other traditional exports from Africa.

Weak growth in the Euro area where economies have struggled all year on account of instability caused by, to a good extent, the Greek crisis and most recently, immigration chaos, also worsened the world’s economic prospects for this year.

Effects on Rwanda

The effects have been felt far and wide across the globe in economies including Rwanda whose earnings from the country’s traditional exports dropped significantly on account of poor prices on the international market, hurting especially the mining sector.

Rwanda’s exports in general dropped in value by 7.9 per cent in the last eleven months compared to a 20.2 per cent growth in volumes, owing to unfavorable commodity prices internationally.

The mining sector was hit hardest and the performance of the country’s leading minerals such as Cassiterite, Coltan and Wolfram is littered with negatives, a trend that has been seen for at least the last two years, consecutively.

Earnings from the entire mining sector dropped by 43.3 per cent as mineral prices plummeted internationally on account of China, which has been the main buyer in recent years, reducing its demand due to a slowdown in its own economy.

The poor earnings from exports ensured that the country’s balance of payment remained largely negative, albeit the country’s import bill reducing by 2.6 per cent on account of low global fuel prices, which benefited Rwanda, a net oil importer.

However, Rwangombwa noted that the country still has an uphill task of filling gaps in funding the country’s import bill which has slightly declined, with export earnings only able to cover 23 per cent from 25 per cent, previously.

Noisy forex market

The effects of Rwanda’s poor export earnings this year have been felt in form of ‘noise on the forex market’ as high demand for dollars was met with low supply of the greenback; this Rwangombwa admitted, has been one of BNR’s top challenges of the year.

At one point, the governor had to crack the whip on the local forex market dealers as many of them had sought to ‘eat big’ from the dollar scarcity; hoarding the dollar in the process pushed the exchange rate as high as Rwf900 for a single dollar.

The exchange rate mess hit the climax between June and July before the governor’s whip finally beat the market back to order and has since stabilised the rates to play within the basic economic fundamentals.

Nonetheless, the Franc has gotten a beating and, according to Rwangombwa, the local unit has depreciated by 7.1 per cent this year, the highest loss in a five year-period since 2010 – the central bank had initially targeted an annual depreciation of 5 per cent.

"But at least we see the current depreciation happening within the economic fundamentals of our economy after we managed to eliminate the factor of speculation that had kicked in,” Rwangombwa reassured.

Sharp inflation

The central bank had also expected inflationary pressures to be contained at 2.1 per cent in 2015 and the first four months remained under radar until May when inflationary pressures rose by 2.2 per cent, against 0.9 per cent in April.

Since May, the inflationary pressure curve has been on an upward trajectory, moving from 2.2 per cent to 3.7 per cent in September and 4.8 per cent in November, the highest rise in the year.

Rwangombwa attributed the sharper than anticipated inflationary pressures to challenges in local food production whose prices shot up on account of a prolonged drought season and the subsequent rains that came with mixed results.

"We expect to end the year with inflationary pressures playing between 4.5 and 5.5 per cent, which is within our medium term targets,” said Rwangombwa.

Sound banking sector

The only consistent source of good news for BNR has been from the country’s financial sector which the governor noted has remained sound, profitable and well liquidated throughout the year and will remain so into the new year.

Yesterday, central bank gave the financial sector a clean bill of health on all indicators, with one exception being on the slightly above the benchmark non-performing loans, especially for micro-finance bodies.

For instance, as of September 2015, the capital adequacy ratio (CAR) of the banks and micro finance institutions (MFIs) stood at 24.2 per cent and 31.2 per cent; respectively, well above the central bank benchmark of 15 per cent.

CAR basically refers to the ration of a bank’s capital compared to its risk, a status that helps BNR to determine whether a financial institution can absorb a reasonable amount of loss but still remain well capitalised to meet the minimum commercial requirements to operate normally.

The Achilles heel is in non-performing loans; while that of commercial banks has stayed unchanged at 6.3 per cent that of MFIs had slightly risen to 7.8 per cent, in September this year, from 7.7 per cent in the same period last year, against a BNR benchmark of 5 per cent.

"It is an area we are working on to fix,” said the governor.

On a whole, the economy is expected to grow as projected at 7 per cent or even better based on the stronger than expected economic performance in the first two quarters of the year and the 6.1 per cent growth in the third quarter with the fourth quarter also expected to keep up the trend.

Rwangombwa lauded commercial banks’ increased lending to the private sector in the last eleven months which he said has helped fuel economic activity throughout the year, a trend he sought to sustain into next year by keeping the key-repo rate unchanged at 6.5 per cent.

editorial@newtimes.co.rw