Net foreign assets are expected to rise to Rfw 411b by end of December 2008, a 17 percent increase from December last year

The Rwanda Franc recorded a stable regime throughout the first half of 2008, depreciating by only 0.1 percent, against the United States, a government official has said.

The stability of the franc, according to Kampeta Sayinzoga, is attributed to the combined result of inflows of foreign exchange, coming from external aid private transfers, good performance of exports and the intervention policy of the Central Bank in the foreign exchange market.

Sayinzoga, Director, Macroeconomic Unit in the Ministry of Finance and Economic Planning said last week that the franc is expected to continue appreciating slightly in the second half of 2008 as import prices are expected settle down. The fall in import prices is likely to be triggered by the falling oil prices on the international market.

Sayinzoga said that in 2009 exchange rate movements will be guided by developments in the retail market to ensure that targets on foreign currency reserve set by the National Bank of Rwanda are met.

"The focus is to have a stable currency,” Sayinzoga said. She added that, foreign exchange reserves are also expected to rise this year, a result of the higher than expected disbursements.

The monetary policy and financial stability statement by the National Bank of Rwanda (NBR) says that by end of June 2008, the foreign exchange stock of the whole banking system amounted to Rwf405 billion, while it was established at Rwf347.7 billion in June 2007. This represents an increase of 16.5 percent.

According to Sayinzoga, the net foreign assets are expected to rise to Rfw 411.8b by December 2008, a 17 percent increase from Rfw 351.6b in December last year.  

"Net domestic asserts have seen a moderate rises this year. This is partly due to the privatisation of Rwandatel and the accrual of funds to government,” she explained.

The NBR says that on the flow side Rwanda’s external aid recorded a significant increase in 2008 compared with 2007.  Statistics show that the combined budget and project supports amounted to $240.2m by June 2007 against $313.4m in the same period in 2008.

However, the Central Bank says that there’s significant amount of projects support which doesn’t transit on its accounts.

On the expenditure side, the huge increase in foreign exchange inflows was compensated by a strong upward trend in foreign exchange demand by government and private sector through commercial banks.

Central Bank statistics also show that total sales of foreign exchange to government and commercial banks amounted to $234.8 million between December 2007 and June 2008 against $154.9 million in 2007 in the same period.

This increase of 51.6 percent of sales of foreign exchange is a result of higher demand of foreign exchange and the economy’s capacity to absorb growing inflows from scaling up of external assistance.

The big push in selling foreign exchange by the central bank in 2008 was a deliberate policy by NBR in the current circumstances where Rwanda benefited from a scaling up in external aid, because the only way to allow substantial increase in government expenditure without jeopardizing macroeconomic stability is to allocate higher amount of foreign exchange to imports corresponding to more real resource transfer from the rest of the world to national economy, the monetary policy statement says.

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