The Rwandan economy will contract by -0.2 per cent owing to the effects of the Covid-19 pandemic, an International Monetary Fund (IMF) mission has projected.

The projections of a contraction come after previous expectations and projections that the economy would grow by about 2 per cent.

An economic contraction means a decline in national output measured by the value added and created through the production of goods and services in the country during a certain period.

Contraction signifies a drop in real personal income, industrial production, and retail sales among others as was evidenced during the lockdown and consequent months.

After weeks of holding meetings with various government agencies, the IMF mission led by Haimanot Teferra revised downward informed by the extent of local and domestic shocks.

"Given the size of external shocks and the domestic shock caused by containment measures, real GDP growth is now projected to contract to -0.2 per cent in 2020 and rebound to 5.7 per cent in 2021,” the mission noted.

The IMF however noted that economic activity has started to show signs of recovery following a sharp contraction in the second quarter of 2020 caused by the COVID-19 pandemic and the stringent containment measures.

The continued monetary and financial measures and large fiscal packages deployed in response to the crisis were also found to have played an important role supporting the economy.

With the global economy quite uncertain, it is not possible to predict its effect on the Rwandan economy with regard to economic disruptions in Rwanda and in trading partners, the mission further noted.

The financial and banking system was found to be stable, liquid and well capitalized to foster economic recovery.

"Inflation remained high, partly reflecting supply disruptions, but it is expected to stay closer to the upper bound of the National Bank of Rwanda inflation benchmark band in 2020. The banking system has remained stable, liquid and well capitalized,” the mission’s statement noted.

Tax revenues have been stronger than expected at the time of the second IMF emergency financing under the Rapid Credit Facility (RCF), but expenditures are also expected to be higher as the fiscal measures to support vulnerable families and hard-hit firms are being extended.