Rwanda’s economy registered a recovery from adverse effects of the Covid-19 pandemic during the fiscal year 2020/2021, with gross domestic product (GDP) increasing by 4.4 per cent compared to 2.3 per cent in the previous financial year, according to a new report by the National Bank of Rwanda (BNR).

This central bank’s report published on Monday, November 1, implies that the performance for this fiscal year ended June 30, 2021, represents 2.1 percentage points higher than that recorded in the previous financial year.

According to the central bank report, the rebound was supported by government economic recovery plan, easing monetary policy, and a gradual lifting of Covid-19 containment measures.

The central bank said it maintained an accommodative monetary policy stance by keeping the Central Bank Rate (CBR) at 4.5 per cent throughout the year to continue financing the economy.

It indicated that the recovery was mainly attributed to the good performance of the agriculture and industry sectors.

During the year under review, the agriculture sector output increased by 4.9 percent from 2.1 per cent, mainly supported by food production which represented 62.3 percent of agriculture value added in 2020/2021.

Food production increased by 4.9 per cent against 1.1 per cent as favorable weather conditions led to a good harvest in 2021 agricultural season A.

Production of the industry sector increased by 8.9 per cent from 2.6 percent driven by manufacturing industries (11.6 per cent from 3.2 percent) and construction output (7.8 percent from 11.4 per cent previously), according to the report.

It pointed out that the performance of these subsectors was supported by infrastructure projects, which boosted the demand for locally produced construction materials.

Despite the Covid-19 containment measures, the mining and quarrying subsector output recovered by 1.5 percent from a decline of 25.8 percent, partly supported by the increase of mineral prices on the international market (+35.5 percent from -5.6 percent).

The services sector increased by 2.2 per cent in 2020/21 after growing by 1.6 per cent in the previous financial year, driven by information and communication (24.4 percent from 22.3 percent), financial services (7.8 percent from 0.8 percent), trade services (6.3 per cent from 5.2 per cent), real estate (4.6 percent from -1.5 percent) as well as professional, scientific and technical services (8.3 percent from 2.1 per cent).

However, the report indicated that tourism-related services continued to suffer from the lasting impact of Covid-19. They include transport whose growth declined by -11.6 percent from -2.8 per cent in the previous fiscal year, hotels and restaurants (-36.4 percent from -9.3 percent), as well as travel agents and tour operators (-37.6 per cent from -2.0 per cent).

The education sector was also heavily affected by schools closure between March and October 2020, hence contracting by 5.9 per cent consecutive to a decline of 16.5 per cent in 2019-2020.

Growing credit risk to the banking sector

According to the report, credit risk escalated during the pandemic and remains one of the main threats to the stability of the banking sector.

The ratio of nonperforming loans (NPLs) – loans which the borrowers had not yet repaid at least 90 days after the due repayment period – increased to 5.7 percent in June 2021 against 5.4 percent in June 2020. In nominal terms, NPLs increased by 27 percent to Rwf179 billion. The Central Bank said NPLs is key indicator of the asset quality of banks.

Banks wrote off long outstanding NPLs of Rwf22.3 billion during the six months ended June 2021 resulting in a share of written-off loans to gross loans of 12.1 percent. When financial institutions write off debts, they remove them as assets from the balance sheet because they do not expect to recover them.

Nevertheless, the report said that the banking sub-sector remained profitable, indicating that the aggregate net profits of banks increased by Rwf23 billion to Rwf56 billion for the first half of 2021, compared to the growth of Rwf7 billion during the first half of 2020. The profit of banks was linked to higher growth of revenues than expenses and banks’ efficiency gains, it indicated.