The African Development Bank (AfDB) has projected Rwanda’s economy to drop to 6.9 per cent in 2022 from the 10.9 per cent growth registered in 2021, mainly driven by global impact of Russia-Ukraine war in a time when economies are recovering from the pandemic.
It is, however, expected to expand to 7.9 per cent in 2023.
This projection is contained in the African Economic Outlook report tabled by the AfDB on Wednesday May 25.
In 2020, Rwanda’s economy slumped by 3.4 percent, representing the first economic slump since 1994. The factors for such economic slump were measures to control Covid-19 that sharply reduced economic activities in 2020.
According to the report, Rwanda maintained its position as one of the top performing economies in the region by registering 10.9 per cent growth in 2021 as economic activities resumed and interventions were put in place.
"Economic diversification in East Africa cushioned the region against the pandemic shock aided by sustained public spending on flagship infrastructure projects and closer trade ties within the region,” reads the report.
Africa’s growth projections are highly uncertain, largely reflecting the evolution of Covid-19, sovereign debt vulnerabilities and high debt levels in many African countries which limits the capacity of countries to boost spending and financing after recovery, stated the bank.
Other factors include potential spillovers from the tightening of global financial conditions due to elevated inflation risks in advanced economies, among others.
The bank recommended that countries should reduce dependence on any single supplier of food as a lesson from the Russia-Ukraine conflict. "The long run policy response to economic diversification should include intra-Africa trade to build food self-sufficiency.”
Continental inflation
The average consumer price inflation in Africa increased to 13 per cent in 2021 from 10.8 per cent in 2020, reflecting a combination of higher local food prices attributed to drought-induced local supply shortages and rise in global food and energy prices, according to the report.
"Africa inflation will continue to evolve depending on the duration of the Russia-Ukraine conflict, the easing of gridlock in global supply chains.”
The Central bank of Rwanda estimated the country’s annual (2022) average inflation to be at 9.2 per cent before dropping to 7.5 per cent in 2023.
Poverty and welfare effects
In 2021, about 28.7 million more Africans slid into extreme poverty up from 26 million in 2020. About 29.6 million are projected to do so in 2022, the bank reported.
However, the number is relatively lower than projected, reflecting mainly "better-than-expected growth performance in 2020 and 2021.”
The projected slower growth coupled with higher projected inflation for 2022 will have repercussions for Africa’s poverty rate, it stated. "Shrinking real incomes amid rising food and fuel prices will be disastrous to vulnerable households already living on the edge of poverty.”
About 1.8 million and 2.1 million people could be pushed into extreme poverty in 2022 and 2023, respectively, as direct consequences of economic fallout, shall the Russia-Ukraine conflict persist, it noted.
Nevertheless, the poverty effect depends on the country's economic structure. The majority of the new poor due to Covid-19 and Russia-Ukraine war are in West Africa while North Africa and East Africa with the highest real GDP per capita will show the smallest increase.