IMF approves second disbursement of Rwanda's standby credit facility

The International Monetary Fund is set to disburse about $25 million as part of the Standby Credit Facility of $204 million (about Rwf159.7 billion) approved last year in June to help government keep external reserves above the critical level. The $204 million facility was approved last year at a time when the government was working to tackle diminishing commodity prices and rising import bill which had adversely affected export earnings and put pressure on foreign exchange reserves. The first disbursement last year in June was $72.09 million. The disbursement, to be made in coming days, was preceded by the seventh review of Rwanda’s performance under the Policy Support Instrument (PSI) and the second review of the arrangement under the Standby Credit Facility (SCF). During the simultaneous reviews over the weekend, the IMF Executive Board observed that there had been notable progress in the past two decades, anchored by Rwanda’s carefully-considered development strategy. Among the aspects that they observed have served to achieve and maintain the progress include structural transformation, high and inclusive growth, reduced poverty and gender inequality and attractive business environment. Tao Zhang, the deputy managing director and acting chair of the executive board, said the Rwandan government had also shown strong macroeconomic policy management as well as made strategic public investment in growth-enhancing infrastructure. “Rwanda has made notable progress in the past two decades, anchored by its carefully-considered development strategy. This includes steady progress on structural transformation, high and inclusive growth, reduced poverty and gender inequality and attractive business environment,” Zhang said. “This has been reinforced by strong macroeconomic policy management, characterised by strategic public investment in growth-enhancing infrastructure, maintenance of low inflation, and measures to bolster domestic revenue mobilisation,” Zhang said. The board also commended how the Government responded to turbulent global conditions by addressing imbalances to protect growth. It observed that the adjustments had achieved the desired impact and had so far seen trade deficit reduce. “Exchange rate flexibility has been the central tool of policy adjustment, with structural reforms to bolster domestic production. “These policies have already made progress in reducing the deficit in goods and services trade, and should place external balances on a more sustainable path over the medium term. Performance under the SCF arrangement and PSI-supported programme has been strong, with almost all programme targets and structural measures achieved,” Zhang added. Zhangs expressed optimism in the recovery of the economy this year despite the inflation which was quite high earlier in the year. Last year the economy grew by 5.9 per cent. “It (the economy) is expected to recover over 2017/18, with balanced risks to the outlook. Inflation spiked in early 2017 due to a food supply shock, but is now abating,” he added. The board, however, expressed concerns over the vulnerability of the economy to external shocks highlighting the need to rebuild foreign exchange reserve buffers. Zhang said there is need to ensure that the recently –introduced tax incentives to boost domestic production are well targeted and do not weaken the tax base. “Despite the notable achievements, the Rwandan economy remains vulnerable to external shocks. It will be important to rebuild foreign exchange reserve buffers to enhance the country’s resilience. To reach the goal of upper middle income status, it will be important to boost the role for the private sector to serve increasingly as the main engine for growth and investment in Rwanda,” he said. In a recent interview with The New Times, Laure Redifer, of IMF, said they have since seen the external imbalance turn-around due to the use of the disbursements. “Performance under the programme has been very strong and in fact the adjustment measures that were agreed upon have been undertaken and we have seen external imbalances turning around. The trade deficit for goods went down by 17 per cent. That is quite striking. There was also growth in exports plus a drop in imports,” she said. The Minister for Finance and Economic Planning, Claver Gatete, told The New Times that the support has enhancing reserves at the central bank as well as capacity to stabilise the economy. “It is about enhancing our reserves at central bank and providing capacity to the central bank for more intervention on the forex market so as to support private sector activities and stabilise the economy,” he explained. editorial@newtimes.co.rw

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IMF approves second disbursement of Rwanda's standby credit facility