Gov’t moves to avert spillover effects of economic crisis

Government has unveiled strategies including agricultural development and export diversification in an attempt to cushion the economy from the spillover effects of the projected global economic crisis. Latest projections by the International Monetary Fund (IMF) suggest that the possibility of a recession over the next one year increased in the last few months, from 25 to 50 per cent in the Euro area and from 25 to 30 per cent in the US. Finance Minister, John Rwangombwa last week said that government will also continue to strengthen its monetary policy to ensure macroeconomic stability. “This is crucial not only to reduce the spillover but also to achieve our goal of becoming a knowledge based economy 2015,” he said. Government will also seek to increase coordination of its fiscal policy with the central bank’s monetary policy to stabilise the foreign exchange market as well as prices of goods and services. Despite its push to boost the service sector as one of the country’s economic pillars by 2020, government considers focusing on agricultural development as a medium tool that would reduce poverty. Agriculture is also one of the few, if not, the only one sector less affected by external shocks. Rwangombwa said alongside the four years of crop intensification programme that has improved production, government is also focusing on reducing post harvest loses and improving irrigation. “Government is investing in irrigation to ensure sustainable harvests with or without rain,” he added. The looming crisis could cause a sharp downturn in global growth, a new spike in global commodity prices, which will possibly transmit into a slowdown in global demand for exports, reduction in foreign direct investments, slowdown in tourism, low remittances and limited global aid envelopes. Analysts say that Rwanda’s stable exchange rate and good harvests have helped to contain the inflationary impact. The country’s focused fiscal response, particularly in reduction of fuel taxes helped to maintain stable and relatively low pump prices on the local market. Although Rwanda plans to widen its exports sector to absorb the spillovers, trade remains an under-exploited opportunity. Statistics show that the country’s trade to GDP ratios is low with less diversification across products and geographic markets as new export products seem to die quickly. During the launch of the International Monetary Fund’s regional economic outlook, last week, questions were raised on four areas that might merit additional policy discussion. They include infrastructure, reducing trading costs, leveraging regional trade agreements, and management of real exchange rate. The national export strategy established in April this year requires government and private sector to coordinate in order to remove the key barriers and constraints to exports. The NES is an annual framework for viewing the country’s export challenges and opportunities with the objective of organising the country’s stakeholders and accelerate export growth. Gershenson Dmitry, the IMF Country Representative said the country’s economic growth has been impressive, but needs to be sustained. Rwanda scores well on macroeconomic stability and productivity growth and concentrated exports, high business costs, low savings, but limited access to financial services remains a challenge. The country scores well in sustainable growth at 70 compared to the threshold of 40, he said. “…but how do we sustain it,” Dimitry challenged, highlighting challenges like the high cost of doing business, low level of savings and investments and limited access to financial services. Catherine McAuliffe, the IMF Mission Chief said the global economic outlook is uncertain and to achieve higher growth in the region and in Rwanda in particular, it will face ever changing global circumstances. “Government is moving in the right direction, tightening monetary policy and also better statistics because information is knowledge thus quality analysis” she said. McAuliffe was impressed that Rwanda has improved in terms of quality data unlike in the past two years when there was no data. Government has revised the growth rate to 8.8 per cent this year, up from 7.5 per cent driven by credit growth and good performance in agriculture. Ends