Rwanda’s Economy rebound in 2021 is strongly likely to be boosted by the country’s sustained fiscal stimulus and an accelerated vaccination rollout, according to projections by International Monetary Fund (IMF).
An IMF mission visit to the country, led by Haimanot Teferra indicated that unprecedented policy support, robust remittances, efforts to step up the vaccination rate, and progress in structural reforms are supporting economic recovery in this year.
The IMF team visit report which was presented recently, following close to a month of meetings (from October to November) with various Government officials to consult and discuss the 5th Policy Coordination Instrument (PCI).
In part of their report statement, IMF said that the current account deficit is projected to remain large in 2021 at 11 percent of GDP which will be driven by a pickup in imports as economic activities resume.
While FDI inflows remained subdued as some large investment projects are delayed, gross international reserves stood at 5.5 months of prospective imports at end-September 2021.
Over the medium term, the external position is expected to improve through increases in domestic savings, particularly the envisaged fiscal consolidation and productivity growth supported by ongoing structural reforms, the IMF statement read in part.
The report also said that fiscal policy is reoriented to be supportive of the promising recovery.
It also pointed out that fiscal deficit is anticipated to increase to 9.1 percent of GDP in fiscal year 2021–22 reflecting additional spending related to mitigating the pandemic impact and measures such as temporary tax incentives for manufacturing and construction under the Manufacture and Build to Recover Program to fast-track the recovery.
The IMF thus stated that Rwanda’s economy is expected to rebound at 10.2% which is relatively close to what the the National Bank of Rwanda has also projected depending on the reopening of services, and vaccination scale up.
This November, the the National Bank of Rwanda Monetary Policy Committee (MPC) stated that the economy will continue to grow in the third quarter by 10.3% driven by industry and services and see growth in the last quarter even if it couldn’t pin on any specific number at the time.
On the monetary policy segment, the IMF team encouraged that it should remain data-dependent, guided by inflation expectations, and supportive of the economic recovery.
With economic activity rebounding and rising commodity prices, headline inflation is projected to rise towards the target, which supports maintaining the current monetary policy stance.
The team further noted that the banking system continues to be stable, liquid, and well-capitalized.
These recommendations come at a time when the MPC taken a decision to maintain the Central Bank Rate (CBR) at 4.5 percent with confidence in a progressive economic recovery that will largely be driven by stability in the financial sector.
The Central Bank Financial Stability Committee (FSC) report also showed that the financial sector remained relatively very stable and that it will be the driver of the economic recover process.
This is backed by the fact that bank assets grow to Rwf4.9Trillion (Tn) from Rwf4.0Tn in 2020 as major earning assets of banks remain stable, while outstanding bank loans grew by 19.1% (from Rwf 2.4 Trillion to Rwf2.9trillion driven by improved growth of outstanding loans in line with increased new lending.
And also that New loans increased to Rwf942 billion from Rwf791 billion in the same period- the rebound of new lending was supported by both demand and supply factors, which also left the sector sound and stable in non-performing loans capital adequacy ratio and liquidity coverage ratios.
The IMF team encouraged Rwanda to monitor any buildup of credit risk but identifying effective ways to deal with hard-hit sectors together with targeted support.
Although non-performing loans remain low largely due to policy support and forbearance measures, the IMF team advised continuous intensive monitoring of credit risk and prudent loan classification and provisioning.
To minimize the impact of the pandemic and foster a more durable, inclusive, and resilient growth, IMF recommended sustaining the structural reform agenda which would include stepping up initiatives to attract private financing to address rising post-pandemic development needs and ensure social programs are protected among others.