Coronavirus: Pandemic takes heavy toll on Rwanda’s economy, society – IMF
10 months ago | 21
Rwanda continues to grapple with the fallout from the COVID-19 pandemic which has taken a heavy toll on its economy and society, according to the Executive Board of the International Monetary Fund (IMF).
Real GDP contracted by 4.4 per cent year-on-year in the first half of 2020, but a recovery is afoot following the end of the full lockdown in the second half, the Board pointed out on conclusion of the third review of Rwanda’s programme supported by IMF’s Policy Consultation Instrument (PCI) on Wednesday.
The PCI programme was approved on June 28, 2019, to support the implementation of Rwanda’s National Strategy for Transformation (NST).
As a result, real GDP growth is expected to be slightly negative at -0.2 per cent in 2020, and is projected to rebound to 5.7 in 2021, albeit below potential.
“The near-term outlook remains highly uncertain. Growth is expected to contract in 2020, putting additional pressures on public finances and the balance of payments,” remarked IMF Deputy Managing Director, Tao Zhang, in a statement at the end of the Board’s discussion on Rwanda.
In his view, the Rwandan authorities’ fiscal package in response to the crisis is providing needed support to vulnerable households and businesses. Strong reporting and procurement practices are key to ensuring the effectiveness and proper oversight of this spending.
Their policy measures in response to the pandemic were generally well-designed, and appropriately aimed at providing support to households and businesses, boosting healthcare spending, and providing sufficient liquidity to the banking system and relief to borrowers.
However, the associated spending needs coupled with revenue underperformance due to the crisis have caused deviations from the earlier fiscal programme targets under the programme.
As a result, fiscal deficit is expected at 8.5 percent of GDP in FY2020/21, with public debt projected at 67 percent of GDP at end-2020. The crisis has also affected progress on structural reforms.
According to the IMF, the remainder of the programme aims to strike a balance between sustaining the economic recovery and maintaining fiscal responsibility. The authorities and the Fund’s staff agreed that going forward it will be critical to monitor and contain financial sector and fiscal risks including from state-owned enterprises.
“The uncertain outlook calls for sound contingency planning and fiscal risk management. To preserve fiscal space, the authorities should reprioritise spending and seek additional concessional financing should the outlook deteriorate further. Fiscal risks from state-owned enterprises and state-guaranteed loans should be closely monitored,” Mr. Zhang suggested.
While the immediate policy priorities have shifted to supporting the economy through the crisis, the objectives of the PCI, which expires in June 2022, remain appropriate.
Reforms to accelerate the transition to a private sector-led growth will be key in the post-pandemic period given the limited fiscal space.
Rwanda’s monetary policy has rightly been accommodative, and temporary extraordinary measures have provided liquidity to the banking sector.
Looking ahead, Mr. Zhang said, “The central bank should keep monetary policy data driven and continue to closely monitor credit and liquidity risks, including from loan restructuring, to safeguard financial stability.
“Adopting a credible and growth-friendly fiscal consolidation strategy after the crisis abates will be critical to preserve debt sustainability while supporting the nascent recovery. The strategy should be centred on measures to re-ignite domestic revenue mobilisation, streamline non-priority spending, and re-prioritise public investment. Such measures could be announced and legislated before the end of the programme to support their credibility.
“Going forward, the authorities should continue pushing ahead with structural reforms to promote private sector-led and inclusive growth. Other priority reforms include strengthening governance, fiscal transparency and risk management, improving tax compliance, and further strengthening the interest rate-based monetary policy framework,” he added. (PANA/NAN)
– Dec. 17, 2020 @ 17:33 GMT |