IMF staff concludes review mission to Rwanda

The Executive Board of the International Monetary Fund has completed the seventh review of Rwanda's performance under the Policy Support Instrument and the second review of the arrangement under the Standby Credit Facility. The executive board highlighted the strong macroeconomic policy management in Rwanda, which was demonstrated by the 5.9 percent growth in 2016. Alun Thomas, the Resident Representative of the IMF, provided insights into the country's economic outlook during an interview with CNBC Africa. Thomas discussed various aspects of Rwanda's economic situation and the future projections for the country's growth and policy strategies. One key focus of the discussion was the impact of exchange rate policies on the economy. Thomas explained that exchange rate adjustments mainly affect import demand in developing countries like Rwanda, which are largely dependent on commodity exports. While such adjustments can improve trade balances, they also pose challenges such as inflation control. Thomas emphasized the delicate balance needed in managing exchange rate policies to avoid adverse consequences. Moving on to the economic outlook for 2017 and 2018, Thomas highlighted the challenges Rwanda faces in achieving higher growth rates. Despite the completion of major projects in 2016, such as the Kigali Convention Center, the country's growth rate saw a downturn, attributed to those projects. However, projections for 2017 suggest a slight uptick in growth, with a forecast of 6.2% for the year. Thomas acknowledged the need for sustained high growth rates to reach these targets and mentioned the importance of export performance and reserve coverage in driving economic growth. The discussion also touched upon the volatility of food prices and their impact on inflation. Thomas highlighted the cyclical nature of food price fluctuations, driven by factors like weather conditions. He suggested measures such as improving irrigation and implementing insurance schemes for farmers to mitigate these risks. Furthermore, the interview explored the implications of tax incentives on Rwanda's tax base and revenue generation. Thomas acknowledged the trade-off between attracting investments through tax incentives and potential revenue losses. He stressed the importance of evaluating the costs and benefits of tax preferences to ensure effective fiscal policies. Additionally, the interview delved into the informal sector in Rwanda and the challenges of integrating it into the formal tax base. Thomas discussed the complexity of taxing informal sector activities and proposed alternative tax strategies, such as property taxes, to broaden the tax base. The discussion also touched upon international trade agreements, with Thomas highlighting the IMF's support for free trade and the importance of balancing economic partnerships with domestic industries' competitiveness. Thomas outlined the progress towards adopting an interest rate-based monetary policy framework in Rwanda and the importance of deepening domestic debt markets for effective policy transmission. The interview concluded with a discussion on Rwanda's near-term economic prospects and the upcoming policy decisions following the conclusion of the current IMF program. Thomas indicated that Rwanda's successful program under the Standby Credit Facility has improved the country's trade imbalances and reserve position, paving the way for discussions on future economic programs and financing needs. Overall, the interview provided valuable insights into Rwanda's economic policies, challenges, and future growth prospects.