Ukraine war could cloud Rwanda’s growth outlook – IMF

Rwanda is facing potential economic challenges as uncertainties stemming from the conflict in Ukraine could impact the country's growth outlook. The International Monetary Fund (IMF) has highlighted concerns about the effects of the ongoing war on Rwanda's economy, particularly in terms of commodity prices such as oil and gas. Straton Habyalimana, a lead consultant at Straton's Advisory Services, discussed the potential implications of the conflict on Rwanda's economy in a recent interview. Habyalimana pointed out that the conflict in Ukraine is expected to result in significant increases in commodity prices, with the IMF predicting a 12% rise in oil prices and a 58% increase in gas prices. These price hikes are likely to drive up production costs in Rwanda, leading to higher prices for both locally manufactured goods and imported commodities. The overall impact of these price increases could result in inflationary pressures that will affect the cost of living for Rwandans. One of the key concerns raised by Habyalimana is the potential food inflation that Rwanda may face if the conflict persists. He highlighted the possibility of sourcing food commodities from alternative markets to mitigate the impact of supply disruptions from conflict-affected regions like Ukraine and Russia. However, the effectiveness of these strategies will depend on how quickly economic operators can adapt to changing market dynamics. Rwanda has already begun to feel the effects of rising food prices and increased fuel costs, with the government implementing subsidies to help stabilize local prices. Habyalimana noted that the government has allocated significant funds, around 90 billion Rwandan francs, to keep oil prices affordable. However, continued price increases may strain the government's resources, making it challenging to sustain these subsidies in the long term. The impact of higher commodity prices is already evident in consumer behavior, with Rwandans adjusting their spending patterns in response to inflationary pressures. Habyalimana highlighted changes such as increased use of public transport and the adoption of fuel-efficient vehicles as signs of how consumers are adapting to higher fuel costs. Looking ahead, Habyalimana raised concerns about the potential impact on public finances in Rwanda. He noted that the increased production costs and subsequent effects on tax revenues could lead to a reduction in government income. The pressure on public finances may also extend to the Rwandan franc, further complicating the country's economic outlook. Overall, the uncertainties surrounding the conflict in Ukraine are casting a shadow over Rwanda's economic prospects. As the country navigates the challenges posed by higher commodity prices and inflationary pressures, stakeholders will need to closely monitor market dynamics and adapt their strategies to mitigate the impact of the conflict on the economy.