How Rwanda’s economy performed in H1’23

Rwanda, East Africa’s fourth largest economy, has demonstrated remarkable resilience in the first half of 2023, registering an average GDP growth rate of 7.7 per cent. The services sector emerged as a key growth driver, with robust performance seen in tourism-related services, financial services, and ICT. While the country experienced steady growth, the economy remains vulnerable to external risks, particularly concerning the spike in crude oil prices. In an exclusive interview with Dr. Thierry Kalisa, Chief Economist at the National Bank of Rwanda, reassurances were provided regarding the temporary nature of the rise in crude prices, with expectations that they would stabilize between $70 to $80 per barrel in the long term. Dr. Kalisa highlighted the significant contribution of the services sector to the overall growth of the economy, citing a positive performance in tourism, financial services, and ICT. However, he noted that the agriculture sector faced challenges due to climate change-related issues, leading to an uptick in inflation towards the end of the previous year. Despite this, there is optimism that the inflation rate will return to within acceptable bounds by the end of the current year and stabilize at around 5 per cent in the following year. Inflation has been a persistent concern, exacerbated by global factors such as the war in Ukraine and supply chain disruptions following the COVID-19 pandemic. Dr. Kalisa attributed the recent decline in inflation to various measures implemented by the central bank, alongside government interventions aimed at mitigating the impact of rising prices. He highlighted the bank's decision to raise the central bank rate by 300 basis points since February 2022, reaching 7.5%, as a proactive step to combat inflation. Despite a slight decline in agricultural output in the first half of the year, Dr. Kalisa expressed optimism about the sector's performance in the upcoming seasons. He emphasized the seasonal nature of agriculture and clarified that the effects of this year's performance would be more evident in the first quarter of 2024. Additionally, he underscored the positive trajectory of the tourism sector, noting a strong recovery in visitor numbers and expenditure levels. Regarding foreign exchange position, Dr. Kalisa acknowledged Rwanda's status as a net importer, leading to an increased trade deficit driven by heightened demand for imports during the post-COVID recovery phase. The strengthening of the US dollar, coupled with high global prices and imported inflation, has put pressure on the country's forex reserves. Despite these challenges, positive indicators such as remittances, foreign direct investments (FDIs), and export performance have contributed to maintaining a comfortable level of reserves, covering 4.4 months of imports by June. Dr. Kalisa also touched upon Rwanda's recent credit ratings, noting that agencies have maintained stable outlooks, reflecting the country's resilience amid ongoing challenges. While acknowledging external risks, such as fluctuating oil prices and climate change-related shocks, he remains optimistic about Rwanda's economic trajectory. Projections suggest a stabilization of oil prices within the $70-$80 per barrel range, although uncertainties persist due to potential supply disruptions. Climate change events, including recent floods, pose another risk factor affecting agricultural output and inflation levels. In summary, Rwanda's economy has showcased resilience and growth momentum in the first half of 2023, driven by the services sector and supported by proactive monetary and fiscal policies. Despite external risks, the country remains optimistic about overcoming challenges and sustaining its positive economic performance.