ANNUAL ECONOMIC REPORT FISCAL YEAR 2018/2019 January 2020 - Ministry …minecofin.gov.rw/fileadmin/templates/documents/Reports/... · 2020-01-23 · This Annual Economic Report (AER)

| ANNUAL ECONOMIC REPORT i

REPUBLIC OF RWANDA

MINISTRY OF FINANCE AND

ECONOMIC PLANNING

ANNUAL ECONOMIC REPORT

FISCAL YEAR 2018/2019

January 2020

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Table of Contents EXECUTIVE SUMMARY ............................................................................................................................................ 1

1. THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION .................................................................... 3

2. DOMESTIC ECONOMIC PERFORMANCE ...................................................................................................... 6

2.1.2. Real Sector Growth and Contributions to GDP ........................................................................................ 6

2.1.3. Growth by Expenditure Components ..................................................................................................... 8

2.1.1. Prices..................................................................................................................................................... 9

2.1.2. Labour Force Survey results ................................................................................................................. 10

2.2. Fiscal Sector ......................................................................................................................................... 11

2.2.1. Original and Revised Budget ................................................................................................................ 12

2.2.2. Domestic Revenue Performance .......................................................................................................... 12

2.2.3. External Resource Performance ........................................................................................................... 13

2.2.4. Outlays Performance ........................................................................................................................... 13

2.2.5. Capital Expenditure ............................................................................................................................. 15

2.2.6. Net Lending ......................................................................................................................................... 15

2.2.7. Deficit and Financing............................................................................................................................ 15

2.3. External Sector .................................................................................................................................... 16

2.3.1. Balance of Payments Overview ............................................................................................................ 16

2.3.2. Trade Balance ...................................................................................................................................... 17

Export of Goods ................................................................................................................................... 17

Import of Goods .................................................................................................................................. 18

2.3.3. Services, Primary and Secondary Accounts ........................................................................................... 19

2.3.4. Capital and Financial Accounts ............................................................................................................. 20

2.4. Public Debt .......................................................................................................................................... 20

2.4.1. Debt Stock Developments .................................................................................................................... 20

2.4.2. Debt Servicing...................................................................................................................................... 22

2.4.3. External Debt Sustainability Analysis (DSA)........................................................................................... 22

2.5. Monetary and Financial Sector ............................................................................................................. 23

2.5.1. Monetary Sector Developments........................................................................................................... 23

2.5.2. Interest Rate Developments................................................................................................................. 24

2.5.3. Exchange Rate Developments .............................................................................................................. 24

2.5.4. Financial Sector Developments ............................................................................................................ 25

3. ECONOMIC OUTLOOK .............................................................................................................................. 26

3.1. Real Sector................................................................................................................................................. 26

3.2. Fiscal Policy Outlook .................................................................................................................................. 27

3.3. External Sector Outlook ............................................................................................................................. 27

3.4. Debt Outlook ............................................................................................................................................. 27

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3.5. Monetary Policy and Financial Outlook ...................................................................................................... 28

4. CONCLUSION ........................................................................................................................................... 30

| ANNUAL ECONOMIC REPORT 1

EXECUTIVE SUMMARY

This Fiscal Year (FY) 2018/19 marks the second year of implementation of the 7 Years

Government Programme, the National Strategy for Transformation (NST1). In order to achieve

NST1 objectives, an average GDP growth of 9.1 percent over the period will be required.

This Annual Economic Report (AER) covers Rwanda’s Fiscal Year (FY) 2017/18. From July 2018 to

June 2019, Rwanda recorded the highest real GDP growth rate of the last 10 years, surpassing

the past-decade-average growth rate by almost 3 percentage points. Rwanda’s growth is taking

place in a subdued, yet partly heterogeneous, global environment, particularly in sub-Saharan

Africa where some countries are showing robust growth performance above 6 percent on

average, while growth projections in the majority of countries remains lackluster.

In Rwanda, growth during the period under review stood at 9.5 percent. This good performance

was mainly driven by the industry and services sectors. The industry sector saw its growth

doubled from 8 percent in FY 2017/18 to 16 percent in FY 2018/19 due to increased activities in

construction and manufacturing, growing by 25 percent and 12 percent respectively. The services

sector grew by 9 percent, boosted mainly by air transport (Rwandair). In the near-term, the main

drivers to growth will remain construction and manufacturing, reflecting ongoing construction of

capital projects and “Made in Rwanda” policy; and as well as trade and transport services

following import growth.

Consumer prices remained generally low, with headline inflation averaging at around 0.8 percent

in FY 2018/19, relative to 2.3 percent recorded in FY2017/18. While inflation is anticipated to

increase, it is expected to be contained at around 5 percent in the medium-term.

In FY 2018/19, fiscal performance was backed by strong domestic economic performance. On

February 11, 2019, Parliament approved a revised budget totaling FRW 2,585.2 billion which was

FRW 141.7 billion higher than the original budget approved in June 2018. The period under

review showed a good performance for total revenues (both tax and non-tax) relative to FY

2017/18. Despite a better-than-expected tax revenue collection from the resource side, grant

and loan disbursements during the period were slowed particularly in the last quarter of FY

2018/19. On the spending side, the pace of finalizing all procedures required for spending

affected the level of expenditures. However, total spending under net lending for the fiscal year

2018/19 at end June 2019 exceeded the projected amount, mainly due to additional transfer

payments made to Rwandair to meet urgent obligations.

During FY 2018/19, total actual capital expenditure amounted to 1,071.7 billion FRW, compared

to 850.2 billion FRW recorded in FY2017/18. This was driven by the implementation of externally

financed projects, offsetting lower-than-anticipated spending in domestic capital financing. A


large portion of projects implemented during the fiscal year 2018/19 in the case of capital

expenditure reflects NST1 priorities.

At the end of the fiscal year, total revenue and grants registered 2,065 billion FRW, reflecting an

increase of 3.8 billion FRW compared to the revised budget projection. Total expenditure and net

lending registered 2,611.5 billion FRW, 92.7 billion FRW above projections. On payment order

basis, the deficit for FY 2018/19 amounted 547.7 billion FRW, equivalent to 6.4 percent of GDP.

On cash basis, the deficit was 491.4 billion FRW; the deficit was financed with net foreign

borrowing (448.3 billion FRW) and domestic financing (43 billion FRW). Regarding the medium

term period, total revenue and grants are projected to be 2,250.4 billion FRW in 2019/20, 2,551

billion FRW and 2,847.6 billion FRW in 2020/21 and 2021/22 respectively. Tax to GDP is projected

to be 16.4 in 2019/20 and increase by 0.2 percent of GDP every fiscal year that will follow. The

non-debt creating fiscal deficit on a five years rolling average basis, is 5.5 percent of GDP in

2019/20 and 2020/21, declining to 5.3 percent of GDP in 2021/22, thus respecting the fiscal rule

under the Policy Coordination Instrument (PCI) program with the IMF.

During FY 2018/19, the overall balance of payments had a surplus of US$ 58.5 million, which is

lower than the surplus of US$ 135.5 million at the end of the previous FY 2017/18. The decrease

was due to the decline in financial account balance as a result of shortfall/delays in disbursement

of grants and loans in the first half of 2019. Despite an improvement of capital accounts by 32.9

percent, the current account has deteriorated by 7.4 percent, due to a high increase in import

for construction activities in the country. Export growth was affected by a drop in price observed

in the international market for most of our traditional exports. The deterioration of the current

account balance, which stood at 10.6 percent of GDP in FY 2018/19 compared to 7.7 percent of

GDP in the previous fiscal year 2017/18 was specifically due to the increase of the external

imbalance of goods and services (by +12 percent); which represents around a 56 percent share

of the current account. In summary, Trade balance has deteriorated by 25.5 percent, import

growth outweighing export growth. Positive export trends and more modest import growth are

expected to support the continued narrowing of the current account deficit to around 9.9 percent

of GDP in 2020 and 7.3 percent in 2023 in addition to improving external buffers.

The BNR’s monetary policy stance remained accommodative during the period. Given that both

inflationary and exchange rate pressures were projected to remain moderate in FY 2018/19, the

key repo rate, which was reduced to 5.5 percent in FY 2017/18 from 6.0 percent in FY2016/17,

persisted throughout the FY2018/19 period. It was further reduced to 5.0 percent in May 2019

to improve the overall financial market conditions and support financing of the economy by the

banking sector. In FY2019/20, monetary policy will focus on ensuring a stable macroeconomic

and financial environment. Over the policy horizon, inflation is expected to remain within the

benchmark band of the NBR of 5±3 percent.


The current impressive performance of the Rwandan economy over the past decade, particularly

in FY2018/19, provides a solid basis for sound and sustainable economic policy management in

both the medium and long term.

1. THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION

Global economic activity is tilting downward in 2019 and 2020 after strong and steady growth

in 2017 and 2018. Growth projections for many regions are declining in 2019 except for sub-

Saharan Africa where growth is projected to remain flat this year. This harmonized slowdown for

nearly 90 percent of countries around the world signals the gathering of factors affecting the

global economy.

Table 1: World and Regional Real GDP Growth (%)

Real GDP Growth 2016 2017 2018 2019 Proj. 2020 Proj.

World 3.2 3.8 3.6 3.0 3.4

Advanced Economies 1.7 2.4 2.3 1.7 1.7

Euro Area 1.8 2.4 1.9 1.2 1.4

United States 1.5 2.2 2.9 2.4 2.1

Emerging Markets and Developing Economies 4.3 4.8 4.5 3.9 4.6

Developing Asia 6.4 6.6 6.4 5.9 6.0

China 6.7 6.8 6.6 6.1 5.8

India 7.1 7.2 6.8 6.1 7.0

Latin America and Caribbean -0.9 1.2 1.0 0.2 1.8

Middle East and Centr. Asia incl. N. Africa 5.0 2.3 1.9 0.9 2.9

Sub-Saharan Africa 1.4 2.9 3.2 3.2 3.6

Source: WEO, October 2019

Global growth is projected at 3.0 percent for 2019, reflecting a 0.3 percent downward revision

from an earlier forecast in April. It is estimated to grow in 2020 at the rate of 3.4 percent.

However, unresolved trade tensions between the United States and China are softening global

economic activity and pointing to a more insecure economic environment in the near and

medium terms. The Europe area has slowed due in part to political tensions that affected

consumption spending in France, fiscal policy challenges in Italy, and growing uncertainties

surrounding no-deal Brexit in the United Kingdom. In sub-Saharan Africa, economic performance

is predictably heterogeneous, where some countries are expected to experience robust growth

above 6 percent this year, such as Rwanda and Ethiopia, but growth projections for a majority of

the countries in the region remain lackluster.


Risks to the global economy is skewed towards the downside. They include swelling trade and

technology tensions that have drained business confidence and affected the global

manufacturing industry; structural issues such as aging demographics and low productivity

growth in advanced economies; sudden shift in global risk appetite; rise of geopolitical tensions;

and escalating disinflationary pressures that make adverse shocks more pervasive. However, the

recent trade discussion at the G20 Summit could ease tensions but requires strong agreeable

commitment to address deeper frustrations surrounding the rules-based multilateral trading

system and easing financial market conditions.

1.1. World Trade

Global trade volumes have slowed significantly, and is projected far below the averaged crisis

levels following the emergence of US-China trade war, which resulted in tariff actions on a wide

range of products in 2018 and in the first half of 2019. The outlook seems promising in 2020,

growing at 3.2 percent, but still below 2018 performance level. The projected growth in the year

ahead is relatively more uncertain since it relies heavily on the presumption that the current

stressed emerging market and developing economies will stabilize in the near term, including

progress toward settling major trade disputes and other related trade policy issues.

Table 2: World Trade Volume (Goods and Services, yearly % change)

Pre-crisis

1999-2008

Post-crisis

2009-2014 2018

2019

proj.

2020

proj.

World Trade Volume 6.6 3.2 3.6 1.1 3.2

Imports


Emerging Markets and Developing Countries 8.9 5.3 5.1 0.7 4.3

Exports


Emerging Market and Developing Countries 8.8 4.3 3.9 1.9 4.1


1.2. Global and Regional Inflation

Global inflation outlook for 2019 is mixed. It is projected to decline in both advanced economies

and sub-Saharan Africa, but expected to move upward slightly in emerging markets and more in

Latin American economies. This reflects the prospect for growth in some regions and the impact

of commodity price decline, such as energy prices, which seem to have muted prices across

advanced economies. In emerging markets and developing economies, a temporary increase in


VAT in Russia, for instance, and a strong consumer demand in India have contributed to inflation

growth. Core inflation, excluding food and energy, still remains subdued and below central banks’

targets in most advanced economies despite a reasonable pickup in 2017 and 2018. In most

Figure 1: World and Regional Consumer Price Inflation Rates (percent)


*Projection

emerging market and developing economies, core inflation is still below recent year average,

while for some countries, particularly in sub-Saharan Africa, exchange rate depreciations have

been translated into higher domestic price increases.

Consumer prices eased in all EAC countries for the FY 2018/19. Inflation rate in EAC averaged 1.7

percent by end of 2018/19 compared to 4.5 percent in the previous fiscal year, as prices have

fallen significantly for food and non-alcoholic beverages. Headline inflation fluctuated

significantly across countries. For FY2018/19, inflation in Rwanda stabilized at around 0.8 percent

while Burundi experienced negative inflation in the same period. On average, Kenya recorded

the largest inflation rate in FY2018/19, followed by Tanzania and Uganda respectively.

Figure 2: EAC Inflation Rates (percent)

Source: EAC Countries Statistics

0.0

3.0

6.0

9.0

12.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

CP

I (%

)

Advanced economiesMajor advanced economies (G7)Emerging market and developing economiesEmerging and developing AsiaLatin America and the CaribbeanSub-Saharan Africa

-5.3

0.0

5.3

10.5

15.8

FY2016/17 FY2017/18 FY2018/19

CP

I (%

)

Uganda

Kenya

Tanzania

Rwanda

Burundi


1.3. Global Financial Markets Developments

Global financial conditions are relatively easing since the April 2019 outlook, although subject to

risk underpricing which could further facilitate the buildup of financial vulnerabilities. The current

outlook relies heavily on two main issues: the impact of trade tensions on lessening economic

conditions and the implication of these tensions on monetary policy stance. Monetary policy shift

by central banks is expected to improve the overall global financial market conditions in the near

term where policymakers now seem to have favored more accommodative policy rates amid

disinflationary spirals. Low inflation in the United States is strengthening the case for a Fed

interest rate cut, while the European Central Bank, China, and other emerging market economies

are keeping interest rates at its current low levels with more cautious view and near-term

forward guidance. These anticipated monetary policy paths across key regions are reviving

investors’ sentiments as markets regain their momentum. The global share prices have partly

recovered in the middle half of 2019 capturing the lost momentum in May 2019 as interest rates

continue to decline across a broad swath of economies. The US dollar has appreciated in real

effective terms while the Euro depreciated about 3 percent over this period following sharp

exchange rate depreciation in emerging markets.

2. DOMESTIC ECONOMIC PERFORMANCE

2.1. Real Sector

2.1.1. Economic Growth Performance

During the fiscal year 2018/19, the Rwandan Economy recorded the highest growth in the last 10

years with 9.5 percent, almost 3 percentage points higher than the 10-years' average. This was

mainly driven by the industry sector, which saw its growth doubled from 8 percent in 2017/18 to

16 percent in 2018/19 thanks to construction and manufacturing boost, which saw 25 percent

and 12 percent growth respectively in 2018/19. The services sector grew by 9 percent and

agriculture by 5 percent. GDP per capita in 2018 stood at 787 $US compared to 774 $US in 2017.

2.1.2. Real Sector Growth and Contributions to GDP

During the Fiscal year 2018/19, GDP grew by 9.5 percent from 8.9 percent the previous fiscal

year. The Industry sector led the way by a considerable distance, expanding the most in real

terms, registering its highest growth of the last 6 years of 16 percent. This performance was

followed by a 9 percent and 5 percent growth of the services and agriculture sectors, respectively.

Remaining the largest share of GDP with 48 percent, the Services sector grew by 9 percent in

2018/19. Mostly driven by trade and transport, which grew by 14 percent in 2018/19 thanks to


Figure 3: Real sector Growth (2013/2014 to 2018/2019)

Source: National Institute of Statistics of Rwanda

wholesale and retail trade (+14 percent). Other services grew by 8 percent, mostly driven by

financial services, Real Estate and Professional, Scientific and Technical activities, which grew

respectively by 12 percent, 5 percent and 16 percent in 2018/19 from 10 percent, 3 percent and

6 percent in 2017/18. On the overall, the sector contributed 4.5 percentage point. Two sub-

categories which improved in their contributions to the sector’s overall contribution to the real

expansion of the economy were the real estate sector and the professional services sector. These

two sub-categories contributed 0.4 and 0.5 percentage points, respectively, compared to their

2017-2018 contributions of 0.2 for each.

With a share of 17 percent of GDP, Industry grew by 16 percent. Contributing significantly to this

was a 25 percent growth in Construction services and a 12 percent growth in Manufacturing

services, driven mainly by construction related manufacturing: non-metallic, +25 percent; Metal

products, +35 percent; Wood, +26 percent). The strong expansion in real industrial output was

manifested in a solid 2.9 percentage point contribution, a figure which is more than double the

sector’s contribution for fiscal year 2017-2018. There was a stronger contribution from

construction services of 2.0 percentage point, a figure which dwarfs the 0.3 percentage point

contribution registered in 2017-2018, significantly improved the industrial sector’s overall

performance of 2.9 percentage point. As expected Mining and quarrying slowed down due to a

drop in commodity prices and stood at 6 percent in 2018/19 compared to 20 percent in 2017/18;

contributing a 0.4 percentage point less than the 0.6 percentage point registered for fiscal year

2017-2018.

The agriculture sector, the economy’s second largest sector with a 28 percent share, grew by 5

percent in 2018/19 from 8 percent in the previous fiscal year. This slowdown in growth was

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Agriculture Industry Services GDP


Table 3: Real sector growth by sector (FY2016/2017 to FY2018/2019)

Contribution Growth Rate (percent)

Growth Rate (percent) Shares of Nominal GDP

(percent)

2016-

17 2017-

18 2018-

19 2016-

17 2017-

18 2018-

19 2016-

17 2017-

18 2018-

19

GDP 3.4 8.9 9.5 3.4 8.9 9.5 100.0 100.0 100.0

AGRICULTURE 0.9 2.2 1.2 3.0 8.0 5.0 31.0 31.0 28.0

Food crops 0.4 1.3 0.5 3.0 8.0 3.0 20.0 18.0 15.0

Export crops -0.1 0.3 0.0 -5.0 14.0 -1.0 2.0 2.0 2.0

Livestock & livestock products 0.4 0.4 0.5 11.0 12.0 14.0 3.0 4.0 4.0

INDUSTRY 0.4 1.4 2.9 2.0 8.0 16.0 16.0 16.0 17.0

Mining & Quarrying 0.2 0.6 0.2 7.0 20.0 6.0 2.0 2.0 2.0

Manufacturing 0.4 0.5 0.7 6.0 8.0 12.0 6.0 6.0 6.0

Construction -0.2 0.3 2.0 -3.0 4.0 25.0 6.0 6.0 7.0

SERVICES 2.7 4.8 4.5 5.0 10.0 9.0 47.0 47.0 48.0

Wholesale & retail trade -0.3 1.1 1.1 -5.0 14.0 14.0 7.0 7.0 7.0

Transport 0.2 0.8 0.7 4.0 19.0 15.0 4.0 4.0 5.0

Real estate 0.6 0.2 0.4 8.0 3.0 5.0 8.0 8.0 8.0

Professional services 0.5 0.2 0.5 16.0 6.0 16.0 3.0 3.0 3.0


mainly due to a negative growth of export crops of 1 percent in 2018/19, explained by a shrink

in Tea, Sugarcane and Pyrethrum (-6 percent, -55 percent, -27 percent respectively), although

Coffee grew by 6 percent. Food crops grew by 3 percent in 2018/19 compared to 8 percent in

2017/18, the slowdown was due to lower performance in the production of season A. Livestock

grew by 14 percent, Forestry by 5 percent and Fishery by 3 percent. This meant that the sector’s

contribution fell from 2.2 percentage point in fiscal year 2017-2018 to 1.2 percentage point in

2018-2019. Improved contribution from livestock products was saddled by declining contribution

from food crops and export crops, compared to the past fiscal year.

2.1.3. Growth by Expenditure Components

On the demand side, overall GDP growth was driven by a consecutive high growth of Gross

Capital formation, which grew by 26 percent in 2018/19 from 23 percent in the last year, and

Government consumption with a growth rate of 23 percent in 2018/19 from 3 percent in the


Table 4: GDP contribution by selected expenditure components

Components contribution to growth (in

percentage points)

2017-18 2018-19

Growth rates of Real GDP 8.9 9.5

Total final consumption expenditure 1.8 8.3

O/w Households and NGOs 1.5 4.5

Gross fixed capital formation 5.3 6.8

O/w Construction 0.6 4.3

Exports of goods & services 5.1 0.2

Imports of goods & services -3.5 -5.6

previous fiscal year. The trend in the Gross Capital Formation is linked to the upward trend in

construction, which grew by 25 percent in 2018/19. These spectacular growth rates meant strong

growth contributions of 7.4 percentage points and 5.6 percentage points from gross capital

formation and total final consumption expenditure categories, respectively. These contributions

represent increases of 5.6 percentage points and 1.2 percentage points of total final consumption

expenditure and gross capital formation, respectively, when compared to the previous year. The

expansion of these expenditure categories were fueled substantially by solid performances from

some of their sub-components. Specifically, a 4.5 percentage points contribution from final

household and NGOs expenditure, a component of the total final consumption category; and a

4.3 percentage points contribution from construction investment, a component of the gross fixed

capital formation category, are noteworthy. The contributions of these components are all

significantly higher than the 1.5 and 0.6 percentage points contribution registered for 2017-2018.

Notwithstanding, imports of goods and services, a component of the resource balance category

contributed 5.6 percentage points compared to the 3.5 percentage points registered for 2017-

2018. This growth in imports meant that the current account deficit widened by an additional 5

percent compared to its 2017-2018 figure of 11 percent.

2.1.1. Prices

The annual inflation remained low, with the headline inflation averaging 0.8 percent over

2018/19 from 2.3 percent the previous year. Lower inflation was mainly explained by inflation of

food (-3.9 percent compared to 2 percent); clothing & footwear costs (3.3 percent compared to

4.3 percent), housing and utilities (1.9 percent compared to 2.7 percent), recreation and culture

(-0.9 percent compared to 3.9 percent), health (0.2 percent compared to 3.5 percent). Meantime,


Figure 4: Inflation for key items in annual average rates


inflation was higher for transport (7.8 percent compared to 3.9 percent), education (1.6 percent

compared to 0.5 percent). In contrast, prices for alcoholic beverages and tobacco were stable

(averaging 5.8 percent for the last two years). Energy and transport prices increased mainly due

to the upward trend in international oil prices.

Domestic goods' inflation declined considerably in the FY 2018/19 to reach 0.1 percent from 1.6

percent for the fiscal year 2018/19, mainly due to good harvest of season A2019. Imported

inflation averaged to 3.3 percent in 2018/19 from 4.5 percent in the previous fiscal year mainly

due to food and non-alcoholic beverages. Inflation for key items on annual change eased at 0.9

percent in June 2019 compared to 2.9 percent in June 2018.

2.1.2. Labour Force Survey results

According to the NISR survey results, among the 6,966,096 persons aged 16 years old and above,

living in private households, about 3,788,996 persons, representing 54.2 percent were in the

labour force, either employed (3,207,336) or unemployed (571,660). The remaining 3,187,100

persons were outside the labour force including some 1,703,122 persons engaged wholly or

mostly in subsistence foodstuff production, not classified as employment according to the new

international standards on statistics of work, employment and labour underutilization.

2.3%

0.8%

-3.9%

5.8% 5.8%

4.3%

3.3%

2.7%

1.9%

3.5%

7.8%

3.9%

-0.9%

0.5%

1.6%

-0.6%

2.7%

1.7%

-4.0%

8.0%

FY 18/19 July-June FY 17/18 July-June

GENERAL INDEX (CPI)

Food and non-alcoholic beverages

Alcoholic beverages and tobacco

Clothing and footwear

Housing, water, electricity, gas andother fuelsFurnishing, household equipmentand routine household maintenanceHealth

Transport

Communication

Recreation and culture

Education

Restaurants and hotels

Miscellaneous goods and services


Table 5: Rwanda Labour force survey 2018: Summary labour force indicators

Working age population 16 years old and over

6,966,096 persons

Outside the labour force (Not

employed nor unemployed)

3,187,100 persons

Labour force (The sum of employed and unemployed)

3,788,996 persons

Labour force participation rate: 54.2%

Primary or below: 81.0% Employed

(All who worked for pay or profit)

3,207,336 persons

Employment to population ratio: 46.0%

Unemployed

(All not employed but seeking and

available to work for pay or profit)

571,660 persons

Unemployment rate: 15.1%

Secondary:18.0%

Tertiary: 1.0%

Others

outside the

labour force

46.6%

Subsistence

foodstuff

producers

53.4%

Agriculture

excluding

subsistence

foodstuff

production

39.5%

Industry

18.8% Services

41.7 % Primary

education

or below

68.8%

Secondary

education

23.9%

Tertiary

education

7.3%

Supplied weekly labour: 107 million hours

Source: LFS 2018, NISR

The annual unemployment rate was 15.1 percent, indicating that roughly for every seven people

in the labour force, there was one person unemployed.

2.2. Fiscal Sector

The fiscal performance for FY 2018/19 was affected by the general domestic macroeconomic

performance which impacted the revenue collection performance as well as donor budget

support disbursements, both of which determined the accrual of resources for spending

during that period. On the spending side, the pace of finalizing all procedures required for

spending affected the level of expenditures also during the period under review.

In the last quarter of the fiscal year 2018/19, there were some delays in the disbursement of

external budget support funds. As a result, there was a slow-down in the implementation of

the major expenditure items excluding spending on Peace Keeping Operations and a portion

of the additional spending projected in April 2019 that was not realized.


Table 6: Revenue performance in 2018/2019 (in billion FRW)

Government Operations Billion FRW FY 2017/18 FY 2018/19 FY 2018/19

Act. Revised Budget Prov. Act.

Domestic revenue 1,461.5 1,635.8 1,670.2

Tax revenue 1,252.9 1,396.9 1,418.8

Direct taxes 538.7 602.6 617.1

Taxes on goods and services 616.1 684.9 690.0

Taxes on international trade 98.1 109.4 111.7

Non-tax revenue 208.6 238.9 251.4

of which PKO 150.1 160.6 151.0

Source: MINECOFIN

2.2.1. Original and Revised Budget

On February 11, 2019, Parliament approved a revised budget totaling FRW 2,585.2 billion which

was FRW 141.7 billion higher than the original budget approved in June 2018. In economic

classification terms, the revised budget projected total revenue and grants at FRW 2,061.2 billion

and total expenditure and net lending at FRW 2,518.8 billion. The revised budget was to end with

an overall cash deficit of FRW 484.9 billion which was to be financed with total net external loans

of FRW 435.7 billion and total net domestic borrowing of FRW 49.2 billion.

In March 2019, with the IMF mission for the fiscal year 2018/19 macro-economic framework

(including the budget framework) review, an additional amount of revenue was projected as well

as requests for additional spending from main priority areas that were recognized. The estimates

of domestic revenue and total expenditure and net lending were raised accordingly, especially

for the January- June 2019 period. Total revenue and grants estimates become FRW 2,074 billion,

FRW 12.8 billion higher compared to FRW 2,061.2 billion that was in the revised budget. In the

case of total expenditure and net lending there was an increase of FRW 31.4 billion which raised

the revised budget figure from FRW 2,518.8 billion to FRW 2,550.2 billion, where changes

affected mainly domestically financed capital expenditures and net lending (export promotion).

As a result, the 2018/19 budget agreed with IMF team in April 2019 was projected to end with

an overall cash deficit of FRW 503.5 billion (FRW 18.9 billion) higher compared with the FRW

484.9 billion agreed by Parliament in the revised budget for the FY 2018/19.

2.2.2. Domestic Revenue Performance

For the revised budget of the fiscal year 2018/19, FRW 1,635.8 billion was estimated for domestic

revenue and FRW 1,670.2 billion was collected with FRW 34.4 billion excess. For tax revenue,


Table 7: External Resource Performance for FY2018/19



Total external resources 740.8 889.7 871.8

Total Grants 358.9 425.4 394.8

Budgetary grants 190.2 192.3 161.7

Capital grants 168.7 233.1 233.1

Projects 168.7 233.1 233.1

Total loans 381.9 464.3 477.0

Budgetary loans 211.5 295.1 262.0

Project loans 170.4 169.2 214.9

Source: MINECOFIN

mainly direct taxes, tax on goods and services contributed to the good performance of domestic

taxes, which increased by FRW 21.9 billion, from FRW 1,396.9 billion projected to FRW 1,418.8

billion. Under direct taxes, the main contributor to the excess was PAYE, driven by the increase

in employment of some registered companies in the service sector including financial sector,

offered bonuses, increase in wages/salaries and profit taxes. For the case of tax on goods and

services, both domestic and import VAT registered a good performance. With regard to Non-tax

revenue, an additional FRW 12.5 billion was collected, thanks to improved collections from other

administrative fees and charges which more than offset the shortfall in PKO reimbursements.

2.2.3. External Resource Performance

On the external funds side, both loans and grants registered a shortfall of FRW 17.9 billion, from

FRW 889.7 billion estimated to FRW 871.8 billion disbursed, as recorded based on actual

provisional data. This shortfall resulted from lower than anticipated disbursement of budgetary

grants and the draw-down of budgetary loans, while capital grants and project loans were on

track. However, project loans total drawdown amounts FRW 214.9 billion; which is FRW 45.7

billion higher than the FRW 169.2 billion projected in the revised budget. A table below is showing

provisional actual data and revised budget projection to illustrate where the shortfall came from.

2.2.4. Outlays Performance

Based on provisional data, the outlays profile for the fiscal year 2018/19 registered a mixed

picture, where the FRW 2,611.5 billion registered was higher by 92.7 billion FRW compared to

the projected FRW 2,518.8 in the revised budget.’ With this record, recurrent, capital and net


Table 8: Expenditure performance



Total expenditure and net lending 2,187.5 2,518.8 2,611.5

Current expenditure 1,177.3 1,301.2 1,343.4

Wages and salaries 324.3 367.5 366.2

Purchases of goods and services 216.3 230.9 229.9

Interest payments 91.6 103.1 102.5

Domestic Int (paid) 48.9 55.4 54.6

External Int (due) 42.7 47.6 47.9

Transfers 363.3 398.7 407.2

Exceptional social expenditure 181.8 201.1 237.7

Capital expenditure 850.2 1,027.6 1,071.7

Domestic 463.2 625.3 623.7

Foreign 387.1 402.3 448.0

Net lending 160.0 190.0 196.3

Source: MINECOFIN

lending spending were reported to be higher than projected and recurrent spending exceeded

its projected amount of 1,301.2 billion FRW by 42.2 billion FRW. Capital and net lending also

registered 50.4 billion FRW higher compared to the projected amount of 1,217.6 billion FRW in

the revised budget.

Wages and Salaries: total spending on wages and salaries for the fiscal year 2018/19 was

FRW 366.2 billion, which was lower compared to the revised budget projection of FRW 367.5

billion by FRW 1.3 billion. Delayed payment of some allowances accounted for this small

shortfall under this category.

Goods and Services: at end June 2019, spending under purchase of goods and services registered

FRW 299.9 billion for the fiscal year 2018/19. This figure was only 1 billion RWF lower than the

revised budget figure of 230.9 billion FRW. Delayed expenditure regarding technical assistance

remuneration accounted for this small shortfall in spending.

Interest payment: the fiscal year 2018/19 put total interest payments at FRW 102.5 billion which

is only marginally lower than the revised estimate of FRW 103.1 billion. The small shortfall

registered under this category came mainly from domestic interest payments which were lower

by FRW 0.8 billion.


Transfers: at end June 2019, total spending under Transfers and Subsidies amounted to FRW

407.2 billion. This figure was 8.5 billion FRW higher than the revised budget amount of 398.7

billion FRW.

Exceptional Expenditure: at end of the fiscal year in June 2019, spending under this category had

registered at FRW 237.7 billion. This end of the fiscal year’s figure was FRW 36.6 billion higher

than the amount of FRW 201.1 billion estimated for the fiscal year under review. PKO front

loading is the main reason for this excess spending.

2.2.5. Capital Expenditure

With regards to capital expenditure, in the revised budget, FRW 1,027.6 billion was projected and

provisional actual data showed that FRW 1,071.7 billion was recorded with the excess of 44.1

billion FRW mainly coming from the externally financed part while lower than projected spending

under the domestically financed portion recorded a shortfall of 1.6 billion FRW. Some project

funded by Global Fund grants were responsible for the small shortfall in spending. A large portion

of projects implemented during the fiscal year 2018/19 in the case of capital expenditure reflects

NST1 priorities.

2.2.6. Net Lending

Total spending under net lending for the fiscal year 2018/19 at end June 2019 amounted to

196.3 billion FRW and exceeded the estimated amount of 190 billion FRW for the period by

6.3 billion FRW. Additional transfer payments to Rwandair to meet urgent obligations caused

this small excess spending, as the company has expanded its operations after acquisition of

some additional aircraft.

2.2.7. Deficit and Financing

The actual data shows an excess draw-down of project loans of 45.7 billion FRW and the

corresponding increase in foreign capital spending is one of the main reasons of the increase in

the overall payment order deficit from 457.7 billion FRW in the revised budget to 547.6 billion

FRW or 6.4 percent of GDP. Overall cash deficit was higher from 484.9 billion FRW in the revised

budget to 491.4 billion FRW recorded as provisional actual. The actual net domestic financing

portion was at 43 billion FRW compared to 49.2 billion FRW projected while the actual net foreign

financing portion was 448.3 billion FRW higher than the 435.7 billion FRW projected and the

excess reflects the revised accelerated draw-down of project loans. Due to the fact that some of

the payment orders of suppliers and contractors could not have been paid before the close of

the fiscal year, Government attempted to solve it with an increase in the sale of Government

securities to the non- bank sector of the economy with net sales of 66.9 billion FRW.


Table 9: Budget financing for FY 2018/19



Financing 392.2 484.9 491.4

Foreign financing (net) 356.0 435.7 448.3

Drawings 381.8 464.3 477.0

Budgetary loan 211.5 295.1 262.0

Project loans 170.4 169.2 214.9

Amortization (due) -25.8 -28.6 -28.7

Domestic financing 36.2 49.2 43.0

Banking system (Monetary Survey) 48.8 49.2 -12.8

Non-bank (Net) -5.9 0.0 66.9

Source: MINECOFIN

2.3. External Sector

2.3.1. Balance of Payments Overview

During FY 2018/19, the overall balance of payments had a surplus of US$ 58.5 million, a decline

from a surplus of US$135.5 million at the end of the FY 2017/18. This was due to a decline in the

financial account, explained by a shortfall/delay in disbursement of grants in the first half of

2019. Despite an improvement of capital accounts by 32.9 percent, the current account deficit

expanded by 7.4 percent. In percent of GDP, the current account balance deteriorated from 7.7

percent of GDP in FY 17/18 to 10.6 percent of GDP in FY 2018/19 due to an increase in imports

in line with the construction activities in the country, and an export growth affected by a drop

in international prices for almost of our traditional export.

Specifically, the deterioration of the current account balance in FY 2018/19 compared to the

previous FY 2017/18 was due to the increase of external imbalance of goods and services by

(+12 percent); which has a 56 percent share in the current account. The trade balance has

deteriorated by 25.5 percent. The secondary income net increased by 4.8 percent, lower than

the 23.6 percent increase recorded in FY 2017/18.

2.1.1. Trade Balance

In 2018/19, the trade balance has deteriorated by 25.5 percent, to US$ -1,035.9 million from

US$ -825.6 million in the previous FY 2017/18. This was due to an increase in import value of


Table 10 Summary of Balance of Payments for FY 2018/19 value (million US$)

FY 2017/2018 FY 2018/2019 % change

A. Current Account - 800.8 - 860.4 7.4%

Balance on goods and services - 1,058.4 - 1,188.0 12.2%

Goods (Trade Balance) - 825.6 - 1,035.9 25.5%

Exports f.o.b. 1,152.0 1,162.4 0.9%

Of which: coffee 69.4 67.8 -2.2%

tea 87.9 83.6 -5.0%

Imports f.o.b. 1,977.6 2,198.2 11.2%

Primary income (net) = Income in BPM5 -348.9 -308.3 -11.7%

Secondary income (net) = Transfers in BPM5 606.6 635.9 4.8%

B. Capital Account 199.0 264.4 32.9% C. Financial Account: Net lending(+)/ net borrowing (-) -682.3 -641.3 -6.0%

Overall balance 135.4 58.5 -56.8%

Source: BNR Statistics Department

11.2 percent against the slight increase of export value of 0.9 percent recorded in 18/19

compared to the previous year 17/18. According to the export coverage of imports, it stood at

52.9 percent in 18/19 from 58.3 percent in the previous year.

Services performed well as the deficit has decreased by 36.8 percent. Service debit (import) has

decreased by 0.3 percent against the increase of service credit (export) of 8.7 percent explained

by an increase in transport credit (export) of 22.3 percent which outweigh the increase in

transport debit (import) of 5.7 percent, increase in travel credit (export) of 7.4 which was higher

than the increase in travel debit (import) of 2.4 percent and increase in other services credit

(export) of 9.1 percent against the decline in other services debit (import) of 10.8 percent.

Export of Goods

In 2018/19, export of goods has increased slightly by 0.9 percent in value, to USD 1,162.4 million

from USD 1,152.0 million recorded in 2017/18. This is a minor increase compared to the 37.0

percent increase recorded in 2017/18. This was especially due to the run-down performance of

Minerals (3ts) (-16.3 percent) in value, tea (-5.0 percent) and coffee (-2.2 percent) affected by

the drop in international commodity prices. This drop in international prices affected the volume

of minerals (3Ts) specifically by (-7.9 percent). Notwithstanding on this, in 2018/19 other ordinary

products have performed well as they increased by (+162 percent) in value and (+79.2 percent)

in volume compared to the previous FY. Re-export has increased by 10.4 percent, especially due

to the high demand from neighboring countries Burundi and DRC that led to an increase in

volume of 31.9 percent.


Table 11: Trade balance in volume and value (million US$)

2017/18 2018/19 Change %

Value Volume Value Volume Value Volume

Exports 1,152.0 689,202 1,162.4 1,024,202 0.9% 49%

Coffee 69.4 20,353 67.8 21,153 -2.2% 3.9%

Tea 87.9 27,784 83.6 30,881 -4.9% 11.1%

Minerals (3Ts) 150.1 8,661 125.6 7,979 -16.3% -7.9%

Other Products 151.5 274,721 397.6 492,299 162% 79.2%

Re-export 322.7 357,682 356.2 471,889 10.4% 31.9%

Imports 1,977.6 2,263,072 2,198.2 2,296,555 11.2% 1.5%

Consumer goods 758 859,311 778.1 775,789 2.7% -9.7%

Capital goods 623.1 65,020 809.4 88,874 29.9% 36.7%

Intermediate goods 628.8 981,870 733.7 1,046,126 16.7% 6.5%

Energy 279.1 356,872 315.4 386,153 13.0% 8.2%

Trade Deficit 825.6 1,573,870 1,035.9 1,378,188 25.5% -12%


During the FY 2018/19, the performance of coffee was not good as the high season (July-

November) in this sector, was affected by a drop in international commodity prices until the first

half of 2019. As a result, coffee exports has decreased by 2.2 percent in terms of value and

volume increased negligibly by 3.9 percent.

Regarding the composition of our exports, it is important to note the diversification of products:

re-exports and non-traditional exports (other than coffee, tea, and minerals 3T) account for 34

percent and 39 percent of total exports in value respectively.

Import of Goods

During 18/19 FY, import of goods has increased by 11.2 percent, driven by the increase of capital

goods, Intermediate goods and Energy products by 29.9 percent, 16.7 percent and 13.0 percent

respectively compared to the previous FY due to a volume increase of 36.7 percent, 6.5 percent

and 8.2 percent respectively. Import of consumer goods rose moderately by 2.7 percent, partly

reflecting increased domestic supply following good weather conditions in 2019 season A&B.

In terms of composition, we import mainly capital goods, accounting for 31 percent, followed by

consumer goods and intermediate goods accounting for 30 percent and 28 percent respectively.


Figure 5: Export by Volume and value respectively FY2018/19 (% share)


Figure 6. Import by Volume and value respectively FY2018/19 (% share)

Source: Statistics department, BNR

2.1.2. Services, Primary and Secondary Accounts

During 18/19 FY, Services have performed well, export of services increased by 11.1 percent

while import of services increased only by 0.8 percent. The export of services were mainly driven

by transport and travel, increasing by 22.3 percent and 7.4 percent respectively.

7%

8%

12%

39%

34%

Export value share 18/19

Coffee Tea Minerals (3Ts)

Other Products Re-export

2% 3%

48%

46%

Export volume share 18/19

Coffee TeaMinerals (3Ts) Other ProductsRe-export

30%

31%

28%

12%

Import value share 18/19

Consumer goods Capital goods

Intermediate goods Energy

34%

4%

45%

17%

Import volume share

Consumer goods Capital goods

Intermediate goods Energy


Both Primary and secondary accounts have improved during 18/19 FY though the increase were

not as expected. Primary income (net) has improved by 11.7 percent during 18/19 FY while

secondary income (net) increased by 4.8 percent compared to 23.6 percent in FY 2017/18. Private

transfers especially net remittances continue to perform well with a 17.9 percent increase but

lower than the exceptional 65.7 percent increase registered in FY 2017/18.

2.1.3. Capital and Financial Accounts

During 18/19 FY, Capital Account showed a good performance as capital grants increased by 32.9

percent from a 4.8 percent increase recorded in 17/18 FY. On the other hand, improvement in

Financial Account was not as good as expected, improving only by 6 percent from 13.8 percent

recorded in previous fiscal year. This can be explained by a shortfall and delay in disbursement

of grants in the first half of 2019 as explained in the fiscal section.

2.2. Public Debt

2.2.1. Debt Stock Developments

Rwanda’s total public and publicly guaranteed debt stock amounted to FRW 4,751.0 billion as of

end June 2019, or 55.3 percent of GDP compared to FRW 3960.0 billion as of end June, 2018

equivalent to 50.1 percent of GDP. The increase in public and publicly guaranteed debt (5.2

percent of GDP) is a combination of both contributions from external public debt and Domestic

Public debt which stood respectively at 43 percent of GDP and 12.3 percent of GDP as of end

June 2019.

External Public debt for the Government of Rwanda is dominated by concessional loans (80.5

percentage share of total external public debt) constituted by Project and budget loans from 16

development partners. The development partners include 6 bilateral and 9 multilateral donors

supporting various sectors of the economy such as Construction, Transport and Communication,

Health, Energy, Agricultural and Rural development, Education and Human Resources

Development. Domestic Public debt is composed of loans and debt securities owed by the

Government of Rwanda to national residents and nonresidents.

Although external concessional loans still constitute the majority of public debt, non-

concessional loans have seen a significant increase over recent years. This includes Eurobond and

guarantees provided by the GoR for the completion of the Kigali Convention Centre (KCC), as well

as loans and leases contracted by Rwandair for the acquisition of new aircrafts in anticipation of

new service routes.


Table 12: Public Debt Stock FY 2018/19

Public and Publicly Guaranteed Debt in mil of FRW

June , 2018 June , 2019

Billion

(FRW) % of GDP

Share of

total debt

(%)

Billion

(FRW) % of GDP

Share of

total debt

(%)

Total public debt 3,960.0 50.1 100.0 4,751.0 55.3 100.0

External 3,220.7 40.8 81.3 3,695.3 43.0 77.8

Concessional 2,538.1 32.1 64.1 2,973.4 34.6 62.6

Multilateral 2,150.7 27.2 54.3 2,608.6 30.3 54.9

Bilateral 387.4 4.9 9.8 364.8 4.2 7.7

Commercial 682.6 8.6 17.2 721.9 8.4 15.2

Eurobond 344.0 4.4 8.7 362.2 4.2 7.6

State Owned Enterprises 338.6 4.3 8.6 359.8 4.2 7.6

Domestic 739.3 9.4 18.7 1,055.7 12.3 22.2

in billions of RWF 694.1 8.8 17.5 1,011.2 11.8 21.3

GDP( current ) in billions of Rwf 7,898.0 8,596.0

Exchange Rate ( end of period) 860.0 905.4

Source: MINECOFIN

Table 13: External and domestic debt service FY 2018/19

June , 2018 June , 2019

Principal Interest Total Principal Interest Total

External (USD million) 30.4 49.8 80.2 30.9 53.6 84.5

External (% Exports) 1.5 2.4 3.9 1.6 2.7 4.3

External (% Revenues) 1.2 2.0 3.3 1.4 2.4 3.8

Domestic (RWF Billion) 38.5 48.8 87.3 17.4 38.9 56.2

Source: MINECOFIN


2.2.2. Debt Servicing

External debt service increased by USD 4.3 million during FY 2018/19 compared to the previous

year. This is due to the beginning of principal payments to some loans after their grace periods

had concluded, as well as payment of interests to new loans without grace periods.

The high increase in domestic debt service is explained by regular new issuance and reopening

of treasury bonds, which is costly, compared to treasury bills. As the policy is to rollover all

matured debt securities (treasury bills and treasury bonds) in order to help the market have

tradable debt securities regularly; consequently, interest paid is greater than principal paid.

However, this increases the maturity profile of our domestic debt portfolio.

2.2.3. External Debt Sustainability Analysis (DSA)

In the current Debt Sustainability Framework (DSF), Rwanda is rated a strong policy performer

using the IMF's Country Debt Carrying Capacity or Composite Indicator (CI) index (3.25 greater

than cut off value of 3.05) and being a lower income country, its public debt sustainability is

subjected to a threshold of 70 percent of PV of total Public Debt/GDP.

The latest updated Debt Sustainability Analysis (DSA) conducted June 2019, suggested continued

low risk level of debt distress to the public debt indicators, with present value of 29 percent of

GDP (against threshold of 55 percent of GDP) at end 2018 higher than 27.9 per cent of GDP at

end 2017. Public Debt burden indicators remain below risk thresholds, except for a short and

temporary breach of debt service indicators in 2023, when the Eurobond issued in 2013 matures.

Table 14: Debt Sustainability Indicators

Indicators 2018

2019

2020

2021

2022

2023

2024

Threshold

PV Debt to GDP 29.0 31.9 34.2 35.8 38.2 40.3 39.8 55

PV Debt to exports 135.2 150.6 160.0 161.9 171.3 173.1 166.5 240

PV Debt service to Exports 4.0 9.0 11.1 14.1 9.8 20.7 9.4 21

PV Debt service to Revenues 4.3 10.5 13.2 17.1 11.9 26.0 12.0 23

Source: MINECOFIN


Table 15: Monetary Aggregates (end period, FRW billion)

Percentage Change (%)

Jun-17/ Jun-18/ Jun-19/

Jun-16 Jun-17 Jun-18

Net Foreign Assets 29.0 9.4 15.3

Net Domestic Assets 3.5 9.7 13.9

Credit to Private Sector 8.0 7.3 17.6

Credit to Government 8.2 28.2 9.1

Broad Money (M3) 12.7 9.6 14.5

Current in Circulation 5.9 13.7 10.8

Deposits 13.4 9.2 14.9

Reserve Money -2.7 21.2 15.3

Source: BNR

2.3. Monetary and Financial Sector

2.3.1. Monetary Sector Developments

During the FY 2018-19, the NBR maintained an accommodative monetary policy stance. In its

conduct of monetary policy, the Bank’s Monetary Policy Committee takes decisions perceived to

drive inflation towards its medium term benchmark of 5 percent, which is the midpoint of a 2 to

8 percent inflation benchmark band. Given that both inflationary and exchange rate pressures

were projected to remain moderate in FY 2018-19, the Central Bank Rate was 5.5 percent

throughout 2018-19 until it was reduced to 5 percent in May 2019 in order to continue supporting

the financing of the economy by the banking sector. Broad money (M3) picked up by 14.5 percent

in 2018-19, reaching FRW 2,220.0 billion, against a growth of 9.6 percent recorded in 2017-18

while growth in outstanding credit to private sector stood at 17.6 percent against 7.3 percent

during the same period.

This growth in monetary aggregates was mainly attributed to the increase in the stock of credit

to the private sector, credit to public enterprise and net foreign assets which contributed 13.6

percent, 2.1 percent and 6.1 percent respectively. This has been mitigated by the negative

contribution of the net credit to government and the other items nets of 0.9 percent and 7.0

percent respectively. New authorized loans for the banking sector grew by 37.4 percent in 2018-

19, from a growth of 4.2 percent recorded in 2017-18.

On the money demand side, the currency in circulation (CIC) increased by 10.8 percent (y-o-y) in

June 2019 from 13.7 percent in June 2018. This increase in CIC is driven by the good performance


of economic activities. In addition, demand deposits increased by 10.8 percent y-o-y in June 2019

against 13.7 percent in June 2018. Foreign currency deposits rose by 10.1 percent from 14.4

percent during the same period.

2.3.2. Interest Rate Developments

Through FY2017/2018, money market interest rates have been declining in line with an

accommodative monetary policy stance and improved banking system liquidity conditions. The

Key Repo Rate dropped from 6.0 percent to 5.50 percent. The weighted normal rate of T-Bills

decreased from 8.78 percent to 6.00 percent between June 2017 and June 2018. With regard to

commercial banks’ interest rates, lending rates slightly declined to 16.98 percent, on average, in

the first half (H1) of 2018 compared to 17.07 percent in the 2017H1 while deposit rates increased

compared to 7.80 percent in the same period last year. For corporates, lending rates declined to

16.4 percent in 2018H1 from 16.7 percent in 2017H1. However, lending rates for individual

borrowers slightly increased to 17.8 percent from 17.4 percent during the same period.

2.3.3. Exchange Rate Developments

In FY 2018-19, the FRW depreciated against the US dollar by 4.5 percent end June 2019,

compared to 3.6 percent recorded end June 2018. The Rwandan Franc (FRW) appreciated by 0.9

percent to the British Pound (GBP) and 0.9 percent to the Euro (EUR). Compared to regional

currencies, the FRW depreciated by 9.5 percent against the Ugandan Shillings (UGX), 3.5, 3.3

percent and 0.2 percent against the Tanzanian Shillings (TZS), the Kenyan Shilling (KES) and the

Burundian Francs (BIF) respectively. Depreciation was mainly due to an increase in formal imports

bill by 14.7 percent while formal exports earnings slightly increased by 1 percent.

Table 16: Interest Rate Developments (percent)

17-Jun 17-Sep 17-Dec 18-Mar 18-Jun 18-Sep 18-Dec 19-Mar 19-Jun

Key Repo Rate 6.00 6.00 5.50 5.50 5.50 5.50 5.50 5.00 5.00

T-Bills Rate 8.78 7.42 7.07 6.27 6.00 5.75 6.64 6.62 6.52

Deposit Rate 7.92 7.86 8.70 8.24 8.33 7.29 7.74 6.52 7.76

Lending Rate 16.76 17.33 17.19 17.08 17.03 17.23 16.14 16.59 16.54

Source: BNR

Looking at the currency basket for Rwanda’s main trading partners, the FRW real effective

exchange rate depreciated by 5.7 percent (y-o-y) end June 2019 against 2.7 percent recorded

during the corresponding period in 2018. This was mostly attributed to the depreciation of the

nominal value of the FRW against currencies of some of the major trading partners. In nominal


Figure 7: FRW per unit currency (Indexed, June 2018 = 100)

Source: BNR

effective terms, it depreciated by 4.0 percent in June 2019 compared to a depreciation of 2.8

percent at the end of June 2018.

2.3.4. Financial Sector Developments

The banking sector was composed of 11 Commercial Banks, 1 Development Bank, 1 Cooperative

Bank and 3 Microfinance Banks. The microfinance sector was composed of 19 Limited Liability

MFIs, 438 Savings and Credit.

Cooperatives (SACCOs), of which 416 are Umurenge SACCOs and 22 other SACCOs end June 2019,

MFIs had 3,779,860 clients. The insurance sector consisted of 14 insurance companies, 12 private

Insurers of which 9 non-life and 3 life Insurers and 2 public health Insurers, RSSB Medical and

MMI. The insurance sector also consists of agents, brokers and loss adjusters regulated by NBR.

As of June 2019, the sector accounts for 707 agents, 17 brokers, and 19 loss adjusters.

The total assets of the financial sector expanded by 14 percent (y-o-y) to FRW 4,919 billion in

2019, compared to the growth of 12 percent registered in June 2018. The banking sector

continues to hold the largest share of the financial sector assets at 66.1 percent, pension at 17

percent, insurance holds 9.7 percent and the microfinance sectors 6.4 percent.

96.

98.25

100.5

102.75

105.

Jul-22 Aug-22 Sept-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23

RWF per Unit currency (Indexed, June 2018=100)

USA EURO Area United Kingdom

96.

99.5

103.

106.5

110.

Jul-22 Aug-22 Sept-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23

RWF per Unit currency (Indexed, June 2018=100)

Uganda Kenya Tanzania Burundi


The NBR updated legal and regulatory framework for the financial sector responding to modern

market development and challenges. Equity increased by 25 percent due to an increase of

general reserves funds, retention of FRW 4.6 Billion net profit of 2017-18, and reevaluation of

buildings as well as a change in classification. With regards to the financial soundness indicators

of banks, in FY2018/19 the banking system remains adequately capitalized. The total Capital

Adequacy Ratio (CAR) for the banking sector stood at 23.3 percent as of June 2019 compared to

21.9 percent from the previous year. Banks also continue to maintain the liquidity coverage ratio

above 100 percent (180.5 percent in 2018/19).

The quality of bank’s loan portfolio improved, with the Non-Performing Loans (NPLs) declining

to 5.6 percent as of June 2019 from 6.9 percent in June 2018. The improvement in the banking

sector asset quality was underpinned by a strong performance of the economy during the first

half of 2019 that enhanced the debt servicing capacity of borrowers, as well as write-offs of bad

loans that were in the loss category for more than one year.

Table 17: Financial Soundness Indicators (percent)

Jun-17 Jun-18 Jun-19

Capital Adequacy for banks: Solvency Ratio (min 15%) 20.8 21.9 23.3

Asset Quality for banks: NPLs/Gross Loans 8.2 6.9 5.6

Source: BNR

3. ECONOMIC OUTLOOK

3.1. Real Sector

In FY 2018/19, Rwanda recorded a high growth rate, with the highest double digit in the last

quarter over 5 years for the second quarter of 2019. In line with the trend observed in the

first half of 2019, GDP growth forecast has been revised upward from 7.8 to 8.5 percent in

2019. The main drivers remain the same as for the first half, namely construction and

manufacturing reflecting ongoing construction projects and Made in Rwanda policy; as well

as trade and transport services following import growth.

Over the medium term, growth is projected to remain strong at 8 percent, as investment will

generate returns and an improved performance in Export on average. Inflation headline is

expected to be maintain around the 5.0 percent target in the medium term.


3.2. Fiscal Policy Outlook

FY 2019/2020 remains on track to support the government’s medium-term fiscal policies. The

first half of 2019 saw a combination of higher-than-expected projects spending in the presence

of lower-than-expected grants and loans disbursement which resulted into higher fiscal deficit.

The FY2019/20 budget and medium term fiscal policies will continue to reflect the policies of

fiscal consolidation and prudent borrowing to keep debt and external balances sustainable, with

renewed focus on strong fiscal risks management.

Domestic revenue will remain a key source of future spending as ongoing tax policy and tax

administration measures are expected to produce results. Tax-to-GDP, estimated at 16.4 percent

of GDP in 2019/20, is expected to increase by 0.2 percent of GDP every year over the medium

term. Regarding expenditures, current expenditure will remain contained at 15 percent of GDP

and below in the medium-term, as priority is given to capital expenditure maintained at 12

percent of GDP over the medium-term to implement our NST 1 priority projects. As a result, the

non-debt creating fiscal deficit on a five years rolling average basis, is 5.5 percent of GDP in

2019/20 and 2020/21, declining to 5.3 percent of GDP in 2021/22, thus respecting the fiscal rule

under the Policy Coordination Instrument (PCI) program with the IMF.

3.3. External Sector Outlook

The external position is expected to continue to strengthen over the medium term. In 2019, the

current account deficit is expected to widen more compared to the previous year as percent of

GDP, reaching 10.6 percent of GDP from 7.9 percent in 2018. However, positive export trends

and more modest import growth are expected to support the continued narrowing of the

current account deficit to around 9.9 percent of GDP in 2020 and 7.3 percent in 2023. A gradual

increase in financial flows; and current account improvements should support a continued

recovery in external buffers in the next years with a reserve coverage around 4.5 months of

imports of goods and services in the medium term.

3.4. Debt Outlook

Going forward, the government’s medium-term debt strategy aims to: maintain the low risk

status while financing development projects through prioritizing concessional debt; support

domestic market development with issuance of long-term debt securities in replacement of

short-term debt securities; and mitigate risks associated with contingent liabilities. This debt

strategy will help finance public investment that will translate into economic growth, increased

domestic revenues, enhanced export performance, and build-up of international reserves, which

in return will enhance the country’s capacity to service and repay its debt.


This medium term debt strategy will also support the cost-risk minimization of new contracted

and guaranteed loans, and shall support monetary policies objectives of maintaining a stable

inflation while protecting the economy against external shocks.

3.5. Monetary Policy and Financial Outlook

In FY2019/20, monetary policy will focus on ensuring stable macroeconomic and financial

environment. The Monetary Policy Committee (MPC) will regularly update its policy rate to

ensure that the assumptions underpinning the inflation forecasts do not deviate from its original

projection of around 2.2 percent by end of 2019. The inflation forecast over the policy horizon

shows an increase in headline inflation but is expected to remain within the benchmark band

around 5 percent.

Maintaining a market-driven exchange rate regime consistent with existing monetary policy

framework is central to BNR’s medium-term monetary and financial policy options. Given that

exchange rate is an important tool for defense against exogenous shocks, BNR is committed to

supplying foreign exchange to the market to service import payments from the rest of the world,

particularly capital and intermediate goods that are needed to facilitate the execution of

infrastructure capital projects that are linked to NST1.

To ensure a sound and stable financial system, BNR will continue to implement a wide range of

regulatory policies. The Bank remains committed to reviewing and updating legal instruments

and at the same time creating new ones in line with international best practice and market

developments. Since March 2019, the BNR has considered the following legal instruments and

other initiatives:

i. Directive on Loan to Value Ratio;

ii. Regulation Governing the Shareholding, Acquisition and Amalgamation of Banks;

iii. Regulation on Major Investment and Placements of Banks;

iv. Insurance Sector Anti-fraud and Related Financial Crimes Forum;

v. Regulation on Minimum Internal Control and Audit for Banks;

vi. Law Governing Credit Reporting System;

vii. Law on Prevention and Punishment of Money Laundering and Terrorism Financing

(AML/CFT Law);

viii. Regulation Governing Non-Deposit Taking Financial Institutions (NDFIS);

ix. Domestically Systemically Important Banks (DSIBs) Framework;

x. Regulation on Licensing Conditions for Banks and Insurers;

xi. Regulation Governing the Micro-Insurance Organization;

xii. The Directive on Risk Based Capital (RBC) Requirements.


In addition to the measures, the Bank is taking concrete steps to implement true repo in order

to support interbank market development while deepening the financial markets for proper

monetary policy transmission.


4. CONCLUSION

Rwanda’s overall economic performance and outlook remain positive. The story of strong and

steady growth in Rwanda since 2007 above 7 percent average is mainly attributable to sound

economic policies, forward-looking government-led investments with donors, effective

implementation of major infrastructure projects, prudent debt management strategy, and

relatively sturdy performance in agricultural production, initially in coffee and tea but the period

FY2018/19 has seen growth driven mainly by industry and service sectors. The Government

remains committed to accelerating economic growth in line with the National Strategy for

Transformation (NST1), in which SDG objectives are implanted.

Looking ahead to FY2019/20 and beyond, the Government will continue to support initiatives

that are aligned with the country’s overall aspiration of making Rwanda a high-income country

by 2050, requiring sustainable provision of modern infrastructures, increasing productivity and

competitiveness, and improving quality of life by pushing all Rwandans at the center of

development. This will be guided by strong fiscal risks management to build precautionary

buffers that create fiscal space and at the same time implement an effective monetary policy

framework that supports stable macroeconomic and financial environment. The Government

will also focus on its medium term plans of driving development through higher productivity

growth, encouraging private sector participation and export diversification, while mobilizing

resources for higher-return investments. Achieving such targets demand the need to strengthen

domestic resource mobilization efforts by improving tax administration and compliance levels

across sectors, without also compromising the essential requisites for proper debt management

to ensure sound fiscal consolidation and sustainability.

ANNUAL ECONOMIC REPORT FISCAL YEAR 2018/2019 January 2020 - Ministry …minecofin.gov.rw/fileadmin/templates/documents/Reports/... · 2020-01-23 · This Annual Economic Report (AER)

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