IMF urges Rwanda to step up structural reforms to boost growth prospects

At the conclusion of the third review of Rwanda’s current Policy Support Instrument (PSI), the International Monitory Fund (IMF) commended Rwanda’s high 2011 GDP growth, but projected that there are possible high inflation risks for 2012 if nothing is done.

The IMF however, advised that the country steps up structural reforms that will help boost growth prospects if it is to maintain the current position.

The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy

In a statement,Naoyuki Shinohara, the Deputy Managing Director and Acting Chair said: “Rwanda’s economy in 2011 is poised for high growth—but also high inflation—with elevated risks for 2012. While strong agricultural output and exports are driving high real gross domestic product (GDP) growth, aggregate demand pressures are also building up and have already pushed up core inflation.

Growth is expected to slow in 2012, although risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation. Structural reforms efforts will have to be stepped up to boost growth prospects.

Shinohara said that though authorities in Rwanda began to tightening monetary policy in late 2011 to contain inflation. There is need for further tightening in 2012 to prevent the erosion of recent gains in macroeconomic stability.

Monetary policy implementation is expected to be enhanced further, including by preparing an action plan to develop the interbank money market.

He further said that in light of significant risks in the global economic environment that could adversely impact Rwanda’s exports and international reserves, the central bank should avoid any further encumbering of its foreign assets as collateral for loans to finance the government’s strategic investments.

Inflation in Rwanda is low by regional standards. Uganda, Kenya and Tanzania ended the year with double digits inflation, driven by drought-related food and hydroelectricity shortages. Rwanda had plans a second reduction in fuel taxes in January 2012, which will offset pressure on consumer prices.