The International Monetary Fund and the Government are considering revising Rwanda’s economic growth projections to 5.2 per cent, from 6.2 per cent. In May, it had been projected that the economy would grow by 6.2 per cent in 2017, from 5.9 per cent last year.
The growth projections were to be driven by recovery of the agricultural sector, growth in exports, and reduction in the trade deficit.
However, the half-year performance of the economy has prompted the Government and IMF to rethink the projections.
An IMF team is currently in the country to evaluate the economy’s performance so far and discuss projections with the government.
IMF Mission chief Laura Redifer said that, by next week, they will have the new projections following discussions with the Government.
“We are discussing the revision downward, from 6.2 per cent to 5.2 per cent, because growth was modest in the first half of the year,” she said.
Among the causes of the downward revision, Redifer explained, is that last year’s drought had far-reaching consequences which affected the recovery of the economy.
The construction sector also somewhat slowed down compared to last year after the completion of major infrastructure projects.
“This was due to a number of effects such as drought in 2016 and its effects in 2017. It was due to construction in 2016 that was not repeated in 2017. It was hard to have construction grow like it did in the year before. This factor as well as external factors affected the growth rate in the first half of the year,” she said.
Despite the downward revision, Rwanda’s performance could be among the best in sub-Saharan Africa given that the regional projections are at 2.7 per cent, from 1.4 per cent last year.
IMF is also confident that growth will pick up in the remaining part of the year.
In the first quarter of the year, the economy grew 1.7 per cent compared to 8.9 per cent in the same period last year.
In the second quarter of this year (April to June), the economy grew by 4 per cent largely driven by agriculture and services sectors.
“We expect growth to pick up in the second half of the year but we still have to get the average of the year as a whole. Therefore, we expect to revise downwards to about 5.2 per cent,” she said.
The World Bank in September had said that the 6.2 per cent economic projections were unlikely given the half-year performance.
The Bank had put their estimates between 4.2 per cent and 6.2 per cent.
Redifer said there is also optimism that the economy will rebound in the coming year between 6 and 7 per cent as sectors such as construction and agriculture are doing well.
Central bank governor John Rwangombwa said they expect higher Gross Domestic Product growth in the period between July to September (Quarter 3).
Even with the revision, he said that there has been positive developments such as reduction of trade deficit owing to an increase in value and volume of exports and reduction of imports.
Rwanda’s trade deficit significantly reduced in the first six months of 2017 by over 25 per cent compared to the corresponding period last year.
According to the latest monetary policy and financial stability statement, the gap between imports and exports in the first half of the year stood at $671.2 million compared to $902.3 million in the same period last year.
“If you look at the performance of international trade, we have reduced the trade deficit, which was a key challenge to the development performance,” Rwangombwa said.
Further improvement has been on diversifying the economy and exports to reduce reliance on traditional exports such as tea, coffee and promote non-traditional exports and re-exports to the region.
Non-traditional exports, which in Rwanda are dominated by other minerals (other than coltan, cassiterite and wolfram), milling products and other manufactured products, increased by 95.2 per cent in value and 30 per cent in volume.
“The traditional exports were normally contributing about 71 per cent of our export earnings, this year it has reduced to 36 per cent and there has been more industrial products exported while re-exports to the region are growing. That is a positive sign that we should try to maintain and expand further to broaden our export base,” Rwangombwa said.
He also noted that inflationary pressures have so far remained subdued this year and were expected at below 5 per cent towards the end of the year.
Finance and Economic Planning minister Claver Gatete said the country has also made assessments to ensure that there are investments and efforts in areas that will drive growth in coming years.
This includes efforts to increase tourism earnings, mineral receipts, investment in human capital, science and technology, and financial services, among others.
The New Times