Rwanda’s Economic Outlook Set For A Turnaround

Rwanda’s Economic Outlook Set For A Turnaround
Kigali, Rwanda

AFRICANGLOBE – Rwanda’s economy is likely to grow beyond the earlier projected rate of 6.6 percent in 2013 following a sharp turnaround in activity fuelled by a healthy recovery of lending to the private sector and resumption of aid flows in the fourth quarter of the year.

In addition, inflation in the country, though rising, has been moderate for much of this year, remaining at single-digit levels.

The overall inflation rate rose to a high of 5.10 per cent in September from 4.04 per cent the previous month due to increases in the cost of food, non-alcoholic beverages and education.

“The fourth quarter seems to be doing better than expected. We see it through an increase in credit to the private sector and government spending,” John Rwangombwa, Governor of the National Bank of Rwanda (BNR), told reporters.

Economic growth slowed to 5.9 per cent during the first half of the year due to a shortfall in donor budget support, according to the International Monetary Fund. Recently, the IMF cut the country’s growth forecast for 2013 to 6.6 per cent, down from 7.5 per cent.

However, there are signals that the economy is rebounding after a steady inflow of donor funding in the fourth quarter that has boosted confidence and allowed the government to resume spending.

The country’s major donors including the World Bank, the African Development Bank and bilateral donors such as Germany and the United Kingdom have resumed funding, though most of the resources are being channelled to specific projects.

Following improved donor sentiment, the government has reduced borrowing from the domestic market as shown by interest rates on Treasury-bills, which fell to between 5.1 per cent for one-month instruments to 6.5 per cent for maturities of one year, down from an average of 12 per cent in April this year.

The central bank also reduced the repo rate, its lending rate, to seven per cent from 7.5 per cent to stimulate credit in the second half of 2013. This has increased liquidity in the banking system and created room for banks to lend to the private sector.

“We may yet end up with seven per cent growth in GDP because most banks have increased their lending during the third and fourth quarter,” said James Gatera, chief executive of the Bank of Kigali, the country’s largest local bank by assets.

The bank’s loan book rose by 18.6 per cent to Rwf195.4 billion ($293.8 million) in the period ended September this year from Rwf164.7 billion ($263.3 million) the previous year while deposits rose by 19.8 per cent to Rwf243.2 billion ($365.7 million) from Rwf203 billion ($324.5 million).

Export Boost

The economy is also benefiting from the improved global economic environment, which has boosted demand for the country’s exports.

In the first half of this year, export revenues hit $289.92 million, which represents an increment of 46.3 per cent over the $198.2 million earned over the same period last year.

“The growth we are seeing now is very much export-determined this year. It is the first time in the history that growth has become export-based to a large extent,” said Mitra Farahbaksh, the IMF resident representative to Rwanda.

 

By: Berna Namata