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The Rwanda’s Economic Prospects amid COVID-19 Pandemic

Rwanda has experienced significant changes over the last 25 years. The extreme political instability and social divisions of the 1990s, which led to the devastating genocide in 1994, contrast today with the nation’s fast-growing economy and improved healthcare outcomes for many Rwandan’s.

The Government of Rwanda is actively working to develop the economy and reform the financial and business sectors – improving the business climate dramatically. Since the early-2000s, Rwanda has witnessed an economic boom improving the living standards of many Rwandans. The Government’s progressive visions have been the catalyst for the fast transforming economy.

The country’s economic freedom score is 70.9, making its economy the 33rd freest in the 2020 Index. Its overall score has decreased by 0.2 points due to a drop in the government integrity score. Rwanda now aspires to reach Middle Income Country (MIC) status by 2035 and High-Income Country (HIC) status by 2050.

Rwanda’s annual economic growth slowed to 8.4% in the fourth quarter of 2019 from a downwardly revised 10.9% expansion in the previous period. It has been the slowest pace of growth since the first quarter of 2019. The services sector advanced 8%, weaker than 10% in Q3, amid slowdowns in wholesale & retail trade (14% vs 21%); transport (12% vs 18%) and public administration (2% vs 12%), according to TradingEconomics.

Before the Covid-19 Pandemic expert says fiscal deficit for 2020 will continue to be well above the historical average. Despite the increasing indebtedness, reliance on concessional financing will help keep Rwanda’s debt sustainable. In the medium term, the CAD will again stay high, hitting 10 percent of GDP.

Monetary policy will remain accommodative, although with the return of inflation to the “normal” range and continuing pressures on the exchange rate and reserves, the policy space has narrowed. The risks to Rwanda’s economic outlook, both domestic and external, have risen. The main risk is the growing reliance on public-sectored investments. Fiscal expansion to achieve the government’s targets for expanding access to infrastructure raises the debt, widens external imbalances, and may crowd out access of the private sector to finance, thus undermining long-term growth.

If the reliance on the public sector persists, Rwanda may have difficulties in financing its growth model. Rwanda’s commitment toconcessional borrowing and monetary stability reduces the risks to macroeconomic stability, but overall fiscal risks has gone up because of the reliance on the public sector for achieving NST1growth targets. Despite continuing efforts, the ineffectiveness of the private sector remains a major risk to Rwanda’s growth outlook–growth projections for the medium to long term depend on the ability of the private sector to take the lead.

As the fiscal expansion for NST1 subsides in the medium term, it will become increasingly difficult to keep the growth rate at 8 percent without increased private sector investment. Now, to achieve sustainable and productivity-led growth, attention must turn to improving allocation of economic resources through better market functioning.

The government and the International Monetary Fund (IMF) have revised Rwanda’s economic growth projections for 2020 to 5.1 per cent in light of the effects of the novel coronavirus and its impact on the economy.

The central African nation economy is expected to grow 2% in 2020, 6.3% in 2021 and 8% in 2022 according to the Finance Minister. Rwanda’s has started to roll out a special economic recovery fund estimated at over $200 million (approximately Rwf186bn).

Rwanda implemented one of Africa’s strictest lockdowns to try to stem the spread of COVID-19, the respiratory disease caused by the novel coronavirus, including shuttering some businesses, closing borders and schools.

The government has injected an initial $100 million to kick-start the fund and plans to work closely with development partners, institutions, organizations, foundations among others to raise the funding.

Recently, the International Monetary Fund approved an additional $111.06 million disbursement to Rwanda to address the effects of the COVID-19 pandemic on the country’s economy.

The funding brings total IMF COVID-19 support to Rwanda to $220.46 million, it said, and will help finance the country’s urgent balance of payments and budget needs.

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