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Text and ChartsMacroeconomic performance continued to improve in 1998. Real GDP growth is estimated at 9.6%. Despite the effect of the “El Nino” weather conditions in 1997 and 1998, food crop production picked up in 1998 registering a growth of 10.4% reflecting production by large returning refugees in 1996-97. This recovery in food production has contributed much to containing inflationary pressures, which had built up towards the end of 1997. With the improvements in the food supply conditions, the rate of inflation declined rapidly from an average of 17.1% in 1997 to about 4.1% in 1998. The industry and service sectors also continued to recover and registered about 11.3% and 6.6% growth respectively in 1998.
On
the external front, gross international reserves recovered from the equivalent
of 1.5 months of imports in 1994 to about 7 months of imports, cif (or 4.2
months of imports of goods and services) at end of 1998.
1998
was the first time in many years that Rwanda experienced a positive real
interest rate where the bank deposit rate was 9.2% and inflation rate was only
4.1%--a real positive effective rates of 5.1%. The fiscal situation also has improved significantly, mostly because of the efforts to improve tax administration and rationalise tax measures. The revenue to GDP ratio has risen from 3.6% in 1994 to an estimated 10.5% in 1998. A new income tax law was adopted in 1997, reducing the maximum personal and company income tax rates and subjecting public enterprises to income taxes. In addition, excise taxes on consumption goods were significantly increased and brought onto an ad valorem basis. In 1998, the Rwanda Revenue Authority (RRA) commenced operations; this is expected to significantly strengthen tax administration.
Government
expenditures rose rapidly in 1994-97 in response to the emergencies in the
country. Total expenditure and net lending, which amounted to about 16.1% of
GDP in 1994, rose to 22.1% of GDP by 1996 before declining to 19.5 % of GDP in
1997 and an estimated 18.6% of GDP in 1998. Improvements in domestic resource
mobilisation and support from bilateral donors and multilateral agencies
enabled the Government to increase expenditures and contain inflationary
pressures. In the post-genocide period, reintegration and reinsertion of
returning refugees, security concerns, and external and internal debt service,
have influenced the public expenditure patterns. Security related expenditures
amounted to 4.2% of GDP in 1995 and dropped slightly to 4.1 percent in 1998.
The Government is committed to contain defence outlays in 1999 to 3.8% of GDP.
The Government is committed to a rapid reduction in defence expenditure
(including through further demobilisation in the course of 1999). The
Government made good progress in structural reforms in 1995-97 despite the
limited administrative capacity. The key areas of reform in 1995-97 were in
the trade and exchange regime, the fiscal area, the financial sector, and
privatisation. The exchange system was liberalised in 1995 and commercial
banks and foreign exchange bureau were allowed to buy and sell foreign
exchange at market-determined prices. The foreign exchange surrender
requirements on coffee and tea export receipts were reduced in steps and
abolished by end-1998. A new
tariff code was adopted with fewer rates and significantly lower average and
maximum rates than in the pre-war era. Efforts
were made to rehabilitate the banking system, with re-capitalisation and
provisioning. Consequently the
financial positions of the two largest commercial banks, and the Rwanda
Development Bank, have significantly improved. A number of new commercial
banks were licensed and have become operational. Moreover, a revised central
bank stature underpinning the independence of the Banque National du Rwanda (BNR)
in conducting monetary policy was adopted in mid-1997, and the government’s
non-performing debt to commercial banks was restructured late in the year. In
March 1996, The National Assembly passed a law providing the legal and
institutional framework for the divestiture program. These efforts laid the
basis for deeper reforms in the context of formal arrangements with the World
Bank/IMF, starting in 1998. Despite these efforts, the administrative and institutional capacity of the public sector remains weak, security-related outlays absorb a large share of government expenditure, thereby limiting resources for essential services. Domestic investment is very low (only 15.7% of GDP in 1998) and domestic savings are negative (-2.0% of GDP in 1998), Public debt is burdensome, being about US$ 1.4 billion compared to GDP of US$ 1.9 billion in 1998 (about 75% of GDP).
Indicators
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