National Accounts
	Balance of Payments
	Inflation
	Exchange Rates
	Money and Interest Rates
	Fiscal Policy
	Public Debt
	Public Investment
	Aid Flows

 

National Accounts

National Accounts Tables

In 1998, the composition of Rwandan GDP by industrial origin is 44% agriculture, 20% industry and 36% services and by expenditure is 93% private consumption, 9% government consumption, 16% gross fixed investment, 6% exports, and 24% imports. 

Real GDP, which fell by about one half in 1994, had rebounded by about 34% in 1995, and on average increased of 13% for 1996-97. It is estimated to be about 9.6% in 1998.   The 9.6% growth in GDP in 1998 reflects mainly buoyant agricultural production (particularly food).  The manufacturing and services sectors are also estimated to be recovering at a fast pace.  Real output reached about 91% of its 1990 level. 

Meanwhile, the domestic annual rate of inflation (as measured by the GDP price deflators) fell from 51% in 1995 to 10% in 1996 and picked up by 16% in 1997 and is estimated to be about 3% in 1998. The 16% increase in 1997 was mainly due to food price increases, which were driven by demand pressures from the return of refugees, as well as transport problems in some food producing regions.  With the improvements in supply conditions, food prices declined, and the rate of inflation decelerated to about 3% in 1998.  

In spite of recent economic progress, the domestic saving and investment components remain very weak in Rwanda. The domestic investment as a share of GDP rose rapidly from 11.7% in 1994 to 15.7% in 1998. Private investment was estimated at about only 3% in 1998, compared with 8% in 1993. Domestic savings had become strongly negative in 1994 (-46.8% of GDP) due to a steep drop in production and had improved substantially but remain negative in 1998 (-2.0% of GDP).  Private consumption (93% of GDP) continues to be supported by high aid inflows.  

 

Balance of Payments  

Balance of Payments Tables

The current account balance has been in deficit during the period under review (1990-98).  Total value of exports in 1998 amounted to US$ 64.4 million compared to US$ 93.0 million in 1997--a 31.7% decline. This was due mainly to world market price for Rwandan coffee and tea which fell by 40% and 3% respectively in 1998.

Imports (cif) were US$ 290.6 million in 1998 compared to US$ 342.9 million in 1997—a 15.3% decline.  This is due to transport problems related to EL NINO in the neighboring countries at the beginning of the year as well as shortfalls in foreign exchange supply related to lower coffee earnings and delayed external donor disbursements. Kenya has imposed on axle weight limit of 30 tons and heavier lorries are not allowed through the country.  This also affected the level of imports as higher import costs were expected.  The net non-factor and factor services remain almost unchanged at US$ 145.5million for 1997 and US$ -158.5 million for 1998.  However, the private transfers receipts dropped substantially from US$ 48.8 in 1997 to US$ 33.7 million in 1998.

As a result of the decline in both  exports and imports of goods and the unchanged services, the current account deficit (excluding official grants) remains almost the same for 1997 and 1998 at about 17% of GDP.

Official unrequited transfers which represent 4 times the value of exports and upon which Rwanda depends most had also declined from US$ 262.6 million in 1997 to US$ 243.4 million in1998.  However, this was made up by an increase in long-term borrowing (an increase of US$ 10 million) and scheduled amortization.

The shortfall in external donor disbursements amounted to about US$ 70.5 million in 1998. Based on this shortfall and taking into account scheduled debt repayment to multilateral institutions  (World Bank, ADB and IFAD) of US$ 22.4 million, the overall balance of payments deficit has been estimated at US $ 15.5 million.

On the gross international reserve front, it recovered from the equivalent of 1 month of imports in 1994 to 4.2 months of imports of goods and services in 1998.  This reflected financial support from donors, concessional borrowing for balance of payments support, and the partial recovery of the export base since 1994. 

 

Inflation

Inflation Tables

The annual rate of inflation (measured by the consumer price index in all urban areas) fell from 89% in 1995 to 9% in 1996.  In 1997, inflation picked up, reaching annual average of 17%, largely due to domestic food prices, which rose to 30% by year-end.  Demand pressures arising from the return of more than half a million refugees, drought, and transportation problems in the food production region drove the food price increases in 1997.

  As result of good weather in 1998, together with the refugees who were settled and started producing, agricultural production (especially food) increased substantially by 10.4% (particularly banana by 17%).  The manufacturing and services sectors also have strongly recovered as well.  These led to a decline in the consumer price to 4.1% in 1998.

 

Exchange Rates

Exchange Rate Tables

The Rwandan franc (Frw) has been stabilized against the US dollar since 1995, owing to large humanitarian aid flows and favorable coffee and tea export proceeds. Gross official reserves reached about 4.2 months of imports of goods and services (or 7 months of imports of goods only on cif basis) in 1998.  In light of the appreciation of the US dollar vis-à-vis major currencies and the inflation differential vis-à-vis Rwanda’s trading partners, the stability of the Rwanda franc-US dollar rate resulted in an appreciation of the effective exchange rate.    

In the second half of 1997 the differential between the official and parallel market exchange rates widened, reflecting mainly a high demand for dollar bills related to the pick-up in regional trade combined with the transport problems in the neighboring countries and shortfall in the supply of dollar bills. 

The Rwanda franc, which remained stable against the US dollar during 1997 and 1998, has fluctuated vis-à-vis the US dollar during December 1997—December 1998 by about 10%.   

The 1995 foreign exchange act is under revision with a view to permitting easier access to foreign exchange and reduced costs and bureaucracy both for residents and non residents, who hold respectively domestic and foreign currency accounts.  These measures are expected to contribute to a narrowing of the differential between the official and parallel market rates. 

 

Money and Interest Rates

Money and Interest Rate Tables

During 1998, there was a slight build-up (compared to 1997) of net foreign assets (NFA) by only 10%. Despite disappointing export receipts from falling coffee prices and slow disbursements in donor financing, the official international reserves at year-end of 1998 stood at US$ 169 million.  This is equivalent to about 7 months imports, cif (or about 4.2 months of imports of goods and services.  In addition to falling coffee prices (by 40%), the promised external financial inflows did not fully materialize, and also some emergency relief agencies closed their operations in 1998. This caused the NFA to be below program target for 1998.    This development in NFA combined with limited net use of government bank credit led to a significant drop in reserve money and a tighter liquidity situation of banks.  At the same time, money demand was subdued reflecting in part the relatively faster growth in the non-monetized sectors and to some extent holding of foreign assets outside the banking system.  As a result, broad money grew by about 5% during the 12-month period ending December. 

Aid flows picked up again in December and domestic credit expanded by some 17.7%, slightly higher than nominal GDP growth.  While bank financing of central Government operations increased modestly, there was a rebound in credit to the private sector, which expanded by 21%.  This was mostly funded by a reduction in commercial banks’ excess reserves and a lowering of the central bank’s reserve requirement from 12% to 10%.

Overall demand for money was timid as currency in circulation fell against a pick-up in deposits. The overall tightening of the liquidity situation of banks has been translated into slightly higher interest rates on borrowing whilst the downward trend in price movements have contributed to strong positive rates on monetary savings.

The Government policy over the next few years will aim at achieving a further reduction in the rate of inflation, with increased reliance on treasury bills for monetary policy operations.  To be consistent with the objective, the broad money supply growth will be limited to an average of about 15% during the next three years.  The exchange rate will continue to be market determined, with intervention by BNR limited to smoothing excessive short-term fluctuations.  

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 effective positive rate of 5.1% positive.

The discount rate which is the lending rate offered by BNR declined from 16.83% in 1996 13.17% in 1997 and 11.08% in 1998.  The commercial bank lending rate also declined from 17.15% in 1996 to 15.72% and prompted private investors to borrow for fixed investment such as housing. 

 

Fiscal Policy

Fiscal Policy Tables

During 1998, total domestic revenues collected amounted to Frw 66 billion as against projections of about Frw 70 billion (a Frw 4 billion short).  On the expenditure side, total expenditure and net lending amounted to Frw 117 billion compared to a projected Frw 158 billion (a saving of Frw 41 billion).  The primary fiscal balance was the same as targeted.

With regards to revenues, despite the somewhat good performance, there were a number of areas of concern.  These are:

	Lower coffee prices;
	Lower beer production;
	Lower foreign grants receipts;
	Lower collection from small firms of less than Frw 60 millions turnover that are subject to 4% presumptive tax; and
	Lower imports.

Strong performance areas however included:

	ICHA (Turnover Tax);
	Large companie s; and
	Non tax revenue (Administrative fees, etc.)

In the case of expenditures, current expenditures in 1998 were about Frw 75 billion, Frw 8 billion lower than projected.  This was more than offset by the lower spending in respect of the civil service salaries especially in education due to savings from the retrenchment of about 2,850 unqualified civil servants and the removal of about 3,500 unqualified workers mostly teachers from the payroll.

Expenditure in 1998 on goods and services were also slightly below programmed targets and these affected the social sectors notably education and health. The implementation of exceptional social expenditures was also much lower than envisaged largely because of shortfalls in external donor disbursements, which led to a reduction in spending. However, the government transferred Frw 3.8 billion to the fund for assistance for genocide victims.

Foreign financed disbursements in respect of projects were also below programmed target because of delays in donor disbursements and capacity problems of the ministries.

In 1999, the Government intends to maintain a tight fiscal policy stance. In this regard, total domestic revenue collections have been projected at Frw 80 billion (10.8% of GDP) while total recurrent expenditure have been estimated at Frw 92 billion (12.3%). The primary fiscal accounts have been projected to be in balance, the same as was achieved in 1998.  In the area of trade reform, the 1999 budget lowered import tariffs significantly to achieve the Cross-border Initiative (CBI) targets. Consumption taxes on some luxury items have been increased in line with the policy to increase domestic resource mobilisation. On the expenditure front, significant allocations were made to the health and education sectors reflecting the reprioritisation of expenditure policy.

In 1999, the Government’s emphasis is on strengthening expenditure control and treasury management systems.  The office of the Auditor-General has been established to enhance budgetary accountability and transparency, as well as to insure proper working of the financial control system.  The budgetary accountability and transparency will also be strengthened through the development of a system of public accounts. This includes the incorporation of all extra budgetary accounts into the national budget; the transfer of the bank accounts of ministries to the treasury account at Central Bank; and the regulation and monitoring of Government purchases by the strengthened central Tender Board.

 

Public Debt

Public Debt Tables

Rwanda’s public debt is one of the major constraints hindering economic progress. It rose rapidly from just under US$ 400 million in 1985 to about US$ 1.0 billion in 1991 and about US$ 1.4 billion by the end of 1998 which equivalent to about 72% of GDP.  This also means that for each Rwandese including newborn child owes US$ 182 in debt (out of per capital GDP of US$ 253).  

In 1998, the Government spent only US$ 0.8 on health and US$ 4.8 on education per person.  But the debt service due for the same year was US$ 6.8 per person.  This shows that debt service due in 1998 was 21% higher than the government spent on the combined social sector.  This huge public debt is burdensome to the people of Rwanda and  must be addressed. 

In 1998, external debt outstanding was US$ 1,213 million.  Of this amount US$ 1,028 million (85%) were owed to multilateral creditors including US$ 642 million to World Bank, US$ 220 million to AfDB, and US$ 56 million to IMF.  The rest to other major multilateral creditors such as; IFAD, the Saudi Fund, Arab Bank for Economic Development in Africa (ABEDA), and the Organization of Petroleum Exporting Countries (OPEC).  Furthermore, Rwanda owes bilateral creditors of US$184 million.  US$ 80 million of which was owed to the Paris Club, mainly to France.  Total arrears amounted to US$81 million at end of 1998, which is equivalent to 6.6% of total external debt.

The Government’s domestic debt obligations as at end 1998 stood at 70 billion Frw (or US$ 220 million). During 1998, negotiations for the restructuring of a large proportion of this were concluded and rescheduling of repayments agreed upon.  In the meantime, in line with the policy of reducing domestic arrears drastically, the Government paid arrears of 5.2 billion Frw during the year and is also committed to avoid the accumulation of new arrears in 1999.

The Government has undertaken various initiatives, including to be admitted as High Indebted Poor Countries by the World Bank.  Following negotiations with the Paris Club Group of Creditors in July 1998, Rwanda obtained a debt relief under Naples terms, which provide for a reduction of 67% of the total debt and generous rescheduling terms for the remainder.  Negotiations are on going with other multilateral as well as non-Paris Club creditors to arrive at a suitable reschedule terms. A multilateral debt trust fund with expected donor contributions of about US$ 56 million has been set up to enable the Government settle its future debt obligations starting in 1999 to the multilateral institutions.  The World Bank will manage the funds and operational modalities have been worked out with the World Bank. 

 

Aid Flows

Aid Flow Tables

The war and genocide of 1994 severely damaged Rwanda’s human and capital and social and economic infrastructure.  In January 1995, a Roundtable Conference for Reconstruction of Rwanda (organised by UNDP) pledged about US$ 1 billion for humanitarian and development assistance.  Subsequent pledges brought the total to more than US$ 3 billion by end of 1998 (mainly within the Roundtable context for both grants and credits).  About US$ 400 million was disbursed in 1995 and by end of 1998 about US$ 1.7 billion was disbursed.

Bilateral Aid

Since 1995, the United States has pledged US$ 243.0 million of which US$ 153.9 million has been disbursed (a 63.3% of disbursement/pledge ratio), followed by the Netherlands which pledged US$ 231.8 million with US$ 95.7 million disbursed (a 41.3% of disbursement/pledge ratio).  Thirdly, Germany pledged US$ 146.7 million with US$ 93.8 million disbursed (a 63.9% of disbursement/pledge ratio), and fourthly, Belgium with US$ 120.9 million pledged and US$ 56.7 million disbursed (a 46.9% of disbursement/pledge ratio).

Multilateral Aid

The World Bank has pledged US$ 420.8 million, so far 61.7% has been disbursed (or US$ 259.5 million), and almost all were credits (soft loan).  The European Union pledged US$ 551.3 million but only US$ 132.7 million disbursed (a 24.1% of disbursement/pledge ratio).  The African Development Bank also pledged US$ 231.9 million and US$ 92.6 million has been disbursed (a 39.9% of disbursement/pledge ratio), mainly were credits.   The UNHCR committed all refugee-related grants of US$ 187.7 million and so far 82.4% had been disbursed.  It is currently phasing out its operation by end of 1999. 

Donor commitments will enable Rwanda to meet its financing needs, improve its essential infrastructure, alleviate poverty, and strengthen institutional capacity.  The transition from emergency to sustainable development has required exceptional efforts by the Government as it has put in place policies and programmes to rebuild the society, facilitate national reintegration and reconstruction and lay the basis for sustained economic growth and poverty reduction.  Rwanda continues to need support to overcome the legacy of the Genocide and the destruction of human capital so that it can focus on the difficult agenda of long-term development.

Given this past, the Government of Rwanda’s vision for the future encompasses the following:

	Macroeconomic stability and economic reforms and programs that reduce poverty and empower the population, which would facilitate the national reconciliation and reintegration process. This involves in the initial stages, raising agricultural productivity, rural incomes, off-farm employment and skill formation.
	Good governance, democratization, national reconciliation to ensure national political stability and security, grassroots participation in development and decision making.
	Promotion of an all inclusive economic system that allows effective participation of all social and economic groups in the population, in particular creating an enabling environment for private sector development, increasing the effectiveness of the state while reducing the role of the public sector.

 

Source: 'Rwanda Development Indicators 1999', MINECOFIN, July 1999.