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REPUBLIC OF RWANDA

Ministry of Finance and Economic Planning

December 2014

FISCAL

YEAR

2013/14 ANNUAL ECONOMIC REPORT

RWANDA Annual Economic Report Fiscal Year 2013/2014


Macroeconomic Policy Unit i

TABLE OF CONTENTS TABLES .................................................................................................................................................. - 1 -

FIGURES ................................................................................................................................................ - 1 -

EXECUTIVE SUMMARY ..................................................................................................................... - 2 -

I. THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION ................................... - 3 -

1.1 Global economic growth .............................................................................................................. - 3 -

1.2 World trade................................................................................................................................... - 4 -

1.3 Inflation development .................................................................................................................. - 5 -

1.4 Global financial market developments......................................................................................... - 6 -

II. DOMESTIC ECONOMIC PERFORMANCE ............................................................................... - 7 -

2.1. Real sector .................................................................................................................................... - 7 -

2.1.1. Economic growth performance ......................................................................................... - 7 -

2.1.2. Price Movements ............................................................................................................. - 10 -

2.2. Fiscal performance ..................................................................................................................... - 12 -

2.2.1. Introduction ..................................................................................................................... - 12 -

2.2.2. Budget revision ............................................................................................................... - 12 -

2.2.3. Resources performance ................................................................................................... - 13 -

2.2.4. Outlays performance ....................................................................................................... - 14 -

2.2.5. Deficit and financing ....................................................................................................... - 16 -

2.3. External sector performance ...................................................................................................... - 17 -

2.3.1. The balance of payments ................................................................................................. - 17 -

2.3.2. Trade balance .................................................................................................................. - 17 -

2.3.3. Foreign exchange earners: tourism and remittances ....................................................... - 20 -

2.4. Regional integration ................................................................................................................... - 21 -

2.4.1. Progress to date ............................................................................................................... - 21 -

2.4.2. Trade with the EAC ........................................................................................................ - 22 -

2.5. Rwanda debt developments ....................................................................................................... - 23 -

2.5.1. Debt stock development .................................................................................................. - 23 -

2.5.2. Debt servicing ................................................................................................................. - 24 -

2.5.3. External Debt Sustainability Analysis (DSA) ................................................................. - 25 -

2.6. Monetary and financial sector performance ............................................................................... - 27 -

2.6.1. Monetary sector developments ....................................................................................... - 27 -

2.6.2. Financial sector developments ........................................................................................ - 29 -



Macroeconomic Policy Unit ii

III. ECONOMIC OUTLOOK FOR 2014/2015 .................................................................................... - 30 -

3.1. Real sector .................................................................................................................................. - 30 -

3.2. Fiscal policy ............................................................................................................................... - 31 -

3.3. Monetary policy ......................................................................................................................... - 31 -

3.4. External sector ............................................................................................................................ - 31 -

CONCLUSION ..................................................................................................................................... - 32 -



Macroeconomic Policy Unit - 1 -

TABLES

Table 1: World and regional GDP growth (per cent) ................................................................................ - 4 -

Table 2: Growth of trade in goods and services (per cent) ....................................................................... - 4 -

Table 3: Growth and shares by key economic sectors .............................................................................. - 8 -

Table 4: Revenue performance in 2013/2014 (in billion RWF) ............................................................. - 13 -

Table 5: External Resources performance .............................................................................................. - 14 -

Table 6: Expenditure performance .......................................................................................................... - 15 -

Table 7: Budget financing for FY 2013/14 ............................................................................................. - 16 -

Table 8: Tourism visitors and revenue by fiscal year ............................................................................. - 20 -

Table 9: Trade with EAC ........................................................................................................................ - 22 -

Table 10: Rwanda Public Debt Stock (in million USD unless otherwise indicated) .............................. - 23 -

Table 11: Debt servicing of external and domestic debt ......................................................................... - 24 -

Table 12: Monetary aggregates ............................................................................................................... - 27 -

Table 13: Interest rate developments ...................................................................................................... - 29 -

FIGURES

Figure 1: World and regional headline inflation ....................................................................................... - 5 -

Figure 2: EAC inflation during FY 2013-2014 ......................................................................................... - 6 -

Figure 3: Real sector growth (2010/2011 to 2013/2014) .......................................................................... - 7 -

Figure 4: GDP growth by expenditure components .................................................................................. - 9 -

Figure 5: Shares of GDP by expenditure components ............................................................................ - 10 -

Figure 6: Imported and domestic inflation (July 2013 - June 2014) ....................................................... - 11 -

Figure 7: Exports by Value and Volume 2013/14 .................................................................................. - 19 -

Figure 8: Imports by Value and Volume 2013/14 .................................................................................. - 20 -

Figure 9: Indicators of Public and Publicly Guaranteed External Debt under DSA in summer 2014 .... - 26 -

Figure 10: Exchange rates during FY 2013/14 ....................................................................................... - 28 -



Macroeconomic Policy Unit - 2 -

EXECUTIVE SUMMARY

Fiscal year 2013/14 was a year of gradually accelerating recovery but recurrent risks.

The effects of poor agricultural harvests in 2013 and the suspension and delay of donor funds in fiscal

year 2012/13 continued to impede growth in 2013/14. Overall GDP grew by 5.1 percent, led by services

sector expansion of 7.0 percent. However, higher growth was recorded in the second half of the fiscal

year, reflecting normalization of economic activity after the adverse events of 2012/13. Inflation was well

maintained at 1.4 percent in June 2014 due to a good first agricultural harvest in 2014 which kept

domestic food prices low.

It was a year of fiscal expansion as both current and capital expenditure increased, supported by an

increase in tax revenue and both budget and capital grants compared to the previous fiscal year. However,

uncertainties and further delays in donor disbursement flows during the fiscal year 2013/14 created cash-

flow problems for budget implementation and resulted in Government borrowing frequently from the

domestic market to finance spending, despite the overall budget deficit being lower than in the previous

year.

The performance of the external sector during the fiscal year was mixed. The trade deficit deteriorated by

3 percent, but individual exports like minerals performed well due to the high price of coltan in the second

half of 2013. Import growth slowed in the first half of 2013/14 but picked up again in the latter half of the

fiscal year, again as a result of the normalization of economic activity. The external public debt stock

position remains sustainable at approximately US$ 1.8 billion or 23 percent of GDP as of June 2014.

Total public debt – which includes domestic debt – was just over 30 percent of GDP by the end of the

fiscal year.

The Rwandan banking sector remains liquid and well capitalized. Although credit to the private sector, at

13.5 percent, was lower compared to the previous fiscal year, accelerated growth in the second half of the

fiscal year indicates that the economy is making a good recovery from the slowdown in domestic demand

in 2013.

The main risks to the Rwandan economy are familiar ones: uncertainties regarding donor funding

envelopes and disbursements; agricultural vulnerabilities; and an export base that is heavily reliant on

global price trends. However, fiscal year 2013/14 saw the Government take steps to alleviate these risks

by stepping up dialogue with its development partners, modernizing the tax payment system and

expanding the tax base to ensure greater receipts, supporting increased diversification in both the

agriculture and exporting sector and by introducing enhanced scrutiny of public investment programs to

ensure quicker, more effective results.

The outlook for fiscal year 2014/15 is positive. GDP growth is forecast to be 6 percent, supported by a

strengthening private sector – as witnessed in the first half of 2014 – and moderate fiscal expansion.



Macroeconomic Policy Unit/ Chief Economist Department - 3 -

I. THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION

1.1 Global economic growth

According to the IMF World Economic Outlook released in October 2014, global economic growth for

2013 was 3.3 per cent and projected to remain 3.3 per cent in 2014 (see Table 1).1 An uneven global

recovery continues. In advanced economies, the legacies of the pre-crisis boom and the subsequent crisis,

including high private and public debt, still cast a shadow on the recovery. Emerging markets are

adjusting to rates of economic growth lower than those reached in the pre-crisis boom and the post crisis

recovery. Overall, the pace of recovery is becoming more country specific.

With world growth in the first half of 2014 slower than expected, global growth for 2014 is projected at

3.3 percent. The growth projection for 2015 is 3.8 percent. These projections are predicated on the

assumption that key drivers supporting the recovery in advanced economies—including moderating fiscal

consolidation (Japan being one exception) and highly accommodative monetary policy—remain in place.

Growth prospects across both advanced economies and emerging markets exhibit sizable heterogeneity.

Among advanced economies, growth is projected to pick up, but is slower in the euro area and Japan and

generally faster in the United States and elsewhere. Among major emerging markets, growth is projected

to remain high in emerging Asia, with a modest slowdown in China and a pickup in India, but to stay

subdued in Brazil and Russia.

The pace of the global recovery has disappointed in recent years. With weaker-than-expected global

growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again

fail to materialize or fall short of expectations. This further underscores that in most economies, raising

actual and potential growth must remain a priority. In advanced economies, this will require continued

support from monetary policy and fiscal adjustment attuned in pace and composition to supporting both

the recovery and long-term growth. In a number of economies, an increase in public infrastructure

investment can support demand in the short term and help boost potential output in the medium term. In

emerging markets, the scope for macroeconomic policies to support growth, if needed, varies across

countries and regions, but space is limited in countries with external vulnerabilities. And in advanced

economies as well as in emerging market and developing economies, there is a general, urgent need for

structural reforms to strengthen growth potential or make growth more sustainable. With the weakening

global growth during the last fiscal year, the Rwandan economy suffered with lower demand for Rwandan

exports though Rwanda had a very positive terms of trade shock in calendar year 2013 due to the high

price of minerals and benign energy and imported food prices. This position was reversed during 2014:

although the international price for Arabica coffee increased in the first six months of 2014, the fall in

mineral prices meant that overall the terms of trade turned negative for Rwanda by the end of the fiscal

year. This also contributed to the worsening trade deficit.

1 All growth rates quoted in this report are period-on-period-a-year-ago, unless otherwise stated.




Table 1: World and regional GDP growth (per cent)

Projections

2012 2013 2014 2015

World 3.4 3.3 3.3 3.8

Advanced economies 1.2 1.4 1.8 2.3

Euro area -0.7 -0.4 0.8 1.3

United States 2.3 2.2 2.2 3.1

Emerging market and developing economies 5.1 4.7 4.4 5.0

Developing Asia 6.7 6.6 6.5 6.6

China 7.7 7.7 7.4 7.1

India 4.7 5.0 5.6 6.4

Latin America and the Caribbean 2.9 2.7 1.3 2.2

Middle East, North Africa, Afghanistan, and Pakistan 4.8 2.5 2.7 3.9

Sub-Saharan Africa 4.4 5.1 5.1 5.8 Source: IMF – WEO October 2014

1.2 World trade

The sharp downturn in global trade that occurred in 2012 continued into 2014, as Table 2 shows. For

2014, global trade in goods and services is projected to grow by 3.8 per cent from 3.0 percent, only a

slight improvement on 2013 and well below the pre-Great Recession average of 7.0 per cent. Weak

demand in the euro zone continues to constrain global trade. Comparing advanced economies to

emerging and developing economies, both export and import growth is stronger in the latter. Some of the

slowdown in trade growth could reflect a more modest pace in the fragmentation of global production

processes (value chains) after years of rapid change.

Table 2: Growth of trade in goods and services (per cent)

Projections

1995-2004 2012 2013 2014 2015

World trade volume (goods and services) 7.0 2.9 3.0 3.8 5.0

Imports

Advanced economies 6.8 1.2 1.4 3.7 4.3

Emerging market and developing countries 8.0 6.0 5.3 4.4 6.1

Exports

Advanced economies 6.3 2.0 2.4 3.6 4.5

Emerging market and developing countries 8.7 4.6 4.4 3.9 5.8

Source: IMF – WEO October 2014.




1.3 Inflation development

Inflation generally remains below central bank policy targets in advanced economies, an indication that

many of these economies have substantial output gaps. In the euro area, inflation has remained below

expectations and declined further to 0.4 percent (year over year) in August. In several economies with

unemployment greater than the area-wide average, mild deflation in consumer prices continues. Inflation

in the United States has risen modestly during the past several months but still remains below the Federal

Reserve’s longer- term objective of 2 percent. In Japan, headline and core inflation (excluding food and

energy) have risen, to about 1.3 and 0.6 percent in July (year over year), respectively, excluding the

effects of the consumption tax increase. In emerging market economies, inflation has remained broadly

stable around 6.0 percent throughout the fiscal year of 2013/2014.

Figure 1: World and regional headline inflation

Source: IMF – WEO October 2014

Consistent with this, inflation in the EAC moderated substantially compared to the previous fiscal year

(see Figure 2). By June 2014 all countries had inflation below 8 per cent, which is one of the EAC macro

convergence criteria. All countries experienced a steady downward trend in inflation throughout the year.

This lower inflation was driven in part by lower food and fuel prices.

0

2

4

6

8

10

12

14

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Per

cen

t

Sub-Saharan Africa

Emerging market and developing

economies

Developing Asia

World

Advanced economies




Figure 2: EAC inflation during FY 2013-2014

Source: MINECOFIN

1.4 Global financial market developments

According to October 2014 WEO, financial conditions have eased since the release of the April 2014

WEO. In particular, long-term interest rates have declined in advanced economies, also reflecting

expectations of a lower neutral policy rate in the United States over the medium term. Equity prices have

generally risen and risk premiums have generally declined in advanced economies and emerging markets.

Volatility is very low across a wide range of asset classes, and market concerns about risks to stressed

advanced economies and emerging markets—as reflected, for example, in interest rate spreads—have

generally decreased. As noted in the October 2014 Global Financial Stability Report (GFSR), market and

liquidity risks have risen, and valuations in some asset classes (such as high yield corporate bonds) appear

stretched. The easing of financial conditions has been broad based. Capital flows to emerging market

economies have remained robust despite generally weaker activity, and exchange rates have stabilized or

strengthened in some of these economies. The easing of the financial conditions index in the second half

of the fiscal year 2013/2014 benefited the Rwanda Eurobond trading whereby the yield declined by 26.3%

from 8.177% at the begging of July 2013 to 6.028% at the end of June 2014.

0.0

4.0

8.0

12.0

16.0

Jul-13 Nov-13 Mar-14 Jul-14

Uganda

Kenya

Tanzania

Rwanda

Burundi




II. DOMESTIC ECONOMIC PERFORMANCE

2.1. Real sector

2.1.1. Economic growth performance

During the fiscal year 2013/2014, the Rwandan economy grew by 5.1 percent mainly driven by services

and industry sectors which grew respectively by 7 and 6 percent. The main drivers for industry sector

were manufacturing and construction and both grew by 5 percent. The good harvest in the season A2014

which followed a poor performance of season B2013 contributed to the 3 percent growth in the

agriculture sector. Available data indicate that GDP per capita stood at US $ 701 in 2013 compared to US

$ 689 at end 2012. Further economic data can be obtained from http://www.statistics.gov.rw/.

2.1.1.1.Real sector growth and contributions to GDP

The graph below shows that Rwandan economy recorded the lowest performance in 2013/2014 compared

to the last four fiscal years, mainly due to the low production registered in agriculture and industry

sectors. Despite the ongoing implementation of the crop intensification program, weather conditions

contributed to the poor harvest registered in 2013/2014 compared to the two previous fiscal years. The

growth rate of the industry sector decelerated mainly due to manufacturing and construction, which didn’t

perform well in 2013/2014. Manufacturing recorded low growth for the second fiscal year in a row and

construction registered its lowest growth since 2009/2010. Manufacturing growth was adversely affected

by disrupted trade with DRC whereas the slowdown in construction was related in part to delayed public

expenditure on key large projects as well as decelerated private sector credit growth.

Figure 3: Real sector growth (2010/2011 to 2013/2014)

Source: National Institute of Statistics of Rwanda

Agriculture

In 2013/2014, agriculture grew by 3 percent, lower than the 6 percent recorded in 2012/2013. It

contributed by around 33 percent to GDP in 2013/2014 down from 34 percent in 2012/2013. Despite the

0%

2%

4%

6%

8%

10%

12%

14%

2010-11 2011-12 2012-13 2013-14

Agriculture

Industry

Services

GDP

http://www.statistics.gov.rw/




poor performance of season B2013, total food crops and livestock products performance during the fiscal

year 2013/2014 were sufficient for food security.

Industry

The industrial sector grew by 6 percent during 2013/2014, compared to 12 percent in 2012/2013. Mining

led the sector performance with 15 percent expansion, followed by construction and manufacturing with 5

percent growth, and beverages which grew at a rate of 3 percent. The growth in mining was the result of

previous large investment in the sector along with high mineral prices in the first half of the fiscal year.

Manufacturing performance was weakened by border issues with DRC which hindered trade in beverages

in particular. However, the decrease experienced by soft drinks was mainly due to the fact that some of

the output which used to be exported to DRC (Goma) through BRALIRWA distributors was stopped from

April 2014 by the DRC local authority, following complaints from one local company which also makes

the same products. Sugar production declined due to the fact that the industry stopped production for four

months for maintenance purposes instead of the more typical two months stoppage. Electricity grew by 8

percent due to new investments in the energy sector. During the same period, the production of cement

increased by 5 percent and modern beer by 4 percent. The production of cement increased mainly due to

the greater stability of electricity used to run the machines in the production process compared to the

previous period. However, it was still a below-average increase in cement production, which was related

to the slowdown in construction, along with strong competition from imported cement. For the

manufacturing sector, the following products recorded a negative growth: soaps (-6 percent), paints (-22

percent), textiles (-18 percent), sugar (-18 percent) and flour production (-9 percent). The share of

industry sector to GDP was 15 percent.

Table 3: Growth and shares by key economic sectors

Output, Rwf Billions Growth rate Shares of Nominal

2011 Constant prices (percent) GDP (percent)

2012/13 2013/14 2012/13 2013/14 2012/13 2013/14

Overall GDP 4,303 4,524 6.9 5.1 .. …

Agriculture 1,365 1,402 6 3 34 33

Food crops 934 964 6 3 24 24

Export crops 90 81 19 -9 2 2

Industry 638 678 12 6 15 15

Mining & quarrying 75 86 4 15 2 2

Manufacturing 222 232 5 5 5 5

Construction 312 329 20 5 7 7

Services 2,044 2,189 7 7 46 47

Trade and transport 698 757 9 8 16 16

Wholesale & retail trade 545 592 8 9 12 12

Financial services 129 136 15 5 3 3


Services

Services remained the largest share of GDP with 47 percent, and grew by around 7 percent. This

performance was mainly driven by trade and transport which grew by 8 percent, followed by real estate




with 5 percent. In addition to general trade and real estate, administrative and support services activities,

hotels and restaurants, information and communication remained the largest contributors to GDP. Overall

performance in the services sector was comparable to the previous year and attributable to many factors

such as the strong season A2014, increased public consumption for the full fiscal year and an uptick in

domestic demand in the first two quarters of 2014.

2.1.1.2. Growth by expenditure components

By expenditure components, the Rwandan economy was driven by private consumption and exports of

goods and services. In contrast, gross capital formation registered its lowest growth in 2013/2014 since

2009/10, with 6 percent real growth compared to 21 percent recorded in 2012/2013. This was mainly

attributable to the low growth of construction (5 percent) against 20 percent in the previous year.

The slowdown in gross capital formation – or investment – was the main contributor to the slower fiscal

year GDP growth when analyzed from the expenditure side. Delayed public projects and slower imported

capital goods – which reflected the slowdown in domestic demand in 2013 – meant that overall

investment in the economy slowed down. Total gross capital investment formation (i.e. investment)

equaled 26 percent of GDP in this fiscal year, with the public sector contributing 14 percentage points and

the private sector the remaining 12 percentage points.

Figure 4: GDP growth by expenditure components


0%

5%

10%

15%

20%

25%

30%

2010-11 2011-12 2012-13 2013-14

Total final consumption expend Gross Capital formation

Exports of goods & services Imports of goods and services

GDP




Figure 5: Shares of GDP by expenditure components


2.1.2. Price Movements

2.1.2.1. CPI inflation

Comparing the consumer prices in 2013/2014 with those in 2012/2013, we notice a rise in the prices of

food and non-alcoholic beverages by 1.9 percent against 4.4 percent in 2012/2013, alcoholic beverages

and tobacco by 6.1 percent against 1.7 percent, recreation and culture by 1.7 percent against 1.2 percent,

miscellaneous goods and services by 4.1 percent against 3.3 percent, health care by 10.0 percent against

0.5 percent, education by 7.1 percent against 35.2 percent and communications (-0.9 percent) against (-1.9

percent), restaurant and hotel by 7.8 percent against 3.8 percent, clothing and footwear by 4.5 percent

against 1.5 percent. In contrast, a decline occurred in transport (-3.4 percent) against 0.9 percent.

During 2013/2014, year on year inflation stood at a moderate rate of about 1.4 percent in June 2014 down

from 3.7 percent the same month of the previous year, and 5.6 percent at the beginning of the previous

fiscal year in July 2012. This CPI remains well below the regional peers with 7.4 percent in Kenya, 6.4

percent in Tanzania, 4.9 percent in Uganda and 3.3 percent in Burundi at end of June 2014. The annual

average stood at 3.4 percent at end June 2014 down from 4.6 percent in June 2013.

The following graph below shows that in annual change, local goods and imported goods continued to

decline compared to the same month in 2013, partly due to the decrease in the cost of transport. By end of

June 2014, local goods stood at 2.1 percent from 4.1 percent in June 2013 and imported goods stood at (-

0.39 percent) from 1.9 percent in the same month last year.

0

20

40

60

80

100

Total finalconsumptionexpendutures

Gross capitalformation

Exports ofgoods & services

Imports ofgoods & services

Shares of Nominal GDP (percent)

2012_13 2013_14




Figure 6: Imported and domestic inflation (July 2013 - June 2014)


2.1.2.2. Producer Price Index (PPI) – Manufacturing

Local sales

In June 2014, the index for products manufactured for sale on the local market stood at 112 and increased

slightly by 2 percent higher than last year. This lower increase recorded in 2013/14 is mainly attributable

to price increases in manufacture of beverage 5 percent and manufacture of tobacco products 1 percent.

Food products declined to 5 percent mainly due to the decrease recorded by manufacture of dairy products

13 percent, manufacture of sugar 13 percent and manufacture of grain mill products 2 percent. Finally,

processing and preserving of fruits and vegetables declined to 1 percent.

Exports index

The manufacturing index of all export products stood at 116 and registered a decrease of 4 percent in June

2014 from 122 the same month of the previous year. Manufacture of coffee and tea declined respectively

to 15 percent and 9 percent. However, prices of mining products rose by 15 percent.

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Locally Produced Imported




2.2. Fiscal performance

2.2.1. Introduction

The implementation of the 2013/14 budget was affected by several factors. First, the lagged impact of

delayed plus reduced donor support disbursements in 2012 adversely affected economic activities and

growth thereby reducing domestic revenue collections in fiscal year 2013/14. Second, uncertainties and

further delays in donor disbursement flows during the fiscal year 2013/14 created cash-flow problems for

budget implementation and resulted in Government borrowing frequently from the domestic market to

finance spending. Third, capacity constraints experienced during the fiscal year led to a slow - down in

capital projects implementation and lower draw-down of external project funds in fiscal year 2013/14.

Fourth, the budget for fiscal year assumed implementation of selected revenue measures to achieve the

revenue objectives. Delayed implementation of some of the measures together with lags in the accrual of

additional revenues from these measures reduced domestic resource mobilization and Government

spending. Further information is available in MINECOFIN’s Budget Execution Reports, available from

http://www.minecofin.gov.rw/home.

2.2.2. Budget revision

The original envelope of the 2013/14 budget was revised from RWF 1658 billion to RWF 1677.7 billion.

The revised budget projected total revenue and grants to rise slightly from RWF 1313.6 billion to RWF

1336.8 billion showing an increase of RWF 23.2 billion. Domestic revenue collections were revised

upwards from RWF 842.9 billion to RWF 873.8 billion showing an increase of RWF 30.9billion. Total

Grants were revised downwards from RWF 470.7 billion to RWF 463 billion showing a decrease of RWF

7.7 billion.

Total expenditure and net lending was revised downwards from RWF 1602.1 billion to RWF 1598.8

billion showing a small decrease of RWF 3.3 billion. Within this total, recurrent spending which was

revised upward from RWF 716.5 billion to RWF 760.9 billion showed a rise of RWF 44.4 billion. Capital

spending and Net lending were however revised downwards from RWF 770.8 billion and RWF 114.8

billion respectively to RWF 750.1 billion and RWF 87.8 billion respectively. These revisions showed

declines of RWF 20.7 billion for capital spending and RWF 27 billion for net lending.

The overall deficit (including grants) was revised downwards from RWF 297.7 billion to RWF 271.2

billion. The revised deficit was to be financed with net foreign loan financing of RWF 109.9 billion and

net domestic funds of RWF 161.3 billion. In the original budget the overall cash deficit of RWF297.7

billion was to be financed with net foreign loans of RWF136.9 billion and net domestic funding of

RWF160.8 billion.

http://www.minecofin.gov.rw/home




2.2.3. Resources performance

2.2.3.1. Domestic revenue performance

The original Tax Revenue estimate of RWF 775.4 billion was raised to RWF 782.8 billion on the basis of

the accrual of substantial yields from several on-going and new revenue measures as well as expected

additional yields from PAYE receipts on account of expected increase in new hiring of public servants

during the fiscal year. The most important measures were the electronic register for recording taxpayers’

transaction to reduce evasion and track new taxpayers and the revision of the VAT tax code to reduce

exemptions.

The total tax revenue collection amounted to Rwf 761.0 billion against a target of Rwf 782.5 billion

which is an achievement of 97.3%, missing the target by Rwf 21.5 billion. Direct taxes performed at

97.1%, missing the target by Rwf 9.4 billion, but realised a growth rate of 10.3% when compared to

2012/13. Taxes on goods and services in FY 2013/14 performed at 98.2%, registering a deficit of Rwf 7.3

billion, but realised a 22.5% growth when compared to FY 2012/13. Taxes on international trade

(composed of import duties and other customs fees) recorded a performance of 92.3%, missing the target

by Rwf 4.7 billion but grew by 16% when compared to collections of 2012/13. In general, revenue

collection targets were not met due to reasons including slowing down of economic activity in the second

half of calendar year 2013 and also due to some public institutions not remitting taxes collected from civil

servants on behalf of RRA, contrary to standing guidelines.

Total non-tax revenue in the fiscal year amounted to RWF 101 billion showing an excess of RWF 9.7

billion against the revised budget estimate.

Table 4: Revenue performance in 2013/2014 (in billion RWF)

2013/2014

Tax Categories Revised Budget Prov. Actuals Difference

Total Revenue 873.8 862.1 -11.7

Tax Revenue 782.5 761 -21.5

Direct Taxes 326.1 311.1 -15

Taxes on goods and services 397.7 394.1 -3.6

Taxes on International Trade 58.7 55.9 -2.8

Non-tax revenue 91.3 101 9.7

of which PKO 63.9 81.5 17.6

of which other 27.4 19.5 -7.9 Source: MINECOFIN

2.2.3.2. External resource performance

The original estimate of total grants was revised slightly downward from RWF 470.7 billion to RWF 463

billion. On the other hand the original figure of budgetary grants was scaled up from RWF 170.7 billion

to RWF 201.2 billion. Total budgetary grants disbursements amounted to RWF 171 billion and registered

a shortfall of RWF 30.2 billion. This shortfall was mainly due to a change in the composition of donor




disbursements from IDA and the African Development Bank (AFDB). In the case of capital grants, the

accrual of RWF 303.3 billion exceeded the revised budget estimate of RWF 261.8 billion by RWF 41.5

billion. This excess disbursement was mainly on account of excess Global Fund disbursements.

Total project loans disbursed during the fiscal year 2013/14 amounted to RWF 66.3 billion (US$ 99.8

million). This performance showed a shortfall of RWF 56.8 billion (US$84.3 million) compared to the

estimate of RWF 123.1 billion. This performance was mainly due to delays in implementation of energy

and roads projects by EWSA and RTDA.

Table 5: External Resources performance

2.2.4. Outlays performance

2.2.4.1. Recurrent expenditure

Total spending of RWF 779.9 billion exceeded the revised budget projection of RWF 760.9 billion by

RWF 19.1 billion. With the exception of outlays under exceptional spending and wages and salaries all

other items over-spent.

Wages and salaries – The expenditure of RWF 187.9 billion was RWF 7.3 billion lower than the

revised budget estimate of RWF 195.2 billion. The lower spending was mainly due to the fact that the

amount of RWF 6.2 billion allocated in the revised budget for new recruitment of some public servants

especially for NSS and the Rwanda Agricultural Board (RAB) was not used as the new recruitments did

not take place.

Goods and services – Outlays on goods and services of RWF 142.5 billion also exceeded the

revised budget allocation of RWF 130.1 billion by RWF 12.4 billion. A large share of the excess spending

was partly due to front loading of some spending as well as higher outlays for some priority items.

Rev. Budget Actual

Total Grants 463.0 474.3

Budgetary grants 201.2 171.0

Capital grants 261.8 303.3

Projects 212.1 210.6

Global Fund 49.7 92.6

Total Loans 123.1 115.8

Budgetary loan 0.0 49.5

Project loans 123.1 66.3

Source : MINECOFIN

2013/14




Interest - Interest payments in fiscal year 2013/14 of RWF 43.7 billion exceeded the revised

budget allocation of RWF 37.5 billion by RWF 6.2 billion. This excess spending was solely due to higher

interest spending on domestic debt.

Transfers and subsidies – Spending under transfers and Subsidies of RWF 286.8 billion in fiscal

year 2013/14 was RWF 13.1 billion higher than the RWF 273.7 billion allocated in the revised budget.

The main reason for excess spending was the frontloading as well as late payments of subscriptions to

some major international organizations.

Exceptional expenditures - RWF 119 billion was spent under exceptional expenditure in fiscal

year 2013/14. This performance showed a lower spending of RWF 5.4 billion compared to the revised

budget estimate of RWF 124.4 billion. This shortfall in spending was due to the late payment of some

bills on peace-keeping operations that were carried over to the new fiscal year.

Table 6: Expenditure performance

2.2.4.2. Capital expenditure

Total capital expenditure in fiscal year 2013/14 amounted to RWF 712 billion as against RWF 750.1

billion allocated in the revised budget. There was therefore a shortfall in total spending of RWF 38.1

billion. An over-spending under foreign financed capital was more than offset by the lower expenditure

under domestically financed capital expenditure.

(Billion Rwf) Rev. Budget Actual

Total expenditure and net lending 1,598.8 1,542.2

Current expenditure 760.9 779.9

Wages and salaries 195.2 187.9

Purchases of goods and services 130.1 142.5

Interest payments 37.5 43.7

Domestic Int (paid) 11.5 18.0

External Int (due) 26.0 25.6

Transfers 273.7 286.8

Exceptional social expenditure 124.4 119.1

Capital expenditure 750.1 712.0

Domestic 365.2 320.2

Foreign 384.9 391.9

Net lending 87.8 50.2

Source : MINECOFIN

2013/14




2.2.4.3. Net lending

Total expenditure under net lending in fiscal year 2013/14 amounted to RWF 50.2 billion and registered a

shortfall in spending of RWF 37.6 billion. This shortfall in spending is mainly attributable to lower

spending on the KCC project. The project experienced some delays in construction during the year and as

a result only RWF 49.8 billion was spent as against RWF 96.3 billion allocated.

2.2.5. Deficit and financing

The Government’s fiscal operations in 2013/14 ended with an overall deficit (including grants) of RWF

222.0 billion compared to the RWF 271.2 billion projected in the revised budget. The deficit was

therefore RWF 49.2 billion lower than projected in the revised budget. This better than expected

performance was mainly attributable to delays in implementing some capital projects including the KCC

project.

The deficit was financed through foreign financing comprising both project and budgetary loans draw-

down provided a net amount of RWF 104.7 billion. Net domestic financing contributed the remaining net

amount of RWF 117.2 billion. This performance reflects total banking system financing of RWF 150.6

billion and non-bank debt repayment of RWF 30.8 billion. Roughly two-thirds of the banking system

financing was drawdowns of Government deposits whereas the remainder was debt.

Table 7: Budget financing for FY 2013/14

(billion Rwf) Rev. Budget Actual

Financing 271.2 222.0

Foreign financing (net) 109.9 104.7

Drawings 123.1 115.8

Budgetary loan 0.0 49.5

Project loans 123.1 66.3

Amortization (due) -13.2 -11.0

Domestic financing 161.3 117.2

Banking system (Monetary Survey) 173.3 150.6

Non bank (Net) -12.0 -30.8

Adjustment-Deposit drawdown (including Agaciro) 0.0 -2.7

Source : MINECOFIN

2013/14




2.3. External sector performance

2.3.1. The balance of payments

The overall balance of payments was in deficit of US$ 74.3 million at the end of FY 2013/14, from the

surplus of US$ 211.0 million at the end of FY 2012/13. This deficit was primarily due to expenditure of

the Eurobond proceeds during the fiscal year, which adversely affected the financial account. Although

the capital account recorded an improvement, as capital grants increased this fiscal year compared to last,

the overall capital and financial account surplus declined by 39% compared to FY 2012/13.

The current account balance has slightly improved from minus US$ 554.6 million to minus US$ 544.7

million, due to the increase of both net private and net public current transfers (i.e. budgetary grants) by

10.7% and 9.2% respectively. This slightly off-set the deterioration in the trade balance deficit.

2.3.2. Trade balance

The trade balance deficit has slightly increased by 3% in 2013/14, to US$ 1,234.8 million from US$

1195.6 million in 2012/13. Imports (fob) increased by 3%. The below-average increase is related to the

delays of implementation of big projects which would otherwise increase the imports of raw materials and

capital goods. Exported goods remained almost flat with only 2% of increase. This was due to the decline

of prices in international markets, especially coltan prices starting in January 2014 (while over 2013

calendar year as a whole it was the export earning the most foreign exchange). In FY 2013/14, exports

(fob) covered 37% of imports (fob), which is almost the same as the previous fiscal year.

Table 8: Trade balance in value terms (million US$)

2012/13 US$ M 2013/14 USD M % change

Export (FOB) 707.3 722.6 2%

o/w coffee 69.1 47.5 -31%

tea 63.9 52.3 -18%

minerals 186.3 204.3 10%

non- traditional 121.4 105.4 -13%

re-exports 133.8 167.2 25%

Imports (FOB) 1902.9 1957.4 3%

o/w consumer goods 537.5 526.7 -2%

capital goods 474.2 508.0 7%

intermediates 509.8 568.1 11%

energy goods 310.1 303.9 -2%

Trade balance -1195.6 -1234.8 3%

Source: BNR, Statistics Department




For calendar year 2013, Rwanda had a very positive terms of trade shock due to the high price of minerals

and benign energy and imported food prices. This position was reversed during 2014: although the

international price for Arabica coffee increased in the first six months of 2014, the fall in mineral prices

meant that overall the terms of trade turned negative for Rwanda by the end of the fiscal year. This also

contributed to the worsening trade deficit.

Table 9: Trade balance in volume terms (1000 ton)

2012/13 (1000 ton) 2013/14 (1000 ton) % change

Export 321.35 305.76 -5%

o/w coffee 20.53 17.83 -13%

tea 22.06 21.60 -2%

minerals 8.41 10.23 22%

non- traditional 192.05 150.70 -22%

re-exports 78.30 105.40 35%

Imports 1,845.59 1,789.24 -3%

o/w consumer goods 622.11 576.59 -7%

capital goods 63.54 63.37 0%

intermediates 888.90 873.71 -2%

energy goods 271.05 275.57 2%

Trade balance - 1,524.24 - 1,483.48 -3% Source: BNR, Statistics Department

2.3.2.1. Exports of Goods

In general, export value has declined during the FY 2013/14 due to the sharp decline of prices on the

international market, especially in traditional exports such as coffee, tea and minerals. The reason total

exports saw a slight increase was due to the strong performance of re-exports (mainly fuel and vehicles to

regional countries).

During FY2013/14, coffee declined both in volume and value by 13% and 31% respectively due to the

bad weather in the second semester of 2013 and which continued in the first quarter of 2014. Additional

to that, as coffee transactions are governed by fixed-price forward contracts, exports in the first half of

2014 were affected by the low international price at the end of 2013. All of those changes have impacted

negatively the coffee value compared to the previous fiscal year.

Minerals have increased by 10% and contributed 28% to all exports from 26% in the previous fiscal year.

This was due to the strong price of coltan in 2013, which earned 134.6 million US$ in calendar year 2013

from 56.9 million US$ in calendar year 2012. Despite the subsequent fall in coltan’s price in the first half

of 2014, this means an increase of both volume and value of 115% and 136% respectively for FY2013/14.




Non-traditional exports declined by 13% in terms of value, mainly due to new non-tariff barriers that were

introduced by DRC (the major market) in the first semester of 2014 on goods made in Rwanda such as

Azam products, Minimex, Pembe and Bralirwa. These barriers were removed in August 2014 but

included barriers such as:

The number of days to clear a Rwandan track increased from 3 to 7 days.

Introduction of visa charges: At Rusizi border post, DRC started imposing visa charges since the end

of March 2014 of $55 to business people and workers. Other fees charged include Police Pass of $10,

Road maintenance fees of $20 to any vehicle irrespective of tonnage, parking fees $20 etc.

Another cause behind the non- traditional export decline in 2013/14 is that Sopyrwa has been stockpiling

pyrethrum since July 2013 following the buyout of the major buyer by a competitor. Sopyrwa is now in

the process of finalizing a contract with a new buyer and is also pursuing other product lines. Pyrethrum

exports are therefore expected to resume at a substantial level in the remainder of the year 2014.

Figure 7: Exports by Value and Volume 2013/14


2.3.2.2. Imports of Goods

With the expected pickup in economic activity, imports in value terms (CIF basis) were expected to

increase in 2013/14. However, because of the delays in the implementation of big projects like Kigali

Convention Center, they only modestly increased by 3%. The fiscal year performance was very different

by semester. Growth improved substantially in the second half (January – June 2014) as delayed

construction projects were fast-tracked. Capital and intermediate goods imports (infrastructure related)

increased by 7% and 11% for the fiscal year but by 14% and 27% respectively in the second semester.

For consumer goods, growth in the second semester (8%) was also far higher than in the first semester.

One cause was the reduction in the domestic production of sugar in the early months of 2014, as




mentioned in the section on the real sector, which caused an acceleration in these imports toward the end

of the fiscal year 2013/14.

Energy imports declined by 2% in value over the fiscal year due to the benign impact of global oil prices.

This represented a reduction in the cost of doing business in Rwanda. The outlook for global energy

prices is good, which should mean energy imports will not substantially increase in the near-term.

Figure 8: Imports by Value and Volume 2013/14


2.3.3. Foreign exchange earners: tourism and remittances

Tourism continues to be a strong sector in the Rwandan economy, earning the most foreign exchange of

any export in FY 2013/14. However, provisional estimates for tourism show that receipts were almost flat

between FY 2013/14 and FY 2012/13. This was driven by a decline in business revenue (-13.3 per cent)

and an only modest increase in leisure revenue (5.1 per cent).

Overall numbers of visitors to the country increased by 3.0 per cent between the two fiscal years. This

small increase was impacted by the reduction in business visitors due to border closures with DRC (-9.8

per cent). Business visitors are the largest group (34 per cent of total visitors) so their movements strongly

affect the total. There was only minor growth in leisure visitors during this fiscal year (1.8 per cent).

Table 8: Tourism visitors and revenue by fiscal year

FY 2011/12 FY 2012/13 FY 2013/14 % change

Visitors (million) 0.99 1.14 1.17 3.0

Revenue (USD million) 262.3 296.4 297.4 0.3

Source: Rwanda Development Board

Remittances – another important source of foreign exchange – declined by 8.7 per cent between FY13/14

and the previous fiscal year. They equaled US$159.4 million as opposed to US$174.6 million in the

previous year. The decline was very noticeable in the first six months of 2014 and may be related to the

slowdown in global economic growth in the first half of this year.




Figure 9: Remittances (USD million)


2.4. Regional integration

2.4.1. Progress to date

Rwanda considers regional economic integration as one of the crucial elements of achieving Vision 2020.

It will be necessary to pursue an open, liberal trade regime, removal of barriers to trade as well as

implementing policies to encourage FDI.

Rwanda is a full member of three key regional economic blocks: the East African Community (EAC), the

Common Market for Eastern and Southern Africa (COMESA), and the Economic Community of the

Great Lakes Countries (CEPGL). These blocks are at different stages of integration and Rwanda is

currently dealing with a tripartite agreement including the EAC, COMESA and SADC with the purpose

of resolving issues surrounding overlapping membership.

Moreover, the East African Community Partner States and the European Union have concluded

negotiations this year 2014, on the historical Economic Partnership Agreement. The negotiations in the

context of EAC started in 2007 and were behind schedule (but in order to avoid disruption of trade, the

EAC Partner States and the European Union decided to initial an Interim Agreement in November 2007).

The agreement almost took a decade to make and is the first time when EAC negotiated as a single bloc, a

significant achievement for the region. Rwanda and other EAC Members will have enough goods to trade

with the EU, and trade between EU and Rwanda has been evolving positively and the value addition will

be the key in order to fully exploit the benefits of this agreement. The benefits range from trade to

development cooperation to enabling the region’s private sector access the European Union markets.

In terms of progress made, the EAC is at the most advanced stage, and Rwanda has significantly

deepened its integration with the EAC. Currently, two stages of the process, the customs union (since July

2009) and common market (since July 2010) protocols, are being implemented and allow people, capital

and goods to move freely within the region. During 2013/14, for example, several new Kenyan companies

0

5

10

15

20

25

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14

USD

mill

ion




began trading on the Rwanda Stock Exchange. Furthermore, the East Africa Monetary Union protocol

was signed in November 2013, and Rwanda is expected to benefit from this by the reduction of

transaction costs for businesses, thereby improving the incentive to invest in Rwanda. Additionally to

that, under the Northern Corridor Integration Projects, Rwanda, Kenya and Uganda are implementing the

East Africa Tourist Visa and ID as a travel document, as well as the single customs territory which will

benefit Rwanda through increased tourism and customs revenues from increased trade.

Rwanda currently benefits from the COMESA Free Trade Area (FTA), which it joined in 2004, and the

COMESA Customs Union (CU) is currently in the process of being implemented. However, progress has

been made since the launch of COMESA CU in 2009, even if none of the members has yet fully

implemented it. Negotiations for the harmonization of COMESA and EAC Common External Tariffs are

underway which will form the CU of the two. The transition period has been extended to end 2014 to

allow for this.

2.4.2. Trade with the EAC

Imports from EAC countries increased by 10 percent in 2013/14, due to the reduction in import tariffs,

reduced non-tariff barriers and more efficient border controls. However, exports to the EAC have declined

significantly 44 percent, which is related to the low competition in the region. Major exports to the EAC

include tea and coffee (Mombasa auction), hides and skins, iron and steel.

Table 9: Trade with EAC

Exports Re-exports Imports

Year Partner Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 BI 1.9 2.3 2.1 3.3 0.7 1.4 1.0 1.0 6.6 1.4 2.0 0.9

KE 41.6 13.4 15.8 15.0 1.7 0.2 7.2 0.7 34.2 33.2 37.1 30.8

TZ 25.1 32.4 52.9 49.9 0.2 0.9 1.2 1.7 21.7 19.3 21.0 14.9

UG 4.8 13.2 19.0 18.2 8.1 0.5 0.9 3.8 49.5 58.3 60.8 56.1

EAC 73.3 61.3 89.8 86.4 10.7 3.0 10.2 7.2 111.9 112.2 121.0 102.7

2013 BI 2.5 2.2 4.7 2.5 2.4 3.6 1.3 2.4 1.0 1.9 2.5 2.0

KE 22.2 22.0 11.5 17.1 7.5 7.5 3.9 4.6 28.2 30.6 33.6 28.8

TZ 0.4 0.6 16.0 0.6 0.1 0.4 0.0 0.1 14.7 17.1 31.8 17.3

UG 1.0 1.5 1.5 1.5 1.5 0.4 0.5 0.0 46.6 50.4 53.1 53.1

EAC 26.0 26.3 33.8 21.7 11.5 11.9 5.6 7.0 90.5 100.0 120.9 101.2

2014 BI 2.2 2.1 5.3 1.7 1.7 1.7 1.0 1.5 1.7

KE 19.5 18.8 12.5 3.4 24.2 4.4 55.6 38.8 38.4

TZ 1.6 2.3 1.0 0.1 0.1 0.1 14.9 16.3 17.5

UG 1.8 2.9 2.5 0.1 0.3 0.4 50.0 53.8 68.7

EAC 25.0 26.1 21.2 5.3 26.3 6.5 121.5 110.4 126.2 Source: National Institute of Statistics of Rwanda




2.5. Rwanda debt developments

2.5.1. Debt stock development

The overall fiscal deficit (including grants) during FY 2013/14 was RWF 222.0 billion or approximately

4.3 per cent of GDP. The deficit was financed through a combination of external and domestic debt, along

with drawdown of Government deposits at BNR.

Debt owed to the banking system increased due to the issuance of new treasury bonds and bills sold to

commercial banks and to the Government’s increased overdraft at BNR, which contrasts with the

Government reduction in its debt (bills and bonds) to the non-banking sector during this fiscal year.

Domestic debt further increased due to a new loan taken by RSSB. The external debt stock increased due

to disbursements of concessional loans and to new loans contracted by RwandAir.

Table 10: Rwanda Public Debt Stock (in million USD unless otherwise indicated)

Jun-13 Jun-14

Million

(USD)

% of

GDP

Share of total

debt (%) Million (USD)

% of

GDP

Share of total

debt (%)

Total public debt 2,101.0 28.8 100.0 2,295.5 30.5 100.0

External 1,622.4 22.3 77.2 1,754.2 23.3 76.4

Concessional 1,177.9 16.2 56.1 1,279.0 17.0 55.7

Commercial 444.49 6.1 21.2 475.20 6.3 20.7

o/w Eurobond 400.0 5.5 19.0 400.0 5.3 17.4

o/w other1 44.5 0.6 2.1 75.2 1.0 3.3

Domestic 478.6 6.6 22.8 541.3 7.2 23.6

in billion RWF 307.6

369.5

o/w treasury bills (RWF bn) 146.1 156.5

Memorandum items

Government guarantees to

private sector2 0

0

Nominal fiscal year GDP (RWF

bn) 4,681

5,137

Nominal fiscal year GDP (USD

mn) 7,283

7,526

Exchange rate 642.7

682.5

1. Other commercial public debt is mainly comprised of RwandAir loans

2. These represent a contingent liability for the government.

Source: MINECOFIN Debt Management Unit




As a result of these developments, the total public and publicly guaranteed debt for FY 2013/14 rose to

30.5 per cent of GDP of which 23.3 percentage points is external and 7.2 percentage points is domestic.

Table 10 sets out the composition of the total debt for the period 2012/13-2013/2014.

Concessional loans continue to constitute the majority of the external debt portfolio, and treasury bills for

domestic debt. The main concessional creditors are IDA, AfDB and IFAD, whose funds were used for

projects in the areas of transport, construction, energy, poverty reduction and rural development.

Currently the government provides no guarantees for the debt of private sector entities. Central

government does guarantee loans given to RwandAir (worth US$ 75.2 million by June 2014) but these

form part of the total public debt stock as RwandAir is itself part of the public sector.

Rwanda’s Eurobond performed well during the fiscal year. 2 At the end of June 2014 its yield was 6.014

per cent, down from 6.756 per cent at end June 2013. The decline in the yield reflects the view of capital

markets that the bond is a good investment and therefore in high demand. Another positive development

was the debt rating upgrade by Fitch from B to B+ in July 2014, mainly due to positive economic growth

prospects.

2.5.2. Debt servicing

The external debt servicing burden increased during the FY 2013/14. The main reason for this is that FY

2013/14 was the first fiscal year in which a full year of Eurobond interest repayments had to be made.

However, at the equivalent of 4.8 per cent of exports in this fiscal year, the external debt burden remains

sustainable.3 A full Debt Sustainability Analysis was conducted by MINECOFIN over summer 2014 and

this found that Rwandan public debt is sustainable over a 20 year horizon. This is in line with the result of

the first review of the Policy Support Instrument (PSI) with the IMF in spring 2014, which also came to

the same conclusion.

Table 11: Debt servicing of external and domestic debt

2 In April 2013, Rwanda issued its first international bond for USD 400 million in order to repay expensive debt owed to Citi

and PTA Bank (by Kigali Convention Center and RwandAir), as well as to finalize the construction of the Kigali Convention

Center and to invest in a hydro power project. 3 The threshold for sustainability in the IMF-World Bank Debt Sustainability tool for countries like Rwanda with strong

economic policies is 25 per cent of exports. The other key sustainability thresholds can be seen in Figure 9.

FY 2012/13 FY 2013/14

Principal Interest Total Principal Interest Total

External (USD mn) 18.7 19.0 37.7 18.9 38.2 57.2

External (% exports) 1.6 1.6 3.3 1.6 3.2 4.8

Domestic (RWF bn) 625.9 16.2 642.1 726.6 18.0 744.6




Source: MINECOFIN Debt Management Unit

Domestic debt servicing also increased due to the increased reliance on short-term debt to finance cash-

flow gaps in the budget. However, the interest rate on T bills notably declined this year as a result of the

stable inflation environment, sound liquidity in the banking system, and increased banking sector appetite

for government debt (leading to a potential crowding out of the private sector, as reflected in slower

private sector credit growth this fiscal year).

2.5.3. External Debt Sustainability Analysis (DSA)

The MINECOFIN External DSA was based on a cautious macroeconomic outlook (a key assumption

being that long run GDP growth will be 6 per cent each year). Despite this cautious approach, the DSA

analysis still showed that Rwanda’s external public and publically guaranteed debt outlook is sustainable

from 2014 (first year of projection) through 2034. None of the sustainability indicators – the present value

of debt to GDP, exports and revenue - breached the thresholds in the baseline scenario, which is the most

realistic scenario.4 This is because Rwanda currently has quite a low debt-to-GDP figure, after debt

cancellation in the mid-2000s, and because careful debt management will ensure that additions to the

stock remain in line with GDP growth forecasts and will be as concessional as possible. Whereas in the

past, the PV Debt-to-Exports indicator was regularly breached under the most extreme shock, this is no

longer the case today due to a wider export base and improving prospects for growth and diversification.

The liquidity indicator of debt service-to-exports did not breach the threshold under either the baseline

(most realistic case) or under an extreme shock, but debt service-to-revenue gave some cause for concern.

The baseline (the blue line) did not breach the threshold but an extreme shock to the exchange rate would

result in the threshold being near-breached in 2023 (the year the Eurobond will be repaid). However

closer analysis - which accounted for Rwanda’s above-average CPIA score – showed this is not

problematic.

Given the results of the External DSA, Rwanda’s external debt risk rating remains low. The debt stock

will increase in line with Rwanda’s development needs but with due regard to Rwanda’s economic

growth and ability to pay. The main risk emerging from the analysis is the debt servicing of commercial

debt. While it may be possible to roll over this debt, the interest rate is not guaranteed to remain stable.

Mitigation of the risk is possible by careful debt management, seeking alternatives to fully non-

concessional borrowing, and importantly also by strong growth in exports. Diversification of the export

base along with overcoming significant barriers to trade (such as the cost of electricity and transport) will

improve Rwanda’s debt sustainability in the future, other things equal. In addition, strong growth in

domestic revenue will ease the fiscal pressure for domestic and external loans. The full MINECOFIN

DSA report is available at: http://www.minecofin.gov.rw/home.

4 The thresholds for the debt sustainability tests (on solvency and liquidity) are based on Rwanda’s Country Policy and

Institutional Assessment (CPIA) score which for this DSA assessment was 3.8. This makes Rwanda a ‘strong’ policy

performer. But as of June 2014, Rwanda’s score actually increased to 3.9, the joint highest in Africa.

http://www.minecofin.gov.rw/home




0

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250

2014 2019 2024 2029 2034

c.PV of debt-to-exports ratio

Figure 9: Indicators of Public and Publicly Guaranteed External Debt under DSA in summer 2014

1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a one-time depreciation

shock; in c. to an exports shock; in d. to a one-time depreciation shock; in e. to an exports shock and in figure f. to a one-time depreciation

shock.

0

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100

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200

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300

350

2014 2019 2024 2029 2034

d.PV of debt-to-revenue ratio

Baseline Historical scenario Most extreme shock 1/ Threshold

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60

2014 2019 2024 2029 2034

b.PV of debt-to GDP ratio

0

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2014 2019 2024 2029 2034

e.Debt service-to-exports ratio

0

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20

30

40

50

60

0

2

4

6

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12

2014 2019 2024 2029 2034

Rate of Debt Accumulation

Grant-equivalent financing (% of GDP)

Grant element of new borrowing (% right scale)

a. Debt Accumulation

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2014 2019 2024 2029 2034

f .Debt service-to-revenue ratio




2.6. Monetary and financial sector performance

2.6.1. Monetary sector developments

Broad money (M3) increased by 27.2 per cent during FY2013/14, indicating an expansion in liquidity in

this fiscal year compared to last (when annual growth was 9.2 per cent). This owed mainly to the increase

in credit growth under net domestic assets (NDA). Regarding the main components of broad money,

deposits increased by far more than currency in circulation (30.6 per cent as opposed to 2.7 per cent),

reflecting increased deposits at commercial banks and the ongoing modernization of the banking

payments system.

Net credit to the government increased by 91.9 per cent, indicating a reduction in government deposits at

the central bank and a steady expansion in domestic public debt held by the commercial banks. However

private sector credit growth for FY 2013/14 was 13.5 per cent, and so it was the combination of private

sector credit activity and increased issuance of government Treasury bills and bonds which caused net

domestic assets (NDA) to increase by 53.8 per cent for the fiscal year.

Net foreign assets increased by 14.0 per cent over the fiscal year, compared to 25.1 per cent in the

previous year. This increase came from the commercial banking system; NFA of the central bank actually

declined by 2.8 per cent as donor disbursements slowed and part of the Eurobond proceeds were spent on

completing KCC. The increase in the commercial banking system was aided by the purchase of

telecommunication towers in April 2014 for US$ 100 million.

Table 12: Monetary aggregates

(Rwf, billions) Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

Percentage change

Jun-13/ Jun-14/

Jun-12 Jun-13

Net foreign assets 513.7 555.8 642.8 744.0 733.0 25.1 14.0

Net domestic assets 367.1 334.3 319.1 284.7 490.9 -13.1 53.8

Credit to private sector 606.1 682.5 717.0 758.0 813.5 18.3 13.5

Credit to government 142.7 106.5 150.3 193.7 204.7 5.4 36.2

Broad money 880.8 890.2 961.9 1028.7 1224.0 9.2 27.2

Current in circulation 111.6 107.0 116.3 116.6 119.4 4.2 2.7

Deposit 769.3 783.1 845.6 912.1 1104.5 9.9 30.6

Source: BNR

Although credit to the private sector was lower compared to the previous fiscal year, growth in the second

half of FY 2013/14 (7.3 per cent between end-June 2014 and December 2013) indicates that the economy

is making a good recovery from the slowdown in domestic demand in 2013. New authorized loans in this

June-December period increased by 47.8 per cent, compared to a 12.4 per cent decline in the same period




of the previous year. The largest share of new authorized loans went to commerce, hotels and restaurants

(40.5 per cent) followed by public works and building industry (21.1 per cent).

2.6.1.1. Exchange rate developments

Regarding the exchange rate policy, BNR kept the RWF exchange rate fundamentally market driven,

while intervening on the domestic foreign exchange market by selling foreign exchange to banks to

smoothen the RWF exchange rate volatility. Despite this, the RWF still depreciated 6.3 per cent against

the USD over the fiscal year, although the rate of depreciation slowed in the April- June period as the

commercial banks held excess dollars. The ongoing economic problems in the Euro zone led to a more

volatile exchange rate against the Euro, with the RWF depreciating 9.6 per cent against the Euro, while

the greatest depreciation of all was to sterling (GBP) as the UK’s economy strengthened over the year.

The RWF depreciated against the regional currencies in the first half of the fiscal year but then

strengthened against most of them between December 2013 and June 2014 (the exception was the

Burundian BIF).

Figure 10: Exchange rates during FY 2013/14

90

95

100

105

110

115

120

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

USD GBP EUR




Source: BNR

Note: the exchange rate is normalized to 100 at the start of the fiscal year to show percentage changes

2.6.1.2. Interest rate developments

In June 2014, BNR eased monetary policy by reducing the Key Repo Rate from 7 to 6.5 per cent. It had

been held constant at 7 per cent since June 2013. The decision was taken to further loosen policy in order

to sustain the recovery in the economy, particularly the increased momentum in private sector credit

growth which had slowed in 2013. The current low-inflation environment in Rwanda further allowed this

accommodation to take place. The interest rate on T-Bills declined over the fiscal year, from 10.8 per cent

in June 2013 to 5.7 per cent in June 2014, indicating increased demand for government debt, particularly

in the first half of the fiscal year when lending to the private sector was more subdued. The lending rate

remained rigid during the past fiscal year; according to BNR this is due to the high operating costs of the

banks and information asymmetry between banks and borrowers.

Table 13: Interest rate developments

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

Key Repo Rate (%) 7.0 7.0 7.0 7.0 6.5

T-Bills Rate (%) 10.8 7.1 5.6 6.0 5.7

Deposit Rate (%) 10.6 9.0 8.6 8.3 8.7

Lending Rate (%) 17.7 17.8 16.9 16.8 17.5

Source: BNR

2.6.2. Financial sector developments

The financial sector remained sound and stable in FY 2013/14 as shown by the financial soundness

indicators of the banking system, measured in terms of capital adequacy, earnings, asset quality and

liquidity.

94

96

98

100

102

104

106

108

110

KES TZS UGS BIF




BNR also continued to implement its financial reforms. Some of the reforms implemented during this

period include the improvement in the legal and regulatory framework, supervisory tools, and modern

payment systems. The private credit reference bureau established last year is proving successful and BNR

aims to expand its coverage of the adult population.

Table 14: Financial soundness indicators in FY 2013/14

June 2013 Dec 2013 June 2014

Capital Adequacy: Solvency ratio (%) MINIMUM: 15% 23.1 23.1 23.6

Asset Quality: NPLs of banks (%) MAXIMUM: 7% 6.9 6.9 6.6

Liquidity: Liquid assets/total deposits (%) MINIMUM: 20% 46.2 49.4 54.2

Source: BNR

The non-performing loans (NPL) ratio has reduced slightly over the fiscal year. In June 2014, it stood at

6.6 per cent. The improvement is mainly due to the effort deployed by banks in loan recovery and

cleaning up of the balance sheet through write offs of impaired loans.

Table 15: Asset quality in the banking system (non-performing loans)

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

NPLs / Gross Loans (MAX 7%) 6.9% 7.2% 6.9% 6.7% 6.6%

Source: BNR

III. ECONOMIC OUTLOOK FOR 2014/2015

3.1. Real sector

The economic growth for the next fiscal year is projected to be 6 percent. The main risks are a weaker

than expected first agricultural season in 2015 and potential delays in donor disbursements. However, on

the upside, the accumulated effects of public investment in the recent past will begin to reap economic

benefits, particularly its infrastructure investment. The increase in the electricity grid between mid-2014

and mid-2015 is expected to boost industry and services. These structural changes to the supply-side of

the economy will partially offset the potential vulnerabilities that can arise from the current account

deficit. Other public investment in the transport network and private investment in the communications

network also support this view that total recent investment will increase the productive capacity of the

economy–particularly the private sector–through its higher infrastructure capital stock.

Inflation will remain contained and is projected at 3 percent at end-June 2015. This reflects both a

combination of subdued inflationary pressures and the monetary policy stance.




3.2. Fiscal policy

Recent fiscal performance show budget implementation during the July-September 2014 period is on

track. On the revenue side we expect the programmed fiscal year’s total to be collected in line with the

trend. Expenditure commitments are also on track.

Fiscal policy during 2014/15 will be geared at staging the course of continued revenue mobilization and

moderate fiscal expansion to boost economic performance while aiming at fiscal consolidation in the

medium term. Policies to be implemented in the coming fiscal year will aim at improving the revenue to

GDP ratio but progressively and consistently reduce government expenditures while safeguarding priority

expenditures to increase fiscal space and improve government savings that are much needed to rebuild the

policy buffers that proved essential in countering the effects of adverse shocks in the recent past.

3.3. Monetary policy

BNR’s stated monetary policy aim is to ensure adequate liquidity management to continue supporting the

economic recovery and keep inflation rate around the medium term objective of 5 percent. In order to

progressively move towards the use of interest rate as the operational target for monetary policy and to

improve the monetary transmission mechanism, BNR, in collaboration with MINECOFIN, will continue

to stimulate the development of the interbank market and secondary market for debt securities.

Furthermore, the BNR will continue to take the lead in the reorganization of the primary market by

broadening the investor base and transforming the short-term monetary policy instruments into medium to

long term maturities.

3.4. External sector

Regarding the external sector, the current account deficit is projected to deteriorate in the next fiscal year.

This is due to subdued export growth and an increase in imports reflecting the expected pickup in

economic activity in general and improvement in implementation of delayed infrastructure projects.

Capital and intermediate goods imports will largely contribute to the rebound in imports, which is

important for the country’s capital stock. The increase in imports will be financed primarily by the

improvement in the capital account due partly to a compositional change in some donor funds accrual

with more loans instead of grants and the unused Eurobond proceeds allocated to the Kigali Convention

Center and the Nyaborongo hydro project. Foreign reserves coverage will be around 4 months of imports.




CONCLUSION

During the fiscal year 2013/2014, growth was 5.1%, led by services followed by agriculture and industry.

A business- friendly environment, strengthened economic integration, and fiscal expansion supported by

accommodative monetary policy helped to boost output growth.

The implementation of the 2013/14 budget was affected by several factors. First, the lagged impact of

delayed plus reduced donor support disbursements in 2012 adversely affected economic activities and

growth thereby reducing domestic revenue collections in fiscal year 2013/14. Second, uncertainties and

further delays in donor disbursement flows during the fiscal year 2013/14 created cash-flow problems for

budget implementation and resulted in Government borrowing frequently from the domestic market to

finance spending. Third, capacity constraints experienced during the fiscal year led to a slow - down in

capital projects implementation and lower draw-down of external project funds in fiscal year 2013/14.

Fourth, the budget for fiscal year assumed implementation of selected revenue measures to achieve the

revenue objectives. Delayed implementation of some of the measures together with lags in the accrual of

additional revenues from these measures reduced domestic resource mobilization and Government

spending. Despite all challenges faced during the fiscal year 2013/2014, the key planned programs in line

with EDPRS were implemented successfully and the fiscal deficit was reduced.

The monetary policy stimulated the supply of money, and domestic credit increased consequently.

Domestic prices were moderate during the fiscal year.

For future growth prospects in 2014/2015, Government will remain committed to implementing stable

macroeconomic and structural policies so as to stimulate domestic demand and deal with possible external

adverse spillovers. Export development, savings and domestic resource mobilization strategies will also

help in enhancing and sustaining high levels of growth.

Finally, Government has also recognized the institutional problems that caused delays in implementing

some investment projects and efforts are on-going to improve the situation to ensure progress in

implementation and use of committed resources. Communication will be enhanced for greater

participation of all partners in the development process of the country.

republic of rwanda ministry of finance and economic planning · 2017-03-20 · rwanda annual...

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