World Economy

Rwanda Faces Twin Challenge

Rwanda Faces Twin ChallengeRwanda Faces Twin Challenge

As Claver Gatete, the Rwandan finance minister, heads to parliament next week to read the national budget for 2016/17, he is faced with the task of crafting new fiscal and monetary interventions not only to tame the spiraling cost of living but also boost economic growth and reduce poverty.

The government expects the economy to grow at 6% in 2016/2017, down from 7% in 2015—well below the target of 11.5%, AllAfrica reported.

But the government faces the twin challenge of dealing with a depreciating currency and import bill that is growing faster than export receipts.

The franc has continued to slide against the dollar, signaling a looming rise in the cost of living.

Inflation has remained under control, at 1.8% and 2.5% in 2014 and 2015, respectively, due to the fall in oil prices and good agriculture harvests.

But the annual average inflation is expected to pick up to 4.6% in 2016, due to increase in food and fuel prices, according to analysts.

The economy also remains vulnerable to domestic and global shocks—in particular lack of foreign exchange—which may undermine growth.

On May 27, Fitch Ratings published its updated rating of Rwanda at ‘B+’ on the long- and short-term foreign and local currency sovereign credit with stable outlooks, but cautioned on rising balance of payments due to the depressed commodity price cycle, which has affected the value of its metal minerals exports.

“The current account deficit widened to 13.5% of GDP in 2015, exacerbated by a rise in construction imports and the completion of the Kigali Conference Center,” it said.

Fitch says the deficit will go up to 16.5% in 2016, due to the purchase of two aircraft by the national airline. But the deficit is forecast to narrow slightly, and to improve to 11.7% in 2017 due to monetary and fiscal policy tightening and as import substitution measures take effect.