Rwanda Focus (Kigali)

9 July 2012

Rwanda: Economy Healthy, Says Gatete

In April, the International Monetary Fund (IMF) predicted that the global economy would grow at a rate of 3.5%. And last week, IMF managing director Christine Lagarde said the next forecast will be in negative.

However, here at home, the central bank governor says Rwanda's economy is tick and that projections pertaining to economic growth remain on-course. The economy is projected to grow at a rate of 7.7%.

Claver Gatete made the remarks despite a turbulent global economic outlook. For instance, in May 2012, commodity prices continued to decline in response to the unpromising European debt concerns.

Agriculture prices slowed by 1.7% drawn by most commodities (though prices increased for some products, such as rice (9.7%), soybeans (7.1%), beverages (1.2%), tea (7.1%) and Robusta coffee (5.0%) among others.

Generally, food prices on the World Market were down by 2.1% driven by fats and oil which prices reduced by 2.6%.

The decision by the EU leaders to rescue ailing banks in Spain and other struggling members certainly helped boost investor confidence even though Lagarde warned that more remains to be done if such efforts are to yield any major results.

The stability of the global economy especially Europe, is quite vital for Rwanda's own welfare as it's where the bulk of the country's major exports are sold.

Despite a blurred world economic outlook, Gatete remains sure armed with evidence put together by his Monetary Policy Committee (MPC) indicating that success can still be claimed.

According to the National Bank of Rwanda (BNR), formal external trade in the first five months of 2012, saw the value of exports increase by 33.5% from 40.3% recorded in the same period of 2011. Export volume rose by 73.7% against 57.9% in the corresponding period of 2011.

Despite increase in the exports volume, however, the trend indicates a noticeable decline in the value of exports as compared to last year, but BNR attributes that to the poor prices on the international market caused by Europe's economic troubles.

On the other hand, the value of Rwanda's imports increased by 32.3% with their volume also increasing by 24.3 % --quite higher than the 12.9% and 10.3% respectively recorded in the corresponding period of 2011.

"The good news is that most of the imports are used in further growth of the economy which shows that investors have confidence in us," said Gatete.

But with world agriculture commodity prices losing value, Rwanda will have to pray that the second agriculture season performs better than the first season which indicated a sharp decline compared to same period last year.

According to the Monetary Policy Report, food crops for the first season of this year rose by only 1.3 % compared to 5.4% achieved last year--the negative growth attributed to the heavy rains and floods which destroyed some crops mainly fruits and vegetables.

"The good news is that most of the imports are used in further growth of the economy which shows that investors have confidence in us," Gatete

The non-agricultural sector grew by 11.5% by end May 2012 compared to 12.3% recorded in May 2011 with the overall index of industrial production increasing by 6.3%.

Informal trade

However, the informal cross-border trade has been impressive indicating that the total exports during the first five months of 2012 increased by 77.6% amounting to $42.32 million from $23.83 million in the first five months of 2011.

Informal imports increased marginally from $8.27 to $8.41 million, leading to improvement in Rwanda's positive trade balance ($33.91 million) with neighbouring countries.

Annual headline inflation increased to 8.32% in May almost equaling that registered in December, 2011 at 8.34%, due to a rise in prices of food and non-alcoholic beverages.

However, Gatete assures that the rate will be contained below 7.5% for the months of June and July owing to the fact that global inflation is going down.

Money Market

The Governor has announced that their decision to increase its benchmark rate (the Repo) to 7.50% has worked contrary to fears that it would affect the financial market. As a result, the current repo will be maintained at least for now.

The Rwandan Franc fell against the dollar by1.4% between December 2011 and June 28, 2012 due to too many imports but BNR says that's under control now. The According to Gatete, while there was a general easing of price pressures there would be no cuts in the Repo until the inflation rate falls were entrenched domestically and regionally.

"The MPC noted that in general inflationary pressures are easing mainly due to the fact that global fuel and major commodity prices are declining and regional inflation rates are coming down," BNR said in a statement.

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