18 May 2017

Rwanda: What Rwanda Needs to Achieve 6.2 Per Cent Economic Growth

Photo: United Nations
Workers plucking tea from plants growing on a hillside on the Mata tea estate. As Rwanda’s biggest export earner, tea is a very important part of the country’s development process.

Rwanda's economy is this year expected to pick up pace and grow by 6.2 per cent largely driven by the recovery of the agriculture sector and growth in exports.

The International Monetary Fund (IMF) projections are largely premised on the agriculture sector, whose growth dipped last year following prolonged drought, consequently holding back economic growth.

The rains experienced this year have boosted economists' confidence on economic rebound. The performance of the agriculture sector is expected to maintain the food prices across the years as well as keep inflation down.

Agriculture sector will also have an impact on the exports of tea and coffee, whose values are picking up on the international markets.

Laure Redifer, who led the mission conducting the second review of Rwanda's Policy Support Instrument, told The New Times that with good rains so far into the year, the agriculture sector is set to deliver.

"There have been very good rains and we expect a rebound in the agriculture sector. Because there was slow growth last year so there is what we call base effect, sometimes when there was a low production and the production increases, you get a high growth rate," she said.

The Made-in-Rwanda campaign is also expected to contribute largely to the growth projections.

"We have already seen the trade deficit go down by 17 per cent since July 2016 and it is really having an impact. The Made-in-Rwanda policy, which encourages the domestic production of certain products that were previously imported and diversifying exports, will also boost the conomy," the IMF official explained.

The exchange rate depreciation is also expected to boost competitiveness of Rwandan products on the international market.

The Rwandan Franc last year depreciated by 9.7 per cent.

When there is a depreciation and the exchange rate goes down, the exports of a country are cheaper and therefore there will be an increase in exports and decrease in quantity of imports thereby benefiting domestic firms from increased sales.

"Because of exchange rate deprecation, the country becomes more competitive. We are seeing a lot of production in various areas which if combined will bring growth to 6.2 per cent," Redifer added.

On whether Rwanda's agricultural dependence for growth makes it vulnerable due to unreliability in weather conditions and patterns, she said the Government had shown efforts to improve the sector's productivity.

"Weather vulnerability has a big effect on economies that are dependent on agriculture but there is not much that can be done other than what the Government is trying to do. Trying to keep food security stocked, expand irrigation and improving productivity for crops among other measures," Redifer added.

The main risks in the short-term toward the set targets remains adverse weather conditions which could hold back the sectors productivity.

Tasks for government

Among the tasks for the Government as the country works toward achieving the objectives is how to raise domestic revenue without necessarily increasing taxes paid by ordinary citizens.

This can be done by improving the tax administration, which is underway through steps such as the improvement in the operations of electronic billing machines.

In this, IMF representatives also advised looking into other tax avenues such as property tax.

"What I would suggest is that a lot of the gains that have been made in domestic revenue collection have been using policy approaches. But there is a lot more that can be done on an administrative level which is making people pay what they owe. There is still a lot of avoidance. There are also other types of tax measures which at this stage of development, Rwanda needs to do such as property tax," she said.

The Government is upbeat about the growth prospects with officials saying that there are reasons to expect the economy to bounce back.

Finance and Economic Planning minister Claver Gatete the said government will continue to support local industries which have so far shown positive trends.

"Agriculture is going to be one of the biggest contributors, the Made-in-Rwanda programme is going to have a contribution," Gatete said.

He said the fall army worm crisis that was feared would further affect the agriculture sector had been tackled and was now under control through efforts of multiple agencies, including the army.

"The commodity shocks are a reminder that we should add value to our exports at the source to ensure that they are more competitive in the international markets," Gatete said.

Central bank governor John Rwangombwa noted that the East African Community remains a major contributing factor to economic growth.

"The East African bloc remains the best performer across the continent. As a country this contributes positively to our economy we have been working together as a bloc to deepen our ties and this will no doubt boost as we go ahead," he said.

He added that continued support of domestic production would have multiple positive impacts in the economy, including foreign exchange reserves.

The projections of 6.2 per cent for Rwanda are against 2.5 per cent for sub-Saharan Africa.

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