THE ANNUAL ECONOMIC PERFORMANCE REPORT 2012 May 2013€¦ · Association (IDA) project loans, as well as higher commercial borrowing for the Kigali Convention Centre (KCC) project

Ministry of Finance and Economic Planning

THE ANNUAL ECONOMIC PERFORMANCE REPORT

2012

May 2013

RWANDA Annual Economic Report Fiscal Year 2011/2012


Macroeconomic Policy Unit i

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

THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION ........................................... - 4 -

1. Global economic growth .............................................................................................................. - 4 -

2. World trade................................................................................................................................... - 5 -

3. Commodity prices and inflation ................................................................................................... - 5 -

4. Global financial market developments......................................................................................... - 6 -

DOMESTIC ECONOMIC PERFORMANCE ....................................................................................... - 8 -

1. Real sector .................................................................................................................................... - 8 -

i. Economic growth ..................................................................................................................... - 8 -

ii. Growth by economic sector ...................................................................................................... - 8 -

iii. Inflation .................................................................................................................................... - 9 -

2. Fiscal performance ..................................................................................................................... - 11 -

i. Revised budget FY 2011-12 and budget FY 2012-13 ............................................................ - 11 -

ii. Budget implementation .......................................................................................................... - 11 -

iii. Performance of resources ....................................................................................................... - 11 -

iv. Performance of government expenditures .............................................................................. - 14 -

v. The fiscal balance and financing ............................................................................................ - 14 -

3. External sector performance ...................................................................................................... - 16 -

i. Overall balance of payments .................................................................................................. - 16 -

ii. Export performance ................................................................................................................ - 17 -

iii. Import performance ................................................................................................................ - 18 -

iv. Tourism .................................................................................................................................. - 19 -

v. External debt developments ................................................................................................... - 19 -

vi. External debt service .............................................................................................................. - 19 -

vii. External debt sustainability .................................................................................................... - 19 -

4. Monetary and financial sector performance ............................................................................... - 22 -

i. Monetary sector developments ............................................................................................... - 22 -

ii. Financial sector developments ............................................................................................... - 24 -

5. Structural factors and regional issues ......................................................................................... - 26 -

i. Privatization ............................................................................................................................ - 26 -

ii. Regional integration ............................................................................................................... - 26 -

ECONOMIC OUTLOOK FOR 2013 ................................................................................................... - 27 -



Macroeconomic Policy Unit ii

1. Real sector outlook ..................................................................................................................... - 27 -

2. Fiscal policy outlook .................................................................................................................. - 27 -

3. External sector outlook .............................................................................................................. - 28 -

4. Monetary policy outlook ............................................................................................................ - 28 -



Macroeconomic Policy Unit - 2 -

EXECUTIVE SUMMARY

Real sector

The Rwandan economy grew by 8.0% in 2012, demonstrating robust growth despite the delays to aid

flows faced in the second half of the year. GDP per capita growth was 4.9%, meaning GDP per capita

reached $644 in 2012.

Growth in 2012 was driven by the services sector, which grew 12.2%. Industrial growth was 7.2 per cent

and agricultural growth was 3.0 per cent.

Both headline inflation (CPI) and core inflation remained moderate and stable throughout 2012. The CPI

fell from 8.3 per cent in December 2011 to 3.9 per cent in December 2012, whilst core inflation fell from

8.25 per cent to 2.5 per cent over the same period.

Fiscal policy

Higher than expected fiscal resources in the first half of the fiscal year 2011-12 allowed an upwards

revision of the budget in December 2011.

While domestic resources outperformed expectations throughout the year, the implementation of the fiscal

year 2011-12 revised budget suffered from some minor delays in donor support disbursements during the

January-June 2012 period.

Fiscal performance in July-December 2012 was significantly affected by the suspension of aid by some

donors. This led to a shortfall of RWF 25.3 billion in budget support grants, equivalent to 1.1 per cent of

GDP. As such, expenditure and net lending had to be cut back and some expenditure postponed.

Balance of payments

The external sector was also affected by the aid delays in the second half of 2012. The lower than

expected public current transfers led to a deterioration of the current account balance to 11.1 per cent of

GDP from 7.3 per cent of GDP in 2011.

The trade deficit in 2012 was USD 1.27 billion, equivalent to 17.8 per cent of GDP. Export growth of

28.1 per cent meant that exports reached 8.4 per cent of GDP in 2012, but this was not sufficient to offset

the growth of imports, which reached 26.2 per cent of GDP.

Tourism revenues in 2012 were estimated to be USD 129.7 million, an increase of 14.4 per cent on the

USD 113.4 million received in 2011.

External debt

The total external debt stock outstanding as of 31st December 2012 was USD 1,171million (16.5 percent

of GDP), reflecting an increase of 3 percent over the USD 1,135 million in 2011. This increase was




largely attributable to larger concessional disbursements, including the International Development

Association (IDA) project loans, as well as higher commercial borrowing for the Kigali Convention

Centre (KCC) project and RwandAir fleet expansion.

The debt sustainability analysis revealed Rwanda‟s debt to be sustainable with stress tests indicating a

moderate risk of debt distress explained by a vulnerability to a shock nominal exports growth over the

medium term.

Monetary and financial sector

In 2012, the National bank of Rwanda (BNR) implemented a tight monetary policy to minimize risks of

monetary inflation whilst continuing to support the financing of the economy. The BNR monetary policy

committee (MPC) raised the Central Bank policy rate from 7.0 per cent to 7.5 per cent in May 2012 and

kept it unchanged up to December 2012 to limit the risk of inflation.

In the face of the reduction of general and sector budget support, BNR drew down on its net foreign assets

to avoid a large depreciation of the RWF.The loss of BNR reserves was equivalent to 1.1 months of

imports, and their stock of reserves stood at 4.8 months of exports by the end of December 2012.

Net domestic assets expanded sharply, reflecting significant private sector credit of 33.0 per cent in 2012,

yet was still a slowdown in broad money growth – to 14 per cent in 2012 from 26.8 per cent in 2011.

The shortfall in aid inflows has hampered the ability of the NBR to continue meeting market demand for

foreign exchange, leading to a depreciation of 4.5 percent against the dollar over 2012.

Outlook for 2013

Economic growth is expected to slow slightly to 7.5per cent in 2013. A decline in services growth (7.0per

cent) is expected to be offset by an improvement in agricultural growth (6.7per cent) due to favorable

weather conditions as well as the on-going investments under the CIP framework. Industry is projected to

grow at 9per cent during 2013.

At the beginning of 2013, the budget for 2012/13 was revised to take account of the changes in some

donor disbursement schedules as well as the likelihood that some of the suspended aid would not accrue

during fiscal year 2012/13.

Increased domestic demand for imports required for investment projects is expected to negatively affect

external sector performance in 2013. The value of exports is projected to increase by 15 percent, led by

non-traditional exports, which will contribute about 14percent of the total export receipts.

BNR monetary policy in 2013 is likely to be implemented in a challenging environment due to the

unsolved sovereign debt crisis in Europe and its effect on the global economy. BNR will continue to

closely monitor developments in underlying factors of inflation and monetary aggregates developments so

as to take appropriate measures.




THE INTERNATIONAL ECONOMIC AND FINANCIAL SITUATION

1. Global economic growth

Global economic growth slowed again in 2012, mainly due to the ongoing Euro zone sovereign debt

crisis. The IMF had characterized the recovery from the global financial crisis of 2007-08 as „two-speed‟,

with strong recovery in emerging markets and developing countries but weak growth in advanced

economies. However, the April 2013 World Economic Outlook (WEO) states that in 2012 global

performance was best described as a three-speed recovery: strong growth continued in middle- and low-

income countries, whilst the United States exhibiting sustained growth of 2.2 per cent, but the Euro area

slipped back into recession, withEuro zone GDP shrinking 0.6 per cent.

Overall, world output grew 3.2 per cent in 2012, a slowdown from the 4.0 per cent growth in 2011. There

was also a slight slowdown in emerging markets and developing economies, which grew 5.1 per cent in

2012 compared to 6.4 per cent in 2011, as they were affected by weakening demand from the advanced

economies. Sub-Saharan Africa grew overall 4.8 per cent in 2012 and remained the second fastest

growing region after Developing Asia, which was led by sustained strong growth in China. Growth in the

EAC countries remained relatively strong, despite a large slowdown in growth in Uganda, with Rwanda

again the fastest-growing country in the EAC and strong growth also seen in Tanzania.

Table 1: World and regional economic growth 2010-2013

Projections

2011 2012 2013 2014

World 4.0 3.2 3.3 4.0

Advanced economies 1.6 1.2 1.2 2.2

Euro area 1.4 -0.6 -0.3 1.1

United States 1.8 2.2 1.9 3.0

Emerging Market and Developing Economies 6.4 5.1 5.3 5.7

Developing Asia 8.1 6.6 7.1 7.3

China 9.3 7.8 8.0 8.2

India 7.7 4.0 5.7 6.2

Latin America and the Caribbean 4.6 3.0 3.4 3.9

Middle East and North Africa 3.9 4.7 3.1 3.7

Sub-Saharan Africa 5.3 4.8 5.6 6.1

Rwanda 8.2 8.0 7.5 7.2

Burundi 4.2 4.0 4.5 5.1

Uganda 6.7 2.6 4.8 6.2

Kenya 4.4 4.7 5.8 6.2

Tanzania 6.4 6.9 7.0 7.2

Source: IMF – WEO Update April 2013

Global growth is expected to pick up just slightly to 3.3 per cent in 2013 and then to 4.0 per cent in 2014,

as the three-speed recovery continues and the Euro zone moves out of recession in 2014. Strong growth in




Sub-Saharan Africa is expected to continue, and the outlook for growth in the EAC looks positive, with

growth expected to accelerate in all countries other than Rwanda, which is expected to sustain its high

level of economic growth.

2. World trade

World trade was significantly affected by the slowdown in global growth and reduction in demand from

advanced economies.In 2012 there was a sharp slowdown in growth of trade in goods and services, with

the overall trade volume growing just 2.5 per cent in 2012, down from 6.0 per cent in 2011. There was a

fall in growth of imports and exports of advanced economies, which had a significant knock-on effect on

trade volumes to and from emerging markets and developing economies. Growth in world trade is

expected to pick up over the next couple of years as global growth improves

Table 2: Growth of trade in goods and services

Projections

2011 2012 2013 2014

World trade volume (goods and services) 6.0 2.5 3.6 5.3

Imports Advanced economies 4.7 1.0 2.2 4.1

Emerging market and developing countries 8.6 4.9 6.2 7.3

Exports Advanced economies 5.6 1.9 2.8 4.6

Emerging market and developing countries 6.4 3.7 4.8 6.5

Source: IMF – WEO Update April 2013

3. Commodity prices and inflation

Inflation fell from 2.7 per cent in 2011 to 2.0 per cent to 2012 in advanced economies, and from 7.2 per

cent to 5.9 per cent in emerging markets and developing economies over the same period. The WEO April

2013 expected moderate inflation over the next few years as its analysis indicates that “there are no excess

demand pressures in the major advanced economies” and that inflation remains generally under control in

middle and low income countries.

Commodity prices fell in 2012 following sharp increases in 2011, although prices remained high

compared to historic levels. The overall IMF commodity price index fell by 9 per cent in 2012 due to

weaker global demand and an uncertain global economic outlook. Futures prices of commodities predict a

broad decline in commodity prices over the near-term. Petroleum and energy prices are expected to follow

this trend; oil prices rose 31.6 per cent in 2011 but just 1.0 per cent in 2012 and are expected to fall 2.3

per cent in 2013.

Figure 1: Global headline inflation




Source: IMF World Economic Outlook 2013

Inflation in the EAC, having risen significantly during 2011, was volatile and high (above 10 per cent) for

a large part of 2012 in all countries other than Rwanda. Inflation in the EAC was largely affected by

international commodity prices, and thus inflation in most countries in the EAC was brought down to

moderate levels by most EAC countries by the end of 2012. High inflation in the EAC had an effect on

high imported inflation for Rwanda at the start of 2012.

Figure 2: Inflation, as measured by the CPI, in the EAC Jan 2011 to Dec 2012

4. Global financial market developments

The WEO reports that near-term global financial stability risks eased in 2012, with a broad market rally

from mid-2012 onwards, an improvement in equity prices in both advanced and emerging markets, and a

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Uganda

Kenya

Tanzania

Rwanda

Burundi




reduction in equity price volatility to pre-2008 levels, while periphery spreads in the Eurozone have

dropped.




DOMESTIC ECONOMIC PERFORMANCE

1. Real sector

i. Economic growth

The Rwandan economy grew by 8.0% in 2012. Although a slight decrease on the 8.2% growth in 2011,

this demonstrates robust growth despite the delays to aid flows faced in the second half of the year. There

was, however, a slight slowdown in economic growth during the fiscal year, with year-on-year growth of

8.2% in the first half of 2012 falling to 7.6% in the second half. This GDP growth translates into growth

in GDP per capita of 4.9%, meaning GDP per capita reached $644 in 2012.

Robust economic growth is expected to continue in 2013; GDP growth is projected to slow just slightly to

7.5% as the economy adjusts to the decline in aid flows, with per capita GDP growth of 4.5 per cent.

Table 3: GDP and GDP per capita

2010 2011 2012 2013 proj.*

GDP, Rwf billions, current prices 3,280 3,814 4,363 4,995

GDP, Rwf billions constant 2006 prices 2,339 2,532 2,734 2,939

GDP growth rate 7.2% 8.2% 8.0% 7.5%

GDP per capita, Rwf thousands, current prices 315 356 395 440

GDP per capita, Rwf thousands, constant 2006 prices 225 236 248 259

GDP per capita growth rate 4.2% 5.2% 4.9% 4.5%

Data from National Institute of Statistics Rwanda

* From MINECOFIN PSI, agreed with IMF April 2013

ii. Growth by economic sector

Growth in 2012 was driven by the services sector, which benefitted from an expansion in private sector

credit and grew 12.2%. High growth was seen across a range of services, including transport, storage and

communication (19.3%), finance and insurance (17.5%), wholesale and retail trade (12.2%) and public

administration (12.1%). With this strong growth, the share of services output in total GDP continued to

increase, up from 45.8 per cent in 2011 to 47.6 per cent in 2012.

Industrial growth was lower at 7.2%, down from 17.2% in 2011. Most of the increased industrial output in

2012 came in the construction sector, which also benefitted from growth in credit to the private

sector.Construction grew 15.4% and accounted for 59.3% of all industrial output in 2012. The electricity

and water sub-sector also saw high growth of 16.9%, but it remains a very small sector accounting for just

1.5% of industrial output. There was a decline in mining output of 9.8 per cent, and a decline in

manufacturing output of 2.9 per cent. 44 per cent of manufacturing output was food products, which grew

a modest 1.9 per cent on the 2011 level. The main reason for the decline in manufacturing output is a

large drop of 54.6% in furniture production.




Agricultural growth also slowed in 2012 to 3.0 per cent, down from 4.7 per cent in 2011. As agricultural

output is dominated by food crops, which make up 85.4 per cent of agricultural output, this slowdown can

be attributed to food crops. Growth in food crops was sustained through the on-going investment under

the Crop Intensification Program (CIP). There was a large decline in export crop output of 9.3 per cent

due to adverse weather conditions which affected tea production in particular, whilst there was modest

growth in livestock, forestry and fisheries.

Table 4: Growth by key economic sectors

Output, Rwfbillions, 2006 constant prices Growth rate

Share of total output

2011 2012 2011 2012 2011 2012

Agriculture 853 879 4.7% 3.0% 33.7% 32.1%

Food crops 727 750 5.0% 3.2% 28.7% 27.4%

Export crops 23 21 2.9% -9.3% 0.9% 0.8%

Industry 383 411 17.6% 7.2% 15.1% 15.0%

Mining and quarrying 14 13 49.7% -9.8% 0.6% 0.5%

Manufacturing 151 147 8.1% -2.9% 6.0% 5.4%

Construction 211 243 23.6% 15.4% 8.3% 8.9%

Services 1,159 1,301 8.9% 12.2% 45.8% 47.6%

Wholesale and retail trade 327 368 10.2% 12.2% 12.9% 13.4%

Transport, storage, communication 208 248 5.3% 19.3% 8.2% 9.1%

Finance, insurance 80 93 20.3% 17.5% 3.1% 3.4%

iii. Inflation

Figure 3: Headline and core inflation year-on-year inflation

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Headline inflation (CPI)

Core inflation (excluding fresh produce and energy)

Fresh produce

Energy




Both headline inflation (CPI) and core inflation, which excludes fresh produce and energy, remained

moderate and stable throughout 2012. The CPI fell from 8.3 per cent in December 2011 to 3.9 per cent in

December 2012, whilst core inflation fell from 8.25 per cent to 2.5 per cent over the same period.

Throughout the year core inflation was below headline inflation due to high inflation of fresh produce

prices, which reached a peak of 25.7 per cent in September 2012.

Price inflation of both domestically produced and imported goods fell during 2012. Domestic produce

inflation was affected by the high fresh produce inflation and was initially high, reaching 9.6 per cent in

May, but fell in the second half of 2012 to just 4.1 per cent in December. Rwanda benefitted from falling

imported inflation in the first half of 2012 due to easing inflationary pressures in the EAC. Imported

inflation fell from 8.6 per cent in December 2011 to 2.6 per cent in June 2012 and remained low for the

remainder of the year.

Figure 4: Domestic produce and imported year-on-year inflation

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Local produce

Imported inflation




2. Fiscal performance

Fiscal performance in 2012 was affected by the suspension of aid by some donors and delays in approval

of donor support by others in the second half of the year. This led to a shortfall of RWF 25.3 billion in

budget support grants, equivalent to 1.1 per cent of GDP. As such, expenditure and net lending had to be

cut back and some expenditure postponed to January to June 2013.

i. Revised budget FY 2011-12 and budget FY 2012-13

Higher than expected fiscal resources in the first half of the fiscal year – increased tax receipts from high

economic growth and improved tax collection by RRA, increased non-tax revenues from Airtel license

fees and the IPOs of Banque de Kigali and MTN – had allowed an upwards revision of the budget for

fiscal year 2011-12 in December 2011. This was to provide additional resources to some under-funded

priority programs and projects as well as take on board some new priority and urgent expenditures.

The revised budget expected total revenue and grants for the fiscal year to reach RWF 1028.6 billion, and

allowed total expenditure and net lending of RWF 1105.6 billion. In view of the fact that the Government

borrowed RWF 77.8 billion from the banking sector (mostly in the form of Treasury bills and BNR

overdraft) to finance the cash deficit in fiscal year 2010/2011 which increased the domestic debt, it was

decided that some of the resources accruing from the Airtel license fees and the IPOs of BK and MTN

should be saved and used to build up deposits at BNR. Accordingly, the revised budget projected a cash

surplus of RWF 28 billion which was to be used for the purpose of reducing the domestic debt by building

up deposits at BNR.

ii. Budget implementation

The implementation of the fiscal year 2011/2012 revised budget suffered from some minor delays in

donor support disbursements especially during the January-June 2012 period. This made the cash

planning of the Treasury difficult as the Government resorted to a longer period of use of the BNR

overdraft as well as frequent rolling over of maturing Treasury bills and eventually issuance of new ones.

These actions increased interest costs during this period. Furthermore, there were also some delays by the

sector ministries in completing all tender documents on time to expedite spending, especially for capital

projects.

Budget implementation in the July-December 2012 period was significantly affected by the suspension of

aid by some donors and delays in approval of expected disbursements by others. In addition, the

international Sovereign bond issuance was postponed to the January to June 2012 period, so the budget

was implemented without the expected accrual of these receipts. These elements resulted in a reduction in

resource flows to the budget and led to a reduction in public spending and a slight slow-down in

economic activity towards the end of 2012. The slow-down in economic activity in turn impacted

negatively on domestic revenue collection. The reduction in spending was necessary in order to safeguard

overall economic stability.

iii. Performance of resources




Table 5: Revenues and grants, budget and actual

FY 2011-12 July-Dec 2012

Revised Budget Actual Difference Budget

Actual (provisional) Difference

Revenue and grants 1,028.6 1,049.1 20.5 589.4 545.3 -44.1

Domestic revenue 565.1 591.8 26.7 345.9 346.2 0.3

Tax revenue 530.2 557.0 26.8 307.8 304.6 -3.2

Direct taxes 211.5 228.5 17.0 121.5 121.9 0.4

Taxes on goods and services 277.7 282.6 4.9 166.5 160.0 -6.5

Taxes on international trade 41.0 45.9 4.9 19.8 22.7 2.9

Non-tax revenue 35.0 34.7 -0.3 38.1 41.6 3.5

PKO/FPU 0.0 0.0 0.0 23.7 31.7 8.0

AgaciroDev.Fund 0.0 0.0 0.0 2.0 0.0 -2.0

Total Grants 463.5 547.3 83.8 243.5 199.1 -44.4

Budgetary grants 279.1 265.7 -13.4 121.6 96.3 -25.3

Capital grants 184.4 191.6 7.2 122.0 102.8 -19.2

Projects 113.7 113.7 0.0 73.9 62.2 -11.7

Global Fund 70.7 78.0 7.3 48.1 40.6 -7.5

Domestic resources

Domestic resources outperformed expectations throughout the year. Revenue collected in FY 2011/12

reached RWF 591.8 billion as against RWF 565.1 billion targeted in the revised budget. The excess

collections came from tax revenue which at RWF 557.0 billion exceeded its target of RWF 530.2 billion

by RWF 26.8 billion. Direct taxes in particular performed well. Tax revenues benefitted from the good

performance of the economy as well several ongoing reform measures implemented by RRA to facilitate

tax payments and improve compliance. These reform measures include the implementation of e-filing and

e-payments system through the banks, and the accelerated merging of social security, RAMA and income

tax files, and the introduction of the electronic single window system, which allows different parties

involved in trading and transportation to lodge their tax obligations in standardized information and

documents using a single point.

Domestic revenue collections in the July-December 2012 period were RWF 346.2 billion, marginally

higher than the RWF 345.9 billion projected. The slight slow-down in economic activity in the second

half of the fiscal year, caused by the delays to aid inflows, led to a small shortfall in tax revenues,

particularly for consumption taxes (VAT and excise taxes). However, this was offset by an over-

performance of non-tax revenue collections, mainly for administrative fees and charges, which benefitted

from improved collections procedures.

External resources




Budget support grants of RWF 265.7 billion were RWF 13.4 billion lower than the projected figure of

RWF 279.1 billion. Wrong initial estimates of EU grants and FTI education grants accounted for the

shortfall. In the case of budgetary loans, the disbursed figure of RWF 53.5 billion was almost equal to the

RWF 52.2 billion projected. The disbursed figure is made up of RWF 41.3 billion loan from the World

Bank (PRSF8)whilst the AFDB provided RWF 12.1 billion (Agric.Lisp).

There is a difficulty in obtaining actual data on capital grant disbursements from donors, due to the fact

that disbursements are made both in transfers to project accounts at BNR and in direct external payments

to contractors, often outside of the country. For this report and for FY 2011/12 we have assumed that all

commitments were disbursed and the estimate of capital grants, excluding grants from Global Fund,

amounting to RWF 113.7 billion was met. In the case of the Global Fund grants accruing to the budget,

RWF 78 billion was disbursed compared to the projection of RWF 70.7 billion. The excess amount was

due to exchange rate gain.

The draw-down on capital loans in fiscal year 2011/12 was estimated at RWF 75.4 billion. Actual draw-

down however amounted to RWF51.3 billion showing a shortfall of RWF 24.1 billion. The shortfall was

mainly due to delays in processing all the required documentation for disbursements. The affected

projects are power projects including the Nyabarongo power project as well as some road construction

projects.

Table 6: Budget support funds (both grants and loans) for fiscal year 2011/2012

There was a shortfall of RWF 25.3 billion in budget support grants between July and December 2012,

equivalent to 1.1 per cent of GDP, due to suspension of aid by the UK (DFID), Germany and the

Netherlands. Total grant disbursements in the July-December period amounted to RWF 199.1 billion as

against RWF 243.5 billion estimated. Although the disbursements of project grants were not affected by

the aid suspension, actual disbursements of RWF 102.8 billion were significantly lower than the RWF

122 billion projected. Delayed implementation of some capital projects, notably in the energy sector,

accounted for this shortfall in project grant disbursements.

DONOR

2011/2012

Original Budget

2011/2012

Revised Budget

2011/2012

Actual

WORD BANK 55.1 55.1 62.0

AfDB 23.2 23.2 22.4

DFID 48.8 55.5 56.4

EC (EU) 51.3 53.8 38.9

GERMANY 8.7 8.7 10.1

NETHERLANDS 11.1 11.1 9.4

BELGIUM 5.0 5.0 4.0

RWANDA DEMOBILIZATION PROGRAM 2.1 2.9 0.2

FTI 21.4 21.4 12.0

PKO 33.7 42.6 47.3

UG.STATE HOUSE 0.0 0.0 0.2

HIPC 0.0 0.0 2.8

SUB-TOTAL/BUDGETARY GRANTS 260.3 279.1 265.7

BUDGETARY LOAN (AfDB) 12.4 12.4 12.1

BUDGETARY LOAN (WB) 39.8 39.8 41.3

Total 300.1 318.9 307.0




iv. Performance of government expenditures

At the end of fiscal year 2011/2012, total expenditure and net lending at RWF1098 billion was lower than

the revised estimate of RWF 1112.3 billion by RWF14.3 billion. Regarding recurrent spending the total of

RWF 614.1 billion almost equaled the revised estimate of RWF 613.9 billion. Capital spending at RWF

482.9 billion on the other hand was RWF 14.8 billion lower than the estimate of RWF 497.7 billion and

accounted for the shortfall in total outlays. There was a shortfall in outlays for both domestically and

externally financed capital expenditure. In the case of the domestically financed portion, the main reason

was the delay in finalizing all tender documentation for procurement as well as delays in other

administrative procedures.

Consistent with the shortfall in resources in the second half of 2012, actual outlays for the July-December

period were reduced through prioritization of spending in order to safeguard macroeconomic stability.

This reduction meant that some spending was transferred to the January-June 2013 period. Total outlays

in the July-December period therefore amounted to RWF 589.9 billion, which were RWF 70.5 billion

lower than originally projected. With the exception of spending under transfers and subsidies and for

interest payments, there was a reduction in expenditure under all categories. Due to the postponement of

the sovereign bond issuance to the second half of the fiscal year 2012-13, there was also a significant

reduction in net lending compared to the intended level. This net lending has also now also been

postponed to January to June 2013.

Table 79: Government expenditure and net lending 2011-2012

FY 2011-12 July-Dec 2012

Revised Budget Actual Difference Budget

Actual (provisional) Difference

Total expenditure and net lending 1,112.3 1,098.0 -14.3 660.4 589.9 -70.5

Current expenditure 613.9 614.3 0.4 310.2 325.3 15.1

Wages and salaries 143.7 144.8 1.1 87.2 82.7 -4.5

Purchases of goods and services 148.8 149.5 0.7 67.2 63.4 -3.8

Interest payments 16.0 18.4 2.4 9.0 10.5 1.5

Transfers 243.8 225.6 -18.2 104.7 131.5 26.8

Exceptional social expenditure 61.6 75.8 14.2 42.1 37.2 -4.9

Capital expenditure 497.7 482.9 -14.8 268.5 255.2 -13.3

Domestic 237.7 231.6 -6.1 90.2 96.1 5.9

AgaciroDev.Fund 0.0 0.0 0.0 2.0 0.0 -2.0

Foreign 259.8 251.3 -8.5 178.2 159.1 -19.1

Global Fund 70.7 47.8 -22.9 48.7 40.6 -8.1

Net lending 0.7 1.1 0.4 81.7 9.4 -72.3

v. The fiscal balance and financing




In the 2011/12 fiscal year, the excess performance under resources together with the lower spending

during the fiscal year 2011/2012, led to a lower than projected overall cash deficit. This deficit amounted

to RWF 62.3 billion compared to RWF 95.4 billion in the revised budget. This cash balance was paid for

with a portion of the net external borrowings of RWF 95.1 billion. Out of the remaining RWF 32.8

billion, RWF 27.2 billion was used to retire domestic non bank debt resulting from the acquisition of

Government properties (payment for buildings as well as compensation). As a result only RWF 3.8 billion

increases in Government deposits at BNR was realized compared to an increase in deposits of RWF 28

billion.

In the first half of FY 2012/13, the original budget implementation program included the accrual of the

Sovereign bond receipts and part utilization of the proceeds leaving a cash deficit of RWF 75 billion.

With the projected net external capital flows of RWF 280.3 billion (including the sovereign bond receipts

of RWF 223.4 billion), the government was expected to accumulate deposits with the central bank

amounting to RWF 205.3 billion. This figure would have included RWF 146.8 billion of the unused

balance from the issuance of the sovereign bond. In the end, however, the government recorded a net

positive domestic financial position of RWF 46.8 billion. This amount represents an increase in deposits

of RWF 84.9 billion mainly from the disbursement of capital grants (including from the Global Fund) and

project loans in November and December 2012 as well as net sales from Treasury bills to the non-bank

sector of RWF 36.9 billion.

Table 810: Fiscal balance and financing

FY 2011-12 July-Dec 2012

Revised Budget Actual Difference Budget Actual

(provisional) Difference

Financing 95.4 62.6 -32.8 75.0 10.2 -64.8

Foreign financing (net) 116.8 95.1 -21.7 280.3 57.0 -223.3

Drawings 127.7 104.7 -23.0 287.9 64.6 -223.3

Budgetary loan (AFDB) 52.2 53.5 1.3 8.3 8.3 0.0

Project loans 75.4 51.3 -24.1 279.7 56.3 -223.4

Sovereign Bonds proceeds 0.0 0.0 0.0 223.4 0.0 -223.4

Amortization (due) -10.9 -9.7 1.2 -7.6 -7.6 0.0

Domestic financing -21.4 -32.4 -11.0 -205.3 -46.8 158.5

Banking system (Monetary Survey) -21.4 -5.9 15.5 -205.3 -84.9 120.4

Sovereign Bonds proceeds 0.0 0.0 0.0 -146.8 0.0 146.8

AgaciroDev.Fund 0.0 0.0 0.0 0.0 -12.8 -12.8

Non-bank (Net) 0.0 -26.5 -26.5 0.0 35.9 35.9




3. External sector performance

i. Overall balance of payments

The external sector was also affected by the aid delays in the second half of 2012. The lower than

expected public current transfers led to a deterioration of the current account balance to 11.1 per cent of

GDP from 7.3 per cent of GDP in 2011. Net capital and financial inflows were insufficient to cover the

current account deficit, and for the first time in 9 years, there was a negative overall balance of payments.

However, BNR were able to cope with the aid delays through drawing-down on its healthy reserve buffer.

The loss of BNR reserves was equivalent to 1.1 months of prospective imports, and their stock of reserves

stood at 4.8 months of exports by the end of December 2012.

The trade deficit in 2012 was USD 1.27 billion, equivalent to 17.8 per cent of GDP. This represents a

slight deterioration in the trade deficit from 17.3 per cent of GDP in 2011. Export growth of 28.1 per cent

meant that exports reached 8.4 per cent of GDP in 2012, but this was not sufficient to offset the growth of

imports, which reached 26.2 per cent of GDP. However, the main reason for the deterioration in the

current account deficit was the fall in public current transfers from 11.8 per cent of GDP in 2011 to 7.4

per cent of GDP in 2012.

Table 911: Balance of payments

2011 2012

USD millions

Trade Balance -1,101.2 -1,265.1

Exports, f.o.b. 464.2 594.8

Imports, f.o.b. -1,565.4 -1,859.9

Services and income (net) -242.5 -190.8

Trade and services and income balance -1,343.7 -1,455.9

Current transfers (net) 880.6 666.0

Private 133.3 141.8

Public 747.3 524.2

Current account balance (including official transfers) -463.2 -789.9

Capital transfers 196.7 171.2

Financial transactions account 485.8 357.2

Public sector capital (LT) (net) 207.2 125.7

Private sector capital (LT) (net) 231.1 226.4

Lt. Debt 148.8 123.6

Amortization -55.2 -57.0

Direct investment 137.5 159.8

Short term capital 47.5 5.1

Capital and Financial account balance 682.5 528.4

Errors & Omissions 15.2 49.1

Overall balance of payments 234.5 -212.4




The capital and financial account balance decreased to USD 528.4 million in 2012, down from USD

692.5 million in 2011, due to a reduction in capital transfers and long term public sector capital inflows.

FDI increased by 50 per cent to USD 159.8 million, whilst diaspora transfers increased 5 per cent to USD

175.3 million.

ii. Export performance

2012 saw strong export growth of 24.8 per cent in current USD terms. However, the aggregate growth

conceals a mixed picture in terms of export performance, with the traditional major exports generally

performing poorly, whilst there was impressive growth of non-traditional exports and re-exports. The

export performance in 2012 shows a reduced reliance on tea and coffee and minerals, which combined

accounted for 54.4 per cent of total export earnings, down from 74.9 per cent in 2011. This suggests

success for the Rwandan economy in export diversification.

Table 1012: Performance of major exports

Export values (USD millions)

2011 2012 Growth

Coffee 74.6 60.9 -18.4%

Tea 63.9 65.7 2.9%

Minerals 151.4 136.1 -10.1%

Cassiterite 96.8 52.9 -45.4%

Coltan 38.6 56.9 47.5%

Wolfram 16.0 26.3 63.9%

Hides and skins 7.6 14.4 88.7%

Pyrethrum 4.5 9.7 115.1%

Non-traditional exports 48.4 88.0 82.0%

Re-exports 36.5 108.0 195.8%

Total 386.9 482.7 24.8%

Coffee export values declined 18.4 per cent despite an 8.9 per cent increase in export volumes, due to a

decline in the coffee price of more than 25 per cent compared to 2011. In contrast Tea export volumes

actually declined 5.4 per cent compared to 2011 due to adverse weather conditions yet an increase in its

price meant a slight 2.9 per cent increase in its overall export value.

Overall, mineral export earnings were down 10 per cent, although the performance of specific minerals

was mixed. There with a large decline in the volume exported and price of cassiterite generating a 45.4

per cent fall in export values, a large increase in volume exported and price ofcoltan, and an increase in

export earnings for Wolfram due to a large increase in export volumes.

Other traditional smaller exports, hides and skins and pyrethrum continued impressive growth, of 14.4 per

cent and 115.1 per cent respectively.

There was a large increase in the share of non-traditional exports in total exports in 2012, up to 18.2 per

cent from 12.5 per cent in 2011, andnon-traditional export values grew 82.0 per cent overall. There was

very rapid growth in a variety of non-traditional exports, as shown in table 13. Some of these exports are




increasingly important to the economy: flour exports and beverages, spirits and vinegar accounted for 4.1

per cent and 2.7 per cent of total exports respectively. Significant new exports came from companies such

as Bralirwa, Bakhresa, Inyange and Steel Rwanda. The majority of these non-traditional exports go to

Burundi and the DRC.

Table 1113: Fast growing non-traditional exports

Export values (USD millions)

2011 2012 Growth

Flour (maize, wheat and cassava) 8.39 19.83 136.4%

Beverages, spirits and vinegar 6.03 13.03 116.2%

Iron and steel 2.17 7.76 256.9%

Produce prepared using cereals, flours, starch or milk 0 2.76 N/A

Cereals 0.26 2.00 659.5%

Soap and washing agents 0.15 0.60 293.3%

Animal and vegetable fats and oils 0.05 0.54 1021.7%

There was also very rapid growth of re-exports in 2012. The main reason for this was a great increase in

re-exports of vehicles and, in particular, petroleum products, from USD 19.5 million in 2011 to USD 69.1

million in 2012, an increase of 255%. Again, most such re-exports are being channeled to Burundi and the

DRC.

iii. Import performance

Rwanda‟s growing demand for imports continued in 2012, with imports growing 18 per cent in dollar

terms, despite a slight fall in import growth in the last quarter of 2012 related to the aid delays. Import

growth was seen across all categories of imports, but most notable was the growth in imports of capital

and intermediate goods, at 35 per cent and 26 per cent respectively, demonstrating that many imports

were as intermediary inputs for industry and services. Capital goods made up 26.8 per cent of total

imports in 2012 and intermediary goods made up 28.3 per cent.

Table 1214: Performance of imports

Imports values (f.o.b. USD millions)

2011 2012 Growth

Consumer goods 414.8 500.9 20.7%

Food product 155.7 182.2 17.0%

Capital goods 349.0 471.4 35.1%

Transport Material 69.7 90.8 30.3%

Machines, devices and tools 188.3 290.9 54.5%

Intermediary goods 394.9 498.0 26.1%

Construction material 153.7 173.3 12.8%

Industrial products 184.8 228.2 23.5%

Fertilizers 22.1 38.5 74.1%

Energy and lubricants 259.2 289.1 11.6%




Petroleum products 248.6 273.8 10.2%

iv. Tourism

Tourism revenues (revenue from leisure visitors to Rwanda) in 2012 were estimated to be USD 129.7

million, an increase of 14.4 per cent on the USD 113.4 million received in 2011. The Volcanoes National

Park continues to be a high foreign exchange earner, generating USD 11.5 million in revenues in 2012.

Other visitors to Rwanda generated a further USD 152.1 million in revenues, with the majority of these

revenues coming from business visitors, who predominantly come from neighboring countries and the

EAC.

v. External debt developments

The total external debt stock outstanding as of 31st December 2012 was US$1.171million (16.5 percent of

GDP), reflecting an increase of 3 percent over the US$1,135 million in 2011. This increase was largely

attributable to larger concessional disbursements, including the International Development Association

(IDA) project loans, as well as higher commercial borrowing for the Kigali Convention Centre (KCC)

project and RwandAir fleet expansion(Table below).

vi. External debt service

In 2012, external debt service recorded an increase of 14.3 per cent. to US$26.5 million from US$23.1

million in 2011. Out of the total debt service, principal payments are expected to amount to US$17.3

million and interest payments are expected to amount to US$9.2 million.

Table 1315: External debt service, USD millions

2010 2011 2012

Principal Repayment 9.81 15 17.3

Interest 7.9 8.1 9.2

Total 17.8 23.7 26.4

vii. External debt sustainability

The debt sustainability results revealed Rwanda‟s debt to be sustainable with stress tests indicating a

moderate risk of debt distress explained by a vulnerability to a shock nominal exports growth over the

medium term. The Underlying assumptions includes astrong growthover the medium term, a

deteriorating current account deficit resulting from large strategic investment projects (Energy projects,

Bugesera, KCC),a fiscal consolidation, and a recently issued sovereign bond with face value of US$ 400

million.

Allsolvency and liquidity ratios remained within sustainable limits except the PV of debt to export ratio

which breached the threshold between 2015 and 2019 under the most extreme shock, with 297.6 per cent




and 222.7 per cent respectively (Table 16). The shock is reflected by a decrease of 3.7 per cent in the

nominal export growth resulting into a deterioration of the current account deficit, a need for further

financing and higher debt levels.

Table 1416: PV of debt-to-exports ratio (threshold = 200%)

2013 2014 2015 2016 2017 2018 2019

Baseline 144.7 157.3 169.8 176.9 172.9 160.5 137.8

Historical scenario 144.1 109.7 87.7 72.4 60.5 54.9 47.8

Most extreme shock Exports 144.1 194.4 297.6 299.2 286.3 261.8 222.7

Figure 5: Debt sustainability projections

-10

-5

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2013 2018 2023 2028 2033

Rate of Debt Accumulation

Grant-equivalent financing (% of GDP)

Grant element of new borrowing (% right scale)

a. Debt Accumulation

0

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2013 2018 2023 2028 2033

b.PV of debt-to GDP ratio

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2013 2018 2023 2028 2033

c.PV of debt-to-exports ratio

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2013 2018 2023 2028 2033

d.PV of debt-to-revenue ratio




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e.Debt service-to-exports ratio

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f.Debt service-to-revenue ratio

Baseline Historical scenario Most extreme shock 1/ Threshold




4. Monetary and financial sector performance

In 2012, the National bank of Rwanda (BNR) implemented a tight monetary policy to minimize risks of

monetary inflation whilst continuing to support the financing of the economy. In the face of the reduction

of general and sector budget support, NBR drew down on its net foreign assets to avoid a large

depreciation of the RWF.

i. Monetary sector developments

Moneysupply

There was a slowdown in broad money growth – to 14 per cent in 2012 from 26.8 per cent in 2011. This

was below the level projected and the composition of broad money growth also differed from

projections.Net domestic assets expanded sharply, reflecting private sector credit growth of 33.9 percent

in 2012, while net foreign assets declined by 16.3 percent as the NBR attempted to meet the market

demand for foreign exchange to finance imports and manage the reduction in general and sector budget

support.

The implementation of the reserve money program has been improved since November 2012 with the

more flexible framework of a reserve money band. The end-December 2012 reserve money target was

achieved without any challenge, underscoring the effectiveness of the new framework.

New loans distributed to the banking system in 2012 increased to RWF 498.9 billion, from FRW 358.9

billion in 2011, an increase of 39 per cent, compared to growth of 23.6 per cent in 2011. 40.7 per cent of

new loans went to commerce, restaurants and hotels, 22.4 per cent to public works and building, and 7.4

per cent to the manufacturing sector.

Table 1517: Monetary aggregates

Rwf, billions Dec-11 Jun-12 Dec-12

Percentage change

Dec 2011 - Dec 2012

Net foreign assets 663.8 513.7 555.8 -16.3%

Net domestic assets 116.7 366.2 334.1 186.3%

Credit to the private sector 509.8 606.1 682.5 33.9%

Credit to government, net -212.3 -52.3 -137.2 -35.4%

Broad money 780.7 880.0 889.9 14.0%

Current in circulation 102.8 111.6 107.0 4.1%

Deposit 678.0 768.4 782.9 15.5%

Interest rate developments

In the context of uncertainty about donor support, as well as about global and regional developments, the

NBR tightened its policy stance. The BNR monetary policy committee (MPC) raised the Central Bank

policy rate from 7.0 per cent to 7.5 per cent in May 2012 and kept it unchanged up to December 2012 to

limit the risk of inflation. With the slowdown in inflation during the year, the real interest rate became

significantly positive.




The average repo rate evolved closely to the central bank rate. T-bills rates were stable at around 8 per

cent in the first five months of 2012 before increasing to 12.4 per cent in December 2012 due to a

significant increase in domestic borrowing.

Lending rates remained relatively stable at around 17.0 per cent in 2012, whilst the deposit rate increased

from 8.0 per cent to 10.7 per cent through the year, reflective increasing competition among commercial

banks and their effort to mobilize deposits.

Table 1618: Interest rate developments

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

BNR policy rates key repo rate 7.00 7.00 7.00 7.00 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50

discount rate 11.00 11.00 11.00 11.00 11.50 11.50 11.50 11.50 11.50 11.50 11.50 11.50

Money market rates Repo rate 6.44 6.01 6.90 6.91 7.37 7.43 7.37 7.34 7.45 7.30 7.50 7.46

Treasury bills rate 7.60 7.61 7.73 7.85 8.34 9.31 9.85 11.12 12.28 12.07 12.38 12.39

Commercial banks Interbank rate 7.25 6.86 7.65 8.00 8.60 8.95 9.09 9.52 10.82 10.88 11.90 11.12

Deposit rate 7.40 8.25 8.20 8.09 9.92 7.91 8.85 8.64 8.46 9.24 11.15 10.69

Lending rate 16.95 16.27 16.30 16.87 16.72 16.82 16.52 17.08 17.14 16.61 16.65 16.49

Exchange rate developments

The shortfall in aid inflows has hampered the ability of the NBR to continue meeting market demand for

foreign exchange, leading to a depreciation of 4.5 percent against the dollar over 2012, compared with 1.6

percent recorded the previous year. The RWF also depreciated 7.7 per cent against the Euro.

The Rwf depreciated 3.4 per cent and 4.7 per cent against the Kenyan shilling and Tanzanian shilling

respectively. The exchange rates against the Ugandan shilling and Burundian franc were more volatile,

but by the end of the year the Rwf had appreciated against them compared to the start.

Figure 6: Exchange rates (normalized to 1 at the start of the fiscal year to show percentage changes)




ii. Financial sector developments

During 2012, the banking sector remained liquid, well capitalized and profitable as a result of

strengthened legal and supervisory reforms as well as a good macroeconomic environment. The size of

the banking sector measured in terms of total assets registered growth of 15.1 per cent from RWF 1084.2

billion in December 2011 to RWF 1247.6 billion at end December 2012. The quality in terms of the non-

performing loan (NPL) ratio fell from 8 per cent to 6.1 per cent. The macro-prudential assessments and

stress testing results indicate that the banking sector remains well capitalized and liquid with sufficient

capital buffers to mitigate risks.

Table 1719: Key financial stability indicators for the banking system (percentages)

Dec-11 Jun-12 Dec-12

Solvency ratio (Total capital/ RWA) 25.0 25.1 23.9

NPLs/ Gross loans 8.0 5.8 6.1

NPLs-net/ Gross loans 6.2 4.3 5.5

Provisions/ NPLs 50.8 51.1 53.4

Earning assets/ Total assets 77.2 81.4 79.5

0.9

0.95

1

1.05

1.1

1.15

USD

EUR

GBP

0.8

0.85

0.9

0.95

1

1.05

1.1

BIF

KES

TZS

UGS




Large exposures/ Gross loans 9.8 9.5 9.1

Return on average assets 2.2 2.3 2.2

Return on average equity 10.5 10.9 10.4

Cost of deposits 2.4 2.8 2.6

Liquid assets/ Total deposits 45.3 47.2 41.2

Forex exposure/ Core capital 6.6 -1.5 -0.2




5. Structural factors and regional issues

i. Privatization

The Government of Rwanda received RWF 32.54billion in privatization receipts during the FY 2011/12,

owing mainly to the sale of Bank of Kigali (BK) shares of RWF 16.7billion and MTN proceeds of RWF

11.3billion. Privatization is ongoing and the government expects to receive about 10.5bn Rwandan francs

during the FY 2012/13 including proceeds from the sale of Mulindi Tea Factory at RWF 3.1billion,

Shagasha Tea Factory at RWF 2.3billion, and SOPROTEL (40%) at RWF 4billion. The government also

expects to receive Frw2.7bn through privatization in FY 2013/14 from the sale of Rubilizi National

Hatchery at Frw 400m, Rwanda Printing and Publishing Company Ltd at Frw 1.5bn and Rwanda Tea

Packaging at Frw 800m.

ii. Regional integration

Rwanda is deepening its integration within the EAC region. Currently two stages are in the process of

being implemented: the Customs Union and the Common Market Protocols, the third pillar being the

Monetary Union which is in the stage of negotiating the Protocol. Rwanda is expected to benefit from the

Monetary Union by the reduction of transaction costs for businesses, thereby improving the incentive to

invest in Rwanda. In addition, negotiations are in place to implement a single tourist visa, including

sharing of revenues, which would benefit Rwanda through increased tourism revenues.

Trade with the EAC

Since the implementation of the Customs Union began in 2009 trade within the EAC region has

significantly expanded due to a reduction in import tariffs, reduced non-tariff barriers and more efficient

border controls. Exports to the EAC have grown significantly faster than exports to the rest of the world.

Rwandan exports to the EAC increased 43 per cent in 2012 to USD 115.3 million, whilst imports from the

EAC decreased 32 per cent to USD 532.5 million. Major exports to the EAC include tea (Mombasa

auction), hides and skins, coffee, iron and steel.

The EAC may also have encouraged the growth in non-traditional exports to the DRC (see section ) since

the removal of trade barriers and reduction of transaction costs for businesses has made Rwanda a more

favorable location for the production of goods to be exported to the DRC.




ECONOMIC OUTLOOK FOR 2013

1. Real sector outlook

Economic growth is expected to slow slightly to 7.5per cent in 2013. A decline in services growth (7.0per

cent) is projected particularly due to decline in credit to the private sector resulting from the tighter fiscal

and monetary policies. However, this is expected to be offset by an improvement in agricultural growth

(6.7per cent) due to favorable weather conditions as well as the on-going investments under the CIP

framework. Industry is projected to grow at 9per cent during 2013.In 2014, the baseline scenario projects

overall GDP at 7.5per cent. Growth in services is expected to pick up again and reach 8.9 per cent, whilst

industrial growth is also projected to increase slightly to 10 per cent. Agricultural growth is expected to

decelerate slightly to 5.1 per cent in 2014. In the baseline scenario initial GDP growth projections of 7per

cent have been made for 2015 and 2016 respectively.

Table 1820: Real sector outlook 2013-14

Output, Rwf billions, 2006 constant prices Growth rate

2013 2014 2013 2014

GDP 2,939 3,160 7.5% 7.5%

Agriculture 938 985 6.7% 5.1%

Food Crop 803 843 7.0% 5.0%

Export Crop 24 27 14.4% 13.7%

Industry 448 495 9.1% 10.4%

Mining and quarrying 14 15 9.4% 4.0%

Manufacturing 154 160 4.6% 4.2%

Construction 272 310 12.0% 14.0%

Services 1,392 1,516 7.0% 8.9%

Wholesale & retail trade, rest. & hotels 444 484 6.3% 9.0%

Transport, storage, communication 265 301 7.0% 13.3%

MINECOFIN projections

2. Fiscal policy outlook

At the beginning of 2013, the budget for 2012/13 was revised to take account of the changes in some

donor disbursement schedules as well as the likelihood that some of the suspended aid would not accrue

during fiscal year 2012/13. The revision also took into account the flows from the Sovereign bonds

receipts in the first half of 2013 and part use of the funds for some payments to be made by two public

institutions.

Fiscal consolidation through increased domestic revenue mobilization and expenditure prioritization to

close the fiscal gap remain the key objectives of the Government‟s medium term fiscal strategy. On the

resource side, over the medium term domestic tax revenue is projected to rise on average by 0.2 percent of

GDP per year. Accordingly, tax revenue collections which are projected at 13.7 per cent of GDP in fiscal




year 2012/2013 and 13.9 per cent of GDP in 2013/2014.Regarding outlays, the major focus of

expenditure policy in the medium term is to implement a prioritization policy that will allocate adequate

resources for the completion of on-going strategic investment and social protection projects and programs

and also take on board some new expenditure that are consistent with the EDPRS 2 framework. Total

outlays are therefore projected to decline from 30.5 percent of GDP in 2012/2013 to 29.2 per cent in

2013/2014.Mirroring these declines in outlays, the overall deficit (on cash basis) is projected to decline

from 6.1 percent of GDP in 2012/2013 to 5.5 per cent of GDP in 2013/2014.

3. External sector outlook

Increased domestic demand for imports required for investment projects is expected to negatively affect

external sector performance in 2013. The value of exports is projected to increase by 15 percent led by

non-traditional exports, which will contribute about 14percent of the total export receipts. Coffee exports

(value) in 2013 is projected to be about 48 percent higher than in 2012 on account of export of some

beans carried over from the 2012 stocks despite lower international prices. The volume of tea exports is

projected to increase by 27 percent in 2013. Total tea receipts are expected to rise by 34 percent on

account of higher international prices. Minerals are projected to register slight increase in volume

(MINIRENA/GMD) despite a sharp decline in the volume of coltan. With price increases projected for

cassiterite and colt an, total receipts are projected to increase by about 10 percent despite a sharp decline

in the prices of wolfram.

Mirroring the performance over the previous year, the value of imports (f.o.b.) is projected to rise by 8.0

percent in 2013. This development reflects the higher demand for capital goods, raw materials for

industry and inputs in the services sector. As a result of this high level of imports, the trade deficit is

projected to widen from US$ 1.38 billion in 2012 to US$ 1.46 billion in 2013.

The current account deficit (including official transfers) is projected at 10.2 percent of GDP, down from

11.3 percent in 2012. However net capital and financial flows of US$ 941.9 million (including the

Sovereign bond receipts of USD 400million and foreign investment of US$171.4 million) will allow the

achievement of an overall balance of payments surplus of US$ 81.7 million. Gross reserves will therefore

reach US$ 925.5million at end 2013; about 3.8 months of projected imports (CIF).

4. Monetary policy outlook

BNR monetary policy in 2013 is likely to be implemented in a very challenging environment which might

have a negative impact on the national economy. Rwanda is likely to be affected by the unsolved

sovereign debt crisis in Europe and its effect on the global economy. The persistence of this crisis may

have effects on commodity prices, FDI flows, NGO transfers and remittances and official aid transfers.

Such challenges would make it difficult to maintain adequate liquidity in the banking sector, necessary to

meet the increasing demand for credit to the private sector. However, commodity prices are predicted to

remain stable and global inflation to remain low.

Against this outlook, BNR will continue to closely monitor developments in underlying factors of

inflation and monetary aggregates developments so as to take appropriate measures. The development of

payments systems is expected in future to reduce the stability of money demand in Rwanda.




Concerning the exchange rate policy orientation, it will remain markets driven and BNR will continue to

intervene on the foreign exchange market only to smoothen exchange rate volatility.

Documents

THE ANNUAL ECONOMIC PERFORMANCE REPORT 2012 May 2013€¦ · Association (IDA) project loans, as well as higher commercial borrowing for the Kigali Convention Centre (KCC) project