In a recent statement, the International Monetary Fund estimated Rwanda’s budget deficit for FY2020-21 at 8.5% of GDP. According to the document, the decline is forecasted despite a sharp increase in revenues driven by a second IMF emergency financing under the Rapid Credit Facility (RCF).

IMF says the increase in revenue is being swallowed up by increased expenditures, including those generated by the Covid-19 pandemic. “Tax revenues have been stronger than expected at the time of the second IMF emergency financing under the Rapid Credit Facility (RCF), but expenditures are also expected to be higher, as the fiscal measures to support vulnerable families and hard-hit firms were extended, and public investment execution will be fast-tracked. In this context, the overall fiscal deficit is projected to be 8.5% of GDP in FY20/21, with public debt projected at 67% of GDP at end-2020,” the statement read.

Despite a contraction in the second quarter of 2020 due to the pandemic, the Fund noted a gradual recovery in economic activity saying the country’s banking system has remained stable, liquid, and well-capitalized. Inflation remains high but is expected to remain close to the upper limit of the reference range set by the National Bank of Rwanda for 2020. 

Despite this gradual upturn, the economy is expected to fall by 0.2% before jumping to 5.7% in 2021. “Program performance has been affected by the pandemic. The associated spending needs and revenue losses have caused deviations from the earlier fiscal targets under the program. Reform targets, while well advanced, were partly hampered by the pandemic and the need to divert resources to address its impact,” IMF said, stressing that “medium-term priorities to create conditions to foster private sector growth, including promoting regional integration to increase market size will be important.”

Moutiou Adjibi Nourou