Rwanda's Priority: Mobilize Resources for Massive Investment

Rwanda has strategy to become middle-income country in decade from now

Critical to mobilize resources without jeopardizing macroeconomic stability

Maintaining reform momentum, growth focus vital for new policy program

A recent three-day economic forum in Rwanda discussed how to bridge infrastructure gaps and sustain high economic growth in this East African nation.

The forum also highlighted the IMF’s role as Rwanda’s development partner, after the country made the transition from being an IMF borrower to no longer needing IMF financial support. In June 2010, Rwanda became the seventh country to adopt the IMF’s Policy Support Instrument, a program designed for countries that have achieved macroeconomic stability and no longer need financial support from the IMF. This achievement was a culmination of years of strong effort by the Rwandan authorities to overcome the devastation of the 1994 genocide and put the economy on a sustainable growth path.

Rwanda achieved high growth—averaging 8 percent—and macroeconomic stability under three successive IMF-supported loan arrangements during 1998–2009. At the same time, real per capita incomes increased by two-thirds despite high population growth.

Sound fiscal spending

During the period, prudent macroeconomic policies, including sound fiscal spending and limited recourse to domestic financing, helped to contain inflation. Meanwhile, rising revenues and assistance from international donors created fiscal space to scale up public spending, especially on pro-poor initiatives.

Rwanda’s external position also strengthened as donor flows and foreign direct investment allowed a buildup in reserve cover. External debt was reduced significantly with the help of debt relief under the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.

Despite these successes, problems remain. Rwanda is still a poor country, heavily dependent on donor aid. It has a narrow export base, low domestic revenues, and large infrastructure needs.

The government has a well articulated development strategy, entitled Vision 2020, which sees Rwanda becoming a middle-income country in a decade. To achieve this goal, the country needs massive investment, both in physical infrastructure and in human capital.

Resource mobilization

The critical objective is to mobilize the necessary resources, both foreign and domestic, to undertake this investment without jeopardizing macroeconomic stability...