IMF completes 6th PSI review for Rwanda

The Executive Board of the International Monetary Fund has recently completed the sixth review of Rwanda's performance under the Policy Support Instrument. This review comes at a crucial time for Rwanda, following a challenging 2016 which witnessed the Rwandan franc depreciate by 9% in the first 10 months of the year. CNBC Africa's Arnold Segawa sat down with the IMF Resident Representative, Alun Thomas, to delve into the key aspects of Rwanda's economic situation and the implications of the IMF's support. Here is an analysis of the interview and the important points discussed. Thomas started by highlighting the standby facility initiated last June, amounting to $200 million, which represents 90% of Rwanda's quota with the IMF. Half of the facility was dispersed initially, with the remaining $50 million to be distributed in equal tranches over the course of the year. These funds are vital for Rwanda to support its economy and address financial challenges. Key Point 1: The Need for Continuous Review and Benchmarking One critical aspect discussed was the periodic review of Rwanda's economic progress. Thomas explained that the IMF evaluates the country's performance against set benchmarks every six months. These benchmarks include areas such as foreign exchange reserves, budget financing, and tax receipts. The upcoming review in mid-year will assess Rwanda's advancements and adherence to the agreed-upon targets. Key Point 2: Flexible Exchange Rates and Economic Growth The conversation shifted to the exchange rate regime, with a focus on the advantages of flexible exchange rates for stimulating economic growth. Thomas pointed out that countries in East Africa, including Rwanda, have embraced flexible exchange rates, leading to faster growth rates compared to regions with fixed exchange rate regimes. The delicate balance between exchange rate flexibility and inflation management emerged as a key consideration for Rwanda's economic strategy. Key Point 3: IMF's Role in Economic Stability and Growth Thomas shed light on the IMF's broader role in offering liquidity support to countries facing economic challenges. While providing liquidity is essential, he emphasized that structural reforms and economic adjustments are equally crucial. The IMF aims to assist countries in transitioning through tough economic periods, as seen in the case of oil price fluctuations which necessitated significant adjustments across various economies. In conclusion, Thomas addressed concerns regarding the Rwandan franc's depreciation and its impact on debt servicing and inflation. While a depreciated currency can pose challenges in foreign exchange transactions, the overall strategy aims to bolster Rwanda's foreign exchange position and enhance debt sustainability in the long term. The interview also touched upon Rwanda's inflation targeting objectives, acknowledging the need for a robust transmission mechanism to achieve these goals effectively. Lastly, Thomas provided insights on the potential impact of upcoming elections on Rwanda's macroeconomic stability, expressing confidence in the country's current trajectory and the continuity of sound economic policies. In a year marked by economic transitions and global uncertainties, Rwanda's partnership with the IMF stands as a beacon of stability and support. As Rwanda navigates through economic challenges and works towards sustainable growth, the IMF's guidance and assistance play a vital role in shaping the country's financial landscape.