Rwanda’s IMF PSI and SCF targeted at addressing growing external imbalances

As Uganda and Tanzania are reviewed by IMF Executive Board for the 7th and 5th time respectively, Rwanda is accordingly being reviewed by the Board for the Sixth time under the Policy Support Instrument (PSI) and the first review under the Standby Credit Facility (SCF) for Rwanda.

The PSI is designed by the IMF for countries that do not need balance of payments financial support while the SCF provides financing to low-income countries on concessional terms. Requests for an 18-month SCF arrangement with access of about US$204 million which is 90 percent of Rwanda’s quota, and to extend Rwanda’s PSI-supported program through end-2017 were approved by the Board on June 8, 2016. Half was disbursed upon approval of the SCF arrangement, and with completion of the first review of the SCF arrangement another US$48.65 million becomes available for disbursement. The remaining financing will be considered in two subsequent reviews in 2017.

Responding to unfavorable global developments affecting the prices of commodities, and leading to growing external imbalances, resulting in pressure on the Rwandan franc and the banking system’s foreign exchange reserves has been the short-term aim of the current programs.

Although the performance under the program has been strong, authorities have continued to allow exchange rate flexibility to serve as the main policy adjustment instrument, with depreciation of 9 percent over the first 10 months of 2016. Inflation pressure is currently supply driven with end-year inflation projections of 6.0 percent and 5 percent over the medium term. But the situation should be monitored closely to assess potential second-round effects of the inflationary impact of a depreciated exchange rate, and more monetary tightening may be needed if inflation pressures are greater than projected.

Moving on, the local strategy of improving domestic production and add value to its exports will facilitate a decent growth.

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