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2007 Macro-Economic Performance in Rwanda

2007 Macro-Economic Performance in Rwanda. Macro Economic Policy Unit. Outline: 2007 Macro-Economic Performance. Real Sector and Prices GDP Growth in 2007 GDP Growth by Sector CPI Consumer Price Index External Sector Performance Financial Sector Achievements Monetary Development

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2007 Macro-Economic Performance in Rwanda

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  1. 2007 Macro-Economic Performance in Rwanda Macro Economic Policy Unit

  2. Outline:2007 Macro-Economic Performance Real Sector and Prices GDP Growth in 2007 GDP Growth by Sector CPI Consumer Price Index External Sector Performance Financial Sector Achievements Monetary Development Progress to accession to EAC Customs union Summary of the 2007 Socio-Economic Performance Challenges of 2007

  3. 1.a. GDP Growth in 2007 Real growth reached 6.0%, moving the 5 year average to 4.8%. Services and Industry continue to grow at faster rates underpinning the economy, whilst Agriculture has underperformed. During 2007, services have grown to contribute a greater percentage to overall output, from 47% in 2006 to 48% in 2007, whilst Industry also increased its share from 15% in 2006 to 16% in 2007. However, agriculture’sshare of GDP reduced from 33% in 2006 to 31% in 2007.

  4. 1.b. Real GDP by Sector 2007- Agriculture Food Crops: Adverse weather conditions hindered growth as well as diseases effecting the roots and tubers (particularly Irish potatoes) and bananas. Export Crops: Poor performance of export crops was driven by coffee. Coffeeproductionwith volumes dropping to 26,500 tons in 2006 to 13,600 tons in 2007. However, there was some benefit from rising international prices with Rwandan high quality coffee taking an extra premium compared to other countries. Tea production rose by 20% over the year, but international prices fell by 11% due to increased supplies. Livestock, Forestry and Fisheries: Grew at an average rate of 4.5%, successes were sourced from government programs such as the ‘one cow per family’.

  5. 1.b. Real GDP by Sector 2007 -Industry Mining: Performed extremely well; supplies increased to meet the growing international demand and taking advantage of escalating prices. Manufacturing: The majority share is in the production of food and beverages. Food production performed well, but the reduced food crop harvest has lead to declines in supplies for the production of locally brewed beer. Utilities: Electrogaz production remained relatively stable in real terms. Construction: Partly driven by governmental infrastructure expenditure and construction of private houses.

  6. 1.b. Real GDP by Sector 2007 -Services Restaurants and Hotels: Despite positive nominal growth the price rises reduced the real impact on this sector. ORTPN reports an increase in the number of tourists from around 31 to 39 thousand in 2007. Transport and Communication: The strong growth was greatly due to telecommunications new products introduced by Terracom such as fiber optic services, new cards for mobile phones and various internet services. Finance and Insurance: All banks and insurance companies showed positive growth over the year. This also reflects financial deepening. Public Administration, Education & Health: Received greater funding but subject to inflationary pressures.

  7. The Annual Average CPI for 2007 is 9.1%. Over the year pressure has been received from all quarters including international oil and local charcoal price rises, food price increases as well as rents. Core Inflation has incurred strong upward pressure leading to a 9.7% annual average. This has been mostly due to one off tariff increases in education, health and water. 14% CPI Core 12% 10% 8% 6% 4% 2% 0% Dec-04 Dec-05 Dec-06 Dec-07 1.c. Consumer Price Index(C.P.I.)

  8. 1.c. 2007 Consumer Price Index • This graph shows the share of inflation by sector and highlights the impact of rising food and non-alcoholic beverage prices on the CPI. • Low agricultural production in the country has also increased need to import food yet international food prices have been consistently rising for the past year, this further affects inflation.

  9. 1.c. 2007 Consumer Price Index In 2007, inflation was felt mostly in the cost of the following items : Food prices pressured upward primarily by a lack of supplies of vegetables due to low harvest output.Agriculture has consistently been one of the main contributor to inflation. This is mainly due to the low supply and growing demand which pushes prices of agricultural goods upward on Rwandan markets. Health and Education fees incurred a one-off increase in January. Water tariffs rose leading to an annual change of 30%. Housing costs increased greatly with rents rising almost 50% over the year.

  10. 2. External Sector Performance in 2007 • Export receipts rose by 19.9% • Tea and Coffee export receipts fell1% and 34%, respectively over the year due to significant drops in volumes produced. • Mineral receipts rose by 93% as supply reacted to escalating international demand and prices. • Imports rose by 32.1% • Large increases were registered in capital and intermediate goods for infrastructure development. • Tourismas forex earner performed extremely well with receipts of $42 million exceeding receipts from coffee ($35.7m) and tea ($ 31.5m) respectively.

  11. 3. Financial Sector Indicators in 2007 Credit to Private Sector grew by 22% to reach 13.7% of GDP in 2007. Of this 27% was invested in Construction and 36% in Commerce, Restaurants and Hotels. Bank Deposits increased by 33.3% (compared to 2006) which is a sign of increased monetization of the economy. It also increased significantly as percentage of GDP. Adoption of the Financial Sector Development Plan. Microfinance Policy, related Law adopted by Cabinet as well as Implementation Strategy validated. Establishment of the Capital Market.

  12. 3. a. 2007 Financial Sector Achievements • Development of the Banking Sector: • Adoption of a Banking Law and Central Bank Act. • Transformation of UBPR into a commercial bank • Recapitalization of all Banks from 1.5bln Rwf to 5bln Rwf • Restructuring of SIMTEL (improved payments systems, new partners with modern technology, and introduction of automatic clearing house) • Leasing schemes scaled up by Commercial Banks • Development of Non- Banking Financial Institutions (NBFI): • Supervision of NBFI consolidated by BNR • Public Pension Scheme Reform Initiated and supported by Singapore experts • Private Discount House established • Rural Insurance Strategy initiated • Savings Mobilization Strategy initiated • Study on skills required for financial sector development launched

  13. Fiscal Performance Indicators 2005 - 2008

  14. 4. Monetary Development • Monetary policy in 2007 had the objective of complimenting fiscal policy by managing the grant financed fiscal expansion without jeopardizing macroeconomic stability, avoiding an acceleration in inflation or crowding out of the private sector. • The higher monetary supply growth (of 31.3%) as compared to inflation is explained by the rapid monetarisation of the economy in 2007. Money Supply increased due to the accumulation of net external reserves and increase in credit to the private sector. • However, net credit to government dropped by 16.8% due to the accumulation of its deposits in the banking system.

  15. 5. Progressto accession to EAC customs union • Firstly, Rwanda officially signed the accession treaty on 1 July 2007 formally joining the East African Community (EAC) customs union. • Secondly, the EAC Partner States and the European Union (EU) signed an Interim Framework Agreement on the Economic Partnership Agreement (EPAS) on the 27 November 2007 in Kampala, Uganda. • National draft laws are being amended to ensure that our fiscal year which begins on 1 January and ends on the 31 December is aligned to the EAC fiscal year (1 June and ends on the 31 July ). • The common market will be effective in 2010 after concluding the negotiations. A national negotiating team has been constituted and approved by cabinet to this effect.

  16. 6. Summary of the 2007 Socio-Economic Performance 2007 has been a productive and stable year with a well managed macro economic environment reacting well to international shocks. Economic activity resulted in a strong growth rate. The international trade sector sustained a healthy balance as declines in coffee were offset by gains in the mining sector. Developments in the financial sector have been concrete and offer a way forward to strengthen and deepen the financial sector in Rwanda as per EDPRS priorities.

  17. 7. Challenges of 2007 Trade Balance continues to worsen: Good performance of exports was based on minerals (price effects mainly). How can we add value and increase production further? More efforts are required to increase coffee and tea volume as well as value addition. Negative growth of agriculture had a quadruple effect: Reduced GDP growth rate (coffee) affected export crops and receipts Food crops contributed to inflationary pressures Reduced purchasing power of majority of the population While production has grown at 6%, its effect on improving living standards of Rwandans has been greatly undermined by high inflation (as nominal growth was 16%)and continued population pressures.

  18. Thank you

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