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Recent Macroeconomic Performance and Prospects

Recent Macroeconomic Performance and Prospects. Monique Nsanzabaganwa Minister of State, Economic Planning. Outline. Output Overview Fiscal Performance Export Performance Monetary and Financial Performance Outlook for 2007. Output Overview - GDP Performance.

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Recent Macroeconomic Performance and Prospects

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  1. Recent Macroeconomic Performance and Prospects Monique Nsanzabaganwa Minister of State, Economic Planning

  2. Outline • Output Overview • Fiscal Performance • Export Performance • Monetary and Financial Performance • Outlook for 2007

  3. Output Overview - GDP Performance • Real GDP rose 69.5 bln Rwf leading to an annual real GDP growth rate of 5.8% for 2006. • Agricultural from 1.9 to 1.4% and industrial growth 1.8 to 1.3% • Service sector growth increased from 7.2% to 8.4% over the year.

  4. Real GDP (Bln RwF, base year 2005) and Percentage Composition by Sector • Rwanda remains an agricultural-based economy, however the service sector is accounting for a greater share of the GDP in real terms. Proportion of real GDP originating from agriculture fallen from 40.3% to 39.3%, while, the service sector has risen from 38.6% to 39.6% of real GDP in 2006. • Share of real GDP coming from the Industry sector remains at 19%.

  5. Sectoral Contribution to GDP Growth in 2006 • Slower growth in Agricultural food crops offset by increased growth in exports crops such as coffee. • Industrial sector was buoyed by growth in Manufacturing. • The Service sector has been a significant driver for growth in 2006 particularly Wholesale & retail trade, Transportation and Professional services.

  6. Agriculture productivity Enhancement Agriculture productivity largely affected by climatic conditions. To address this: • Master plan for irrigation under preparation • Marshland management • Agriculture intensification and increased fertilizer use • Land reform • Institutional framework established (RADA, RALDA, Horticulture Board, etc) • One cow per poor household- GIRINKA • Food storage and post harvest management • Terracing project (100Ha per District IMIHIGO 2006) • Rain water storage systems

  7. Improvement in Service and manufacturing Sector Performance Despite strong growth………enhancement through • Stabilization of the energy crisis (Thermal energy, though expensive) • Investment in methane will increase production while lowering the cost • Hydro power plants (Rukarara and Nyaborongo), Micro-hydro plants being constructed • Energy tariff structure revised in favor of industrial users • Policy on financial sector development plan approved by Cabinet and BNR law revised to strengthen • Micro-finance policy adopted and implementation strategy being drafted • Procurement reforms

  8. Fiscal Performance - Public FinancesLevel of revenue and grants rose by 24 bln Rwf over the year but fell as proportion of GDP as financing from budgetary grants reduced. Total expenditure rose by almost 30 bln Rwf, current expenditure rose due to priority requirements and capital expenditure fell as proportion of GDP. Priority expenditures continued to increase. Therefore, both the Primary and Domestic Fiscal balance deficit increased, to 3% and 7% of GDP, respectively.

  9. Strong Revenue Performance……………….. • Tax administration and collection efficiency • Larger tax base due to improved economic growth • Tax payer compliance • Customs IT network and RRA computerization • Private sector growing due to improved business environment (Magerwa, update of business laws, institutions…..)

  10. Result-oriented budget • Project planning and implementation improved • Increased priority spending (education, health and infrastructure) to 144 bln Rwf in 2006 • PFM reforms (OBL, financial regulations, budget reclassification, audit, training accountants and auditors, procurement law, …) • Fiscal decentralization policy adopted and implemented

  11. Fiscal Performance - Debt • Rwanda is in a more sustainable position in terms of external debt in 2006. Debt relief has been received via HIPC Initiative and MDRI. • Debt stock has been reduced and now stands at 15.7% of GDP. • Of particular importance is the improvement in the NPV of debt-to-export ratio which stood at 149.8% of GDP in 2005 and now is reduced to 58.2% in 2006.

  12. Enhancing Debt Management • Debt committee operational for regular assessment of DSA • Electronic link between BNR and MINECOFIN for debt database management • Export promotion and diversification • Increased grant financing

  13. Export Performance • Tourism increase from $ 49million to $60 million. Mining decline from $37million to $32 million in 2006. • Rises in imports of capital equipment, energy and fuel show positive signs for growth in productive imports rather than final consumption goods. • Future plans for exports include an Export Processing Zone and diversification into commodities such as horticulture.

  14. Monetary and Financial Performance - Inflation and Exchange Rate. • Inflation fell to 9% in September 2006 from the 12% high at start 2005. Remains high due to energy and food prices. • Annual average for 2006 is expected to fall to around 7.5%. Underlying inflation was 4.6% end Oct. 06 • Exchange rate has appreciated against the dollar in 2006. • 2006 annual average projected at 555Rwf / USD.

  15. Monetary and Financial Performance – Credit to the Private Sector. • 18% growth in the credit disbursed to the private sector • ‘Commerce, restaurants and hotels’ received the greatest proportion, around 40% of total up to July 2006. • While ‘Public works and buildings’ accounted for 25%.

  16. Outlook for 2007 • GDP growth to rise to 6.4% and Inflation targeted at 5.0% • Domestic financing, if required, to preserve macro stability. • Shift from loan to grant financing will help sustain debt position. • Budget prioritization process to achieve goals in poverty reduction. • Fiscal decentralization to deepen with earmarked transfers to districts. • EDPRS results based budget expected to boost economic growth and social development. • EAC accession to integrate economy and widen market access.

  17. Outlook for 2007 – Policy and Reforms • Real and External sectors - Trade Promoting Policy - Productivity enhancement - Public / private partnerships • Fiscal sector - Tax base broadening - Tax administration efficiency • Monetary and Financial sectors - Long term loans (See FSDP) - Stricter accounting and auditing (PFM) - Microfinance promotion

  18. THANK YOU FOR YOUR KIND ATTENTION

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