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Analyzing the economic performance of Rwanda during the mini-budget period from January to June 2009, focusing on fiscal, monetary, and real sector aspects, as well as balance of payments. Insights on government revenues, expenditures, deficits, financing, and sector-specific challenges.
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Economic performance over the mini-budget period, January to June 2009 Joint Sector Budget Review, Monday 9th November 2009 Kampeta Sayinzoga, Government Chief Economist
Summary • Mini-budget was a bridging period to align with EAC requirements. • It also coincided with a time of turmoil on the international markets – so, a special case in two respects. • How did the Rwandan economy perform… • Fiscal – coped well, with revenue targets met. • BoP – anticipated price declines materialised. • Real – good growth – but partly a ‘hangover’ from 2008. • Monetary – continued to battle against liquidity issues. 2
Fiscal performance: revenues • Revenues around 3% higher than projected. Almost all of this can be accounted for by the increase in international taxes of around 37%, resulting from the high imports of early 2009. • Direct taxes fell short of projections by around 3% - RRA state declining profit margins as a result of high inflation. • Non tax revenues fell short by around RWF 7bn as result of delayed payments for fertilser and lower than projected sales of ID cards.
Fiscal performance: external resources • Delayed disbursements from the EU and Germany account for the majority of the 23.8bn shortfall from estimates. • Shortfalls from the African Union were also experienced.
Fiscal performance: expenditures Delays in finalising procurement relating to office supplies and maintenance. BNR funds for interest payments not used in full (liquidity crisis). Replenish petroleum stocks + additional funds to Kivu gas project.
Fiscal performance: deficits and financing All donors, except for AfDB, disbursed less than the revised estimates. Deficit position excluding grants improved slightly due to less than projected expenditures and slightly higher domestic revenues. The build up of reserves did not occur as planned as liquidity was injected into the banking system by retiring treasury bills to ease the tight credit situation.
Fiscal summary, Jan-June 2009 • Revenues were higher than projected – but this was largely due to increased imports. • Import growth shown to have slowed in second half of the year. • Impact of EAC tariffs from July 1st is monitored closely. • Expenditures were broadly on-track, with needs of key development areas being met. • Deficit financing came mostly from project loans, but liquidity issues meant that expected build up of reserves was not achieved.
Balance of payments summary • What was expected? • Import (value) growth to slow, with export revenues also declining. • Inflows from tourism and remittances to decline. • FDI to remain stable. • What happened? • Trade balance widened (next slide). • Tourism revenues and remittance receipts saw a modest growth. • BUT…possible lags?
Trade balance • As we will see in the next presentation, import prices have not fallen as much as expected and volumes have grown. At the same time, export revenues have fallen. • Result Likely widening rather than narrowing of the trade balance.
Real sector performance • New NISR quarterly GDP figures estimated growth at 9.4% for the mini-budget period. • However, as can be seen, Q2 represented a significant slowdown. • MINECOFIN initial projections (January 09), projected a 5.3% real growth rate across the calendar year. Given current data and the extent of the slowdown seen in Q2, this estimate is now expected to be an upper bound, with real GDP growth likely to be lower by end year 2009.
A special note on real sector into FY 09/10 • Why is calendar year growth now expected to be lower than 5.3%, despite the 9% mini-budget growth? • Despite the fact that agriculture in general is likely to perform better than first projected, thanks to the continuing investments under the CIP, export crop performance is likely to be down – coffee especially. • Manufacturing showing signs of stagnation. • Construction has been hit harder than anticipated – credit crunch. • Wholesale and retail trade and hotels and restaurants are likely to see negative growth from the highs of 2008, reflecting decrease in general demand. • Finance sector also struggling. • Health expected to outperform projections, reflecting the government’s commitment to key investment projects.
Monetary performance (1) • In early 2009, Rwanda experienced a domestic ‘credit crunch’ – unrelated to the GFC. A result of deposit/loan mis-match. • Led to a decline in credit to the private sector – potentially threatening growth and increased vulnerability to external conditions. • Highlighted other issues in the sector – including risk management and quality of asset stock (with some increase in non-performing loans). • Action was taken to ease the credit shortage – selling of bonds, decrease in reserve requirement and a long term financing facility provided by MINECOFIN.
Monetary performance (2) • Liquidity situation now improving. With a liquidity ratio of 59.2% (end June 09) the banking system retains comfortable excess reserves - well above the minimum 20% ratio. • Early data for the second half of the year shows a modest recovery in credit to the private sector. • However, banks remain reluctant to lend long term – risk aversion stemming from increase in NPLs to end June (although now returning to trend). • Difficulties have been taken as a further opportunity to modernise the sector, including the review of some regulations and identification of development areas (long term finance, pensions sector).
