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World Bank projects Rwanda's economic growth at 7.4 pct in 2015

Xinhua, July 16, 2015 Adjust font size:

The World Bank projects Rwanda's economic growth rate of 7.4 percent in 2015 and 7.6 percent in 2016, according to the new Rwanda Economic Update (REU) launched Wednesday in Kigali.

With the projected growth rates, the World Bank projects Rwanda' s poverty rate to decline from 63 percent in 2011 to 54 percent in 2016, moving approximately one million people above the poverty rate.

Rwanda's growth rate recovered from 4.7 percent in 2013, the lowest growth since 2003, to 7 percent in 2014, the report says.

Private and government consumptions led the recovery, which is reflected in the accelerated growth of the services sector.

However, fiscal policy has become less expansionary in recent quarters.

On the other hand, developments of the monetary sector have been supportive to the economy.

Yoichiro Ishihara, Senior Economist and Task Team Leader of the report said bank lending has recovered to the pre-aid shortfall level.

"Low inflation rate and appreciation of real effective exchange rate is favorable for the accommodative monetary policy to support the economy through financing," said Ishihara.

Analyzing the possible impacts of the oil price decline on Rwanda's economy, the report observed positive impacts in both inflation and imports.

Transportation prices (including gasoline) declined by about 4 percent, which brought down the overall Consumer Price Index (CPI).

On energy imports, prices started to significantly decline in November 2014, resulting in energy import values drop of 20-40 percent until April 2015.

Although Rwanda's GDP investment of 24 percent is slightly higher than the average of low/medium income countries, it is still mostly financed by foreign savings, including aid, it said.

Increasing domestic savings in the next several years is difficult; it is therefore imperative to find alternative domestic and external financing sources, according to the World Bank.

"Workers remittance and foreign direct investment are potential sources, as they have steadily increased without significant volatilities in the past several years," Carolyn Turk, the World Bank Country Manager for Rwanda said.

The World Bank said development of the financial sector in Rwanda is essential in financing development because the financial sector contributes to economic growth and government revenues and supports the mobilization of domestic savings, especially through improving access to finance in the medium to long-term.

It is also crucial to facilitate domestic and foreign debt financing and investments and access to international capital markets.

The Bank however warned that while commercial banks are still the most important source of financing in Rwanda, their investments are constrained by the maturity of their liabilities, which consist mainly of local short-term deposits.

"As the banking sector has limited capacity to provide long- term financing, domestic, regional, and international institutional investors, such as pension and insurance funds, are natural candidates for investing in long-term projects," said Gunhild Berg, Financial Sector Specialist. Endi