Robust Growth Followed by Moderation
KIGALI, Rwanda — Rwanda’s economy experienced significant growth in the first quarter of 2023, expanding by 9.2%, building upon the 8.2% growth achieved in 2022. However, recent devastating floods, resulting in loss of life and infrastructure damage, are projected to moderate the country’s economic momentum, with growth estimated to reach 5.8% in 2023, slightly below the pre-disaster forecast of 6.2%.
World Bank’s Rwanda Economic Update Provides Key Insights
In its 21st edition of the Rwanda Economic Update (REU), the World Bank sheds light on positive developments within Rwanda’s economic landscape. The growth in the economy was primarily driven by private consumption and the services sector, accompanied by improvements in the labor market.
Inflation Eases, Fiscal Deficit Narrows
Although inflation remained above the target range set by the National Bank of Rwanda during the first half of 2023, it showed signs of easing. The REU report highlights that Rwanda’s current account deficit improved in 2022, primarily due to higher export revenues and remittances, which offset rising import prices. Furthermore, the fiscal deficit narrowed in the first half of FY2022/23, thanks to a reduction in public spending.
Rwanda’s GDP from 2013 to 2020
|Year||GDP (in billions of USD)|
Maintaining Fiscal Consolidation Amid Declining Foreign Aid
Peace Aimee Niyibizi, World Bank Country Economist for Rwanda and author of the REU, notes that the narrowing fiscal deficit, coupled with robust economic growth, has resulted in a decrease in Rwanda’s debt as a percentage of GDP for the first time since 2013. The World Bank encourages the government to continue pursuing fiscal consolidation by rationalizing expenditure and increasing domestic revenues, especially considering the decline in foreign aid.
Inclusiveness of Foreign Direct Investment Examined
The 21st Rwanda Economic Update focuses on the inclusiveness of Foreign Direct Investment (FDI). While FDI inflows slowed during the COVID-19 pandemic, the report highlights that Rwanda had above-average FDI inflows in 2014, surpassing both the Sub-Saharan and East African averages. FDI, supported by favorable regulations, has played a crucial role in creating higher-quality jobs and providing access to social security, particularly when compared to domestic investments.
Policies to Enhance Inclusive FDI
To improve the inclusiveness of FDI, the REU recommends policies that focus on institutional reforms and infrastructure investments, aimed at stimulating FDI to generate employment opportunities for women, youth, and residents in economically disadvantaged districts. Rolande Pryce, World Bank Country Manager for Rwanda, emphasizes the need for enhancing corporate social responsibility initiatives and strengthening connections between FDI projects and local suppliers. Additionally, improved dialogue between the Rwandan government, investors, and foreign governments is essential.
As Rwanda’s economy faces both positive growth and challenges stemming from recent floods, the World Bank’s Rwanda Economic Update provides valuable insights into the country’s economic landscape. While growth remains robust, efforts to mitigate the impact of natural disasters are essential. Enhancing fiscal consolidation, promoting inclusive FDI, and improving dialogues among stakeholders will contribute to Rwanda’s sustainable economic development.