The International Monetary Fund (IMF) has reached a staff-level agreement with the Rwandan government following the fourth reviews of its Policy Coordination Instrument (PCI), the Resilience and Sustainability Facility (RSF), and the second review of the Stand-by Credit Facility (SCF) arrangement. The agreement is expected to be considered by the IMF’s Executive Board in December 2024, potentially unlocking new funding to support Rwanda's economic reforms.

Rwanda's economic growth remains one of the strongest in Sub-Saharan Africa, with real GDP projected to grow by 8.3% in 2024, driven by strong performance in services, construction, and a recovery in food crop production. Despite this, the country continues to face significant challenges that threaten its financial stability.

Persistent Challenges

Fiscal and external vulnerabilities remain high in Rwanda, exacerbated by recurrent external shocks in recent years. The current account deficit widened due to high capital goods imports and a drop in coffee exports, while the Rwandan franc depreciated by 6.6% against the U.S. dollar from January to October 2024. This depreciation is seen as a necessary step to support external adjustments, but the weakening currency also highlights vulnerabilities in Rwanda’s external position.

In addition to external pressures, Rwanda faces internal economic challenges. The public debt-to-GDP ratio is expected to rise to 80% by 2025, a concern that has been compounded by slower-than-expected fiscal consolidation efforts. Increased reliance on concessional financing has created space for critical reforms, but domestic revenue mobilization remains insufficient to stabilize the country’s fiscal position.

Climate and Health Risks

Rwanda's dominantly rain-fed agriculture leaves it highly vulnerable to climate shocks, as demonstrated by last year's poor harvests and severe floods. The IMF also pointed to the recent Marburg virus outbreak as a reminder of Rwanda’s susceptibility to public health crises, though the country demonstrated a strong capacity to respond.

IMF Support and Next Steps

Despite these challenges, the IMF lauded Rwanda’s commitment to climate-related reforms, including progress on sustainability disclosure standards, climate budget tagging, and the development of a green taxonomy. Rwanda is on track to meet its RSF commitments six months ahead of schedule, which will help catalyze additional climate financing.

Upon completion of the reviews by the IMF Executive Board, Rwanda will gain access to SDR 71.8 million (US$ 95.9 million) under the RSF and SDR 66.75 million (US$ 89.0 million) under the SCF, funds aimed at supporting the country’s macroeconomic reforms and climate resilience efforts.

While the outlook for Rwanda’s economy remains positive, the IMF cautioned that risks are tilted to the downside. A deepening of geopolitical fragmentation, a surge in global energy and food prices, or a slowdown in the growth of trading partners could further strain Rwanda's fragile recovery.

About the Review
The IMF’s staff-level agreement follows discussions with Rwandan authorities from October 7 to October 20, 2024, as part of a mission to assess Rwanda’s economic progress and challenges. The review will be presented to the IMF Executive Board in December for approval, which will unlock crucial financial support to help address the nation’s economic vulnerabilities.