Economic studies
Rwanda

Rwanda

Population 11.3 mission
GDP 717 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 7.6 8.9 5.9 6.1
Inflation (yearly average) (%) 1.8 2.5 5.3 4.8
Budget balance (% GDP) (*) -10.9 -9.6 -8.5 -7.5
Current account balance (% GDP) -14.1 -18.5 -19.0 -18.8
Public debt (% GDP) 29.0 37.3 44.2 48.2

 

(e) Estimate (f) Forecast

(*) excluding grants

STRENGTHS

  • Geological potential: cassiterite, tungsten, gold
  • Skilled labour force and good infrastructure
  • Considerable progress on governance (fight against corruption)

WEAKNESSES

  • Highly dependent on commodity prices (tea, coffee) and international aid
  • Geographically isolated and exposed to the geopolitical tensions of the Great Lakes region
  • Strong demographic pressure ad population density among the highest in Africa

RISK ASSESSMENT

Growth is expected to maintain momentum in 2017, remaining however at the same rate

Services, which account for almost 50% of GDP, are likely to continue sustaining activity. Expansion of the RwandAir fleet and the opening of two new air routes at the end of 2016, further underline the investment efforts of recent years (airport, conference centre, hotels) and should boost the development of tourism-related activities, as well as those related to trade and transport. Infrastructure investment projects, especially in the areas of electricity production/distribution and transport (roads, railway lines) will drive the construction centre. Industry is expected to benefit from the mounting capacity of the Lake Kivu gas-fuelled power plant (operations started at end 2015) and the recent opening of new textile production units.

Consumption, which drives growth (over 75% of GDP), is expected to remain buoyant thanks to public spending levels unlikely to fall in a presidential election year and modest inflation.

Price rises will be driven by higher import prices (for food and energy), which could be sharpened by the depreciation, even moderate, of the Rwandan franc. Inflationary tensions are, however, likely to be eased by the cut, announced in October 2016, of electricity tariffs.

 

No real improvement in the fiscal and current account deficits

The dependence of Rwanda's public finances on international aid is declining but remains high (around 25% of budgetary income in 2010). Steps aimed at widening the tax base, abolishing some exceptions and improving collection, as well as relatively dynamic growth, should enable tax receipts to rise sufficiently to offset the drop in aid flows. The government, under a policy of sound management of the public finances, could cut some spending to prevent too great a deterioration in the fiscal balance, although only marginally in the run up to the elections in summer 2017.

Public debt has grown rapidly, especially because of the increase in loan guarantees to the national airline, RwandAir, for the purchase of new aircraft. Concessional loans will continue to form the bulk of the loan portfolio (close to two thirds of the total) but the proportion of commercial loans on less favourable terms is on a rising trend. The risk of over-indebtedness remains low.

The substantial current account deficit is unlikely to reduce in 2017. Prices for some commodities exported by Rwanda (tea, coffee) are expected to edge up and production to be higher than in 2016, a year of severe drought. However, imports will be sustained by significant need for capital goods for the completion of infrastructure projects. Purchases of oil, which could become slightly more expensive in 2017, will also put pressure on imports, even if some of the oil products bought abroad are re-exported, generating export income. The Rwandan franc is likely to continue to depreciate moderately in 2017 (around 8% against the dollar in 2015 and 2016), part of the reason for a lack of improvement in the current account balance.

In mid-2016 Rwanda obtained renewed financial aid from the IMF (Stand-by Credit Facility of around USD 200 million over 18 months) allowing the country to maintain an adequate level of foreign exchange reserves and encouraging investor and foreign donor confidence.

 

A fragile regional security situation, but a still attractive business climate

Rwanda is at the centre of tensions in the Great Lakes region. While talks with the DRC have restarted after a long period of conflict between the Rwandan (Democratic Forces for the Liberation of Rwanda - FDRL) and Congolese (M23) militias, relations with Burundi remain very tense. The influx of refugees crossing the borders with the DRC and Burundi, is a source of instability.

President Paul Kagame has announced that he will run for a third term in the presidential elections in Autumn 2017. This is authorised under the Constitution since the amendment passed in late 2015, following approval by a popular referendum allowing the current president to put himself forward for a seven-year term in 2017, and then for two additional five-year terms. Paul Kagame and his party (Rwandan Patriotic Front) will therefore continue to dominate the political stage. The international community accuses the government of restricting free speech and stress the lack of political opposition. The low level of political freedom is reflected in Rwanda's poor World Bank ranking (169th out of 204 countries in 2015). However, the country registers better performances than most East African countries on the fight against corruption (53rd place) and for the rule of law and regulatory quality (84th and 83rd respectively).

 

 

Last update: January 2017

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