How Discipline and Policy Direction Is Helping Rwanda Fight the Ill-Effects of Drought 2

According to the International Monetary Fund (IMF), Rwanda’s economy experienced a decline in pace to 5.9% in 2016 due to the negative impact of drought on the country’s agriculture sector, and consequently, the economy. It predicts that economic growth will bounce back to 6.2% this year.

In 2016, agriculture formed 30% of the total economic output of the country. Hence, its performance is crucial for a strong GDP (gross domestic product) growth. Due to strong precipitation this season, IMF and government officials are confident about improved GDP growth.

Increased crop production would help exports of tea and coffee, and a rise in values would provide a further shot in the arm. According to local media reports citing the Agricultural Board, even after a drop in production to 2.4 million kilograms, tea exports from Rwanda rose 22% to $23 million in Q1 2017 from a year ago due to higher prices.

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The other main component which is expected to boost the country’s economy this year is the reduction in the trade deficit, part of which will take place due to a decline in imports. According to official data, the country’s trade goods deficit dived by 10.5% in March to $102.22 million from a year ago.

The Made-in-Rwanda initiative is expected to help reduce the country’s trade gap.

IMF Mission Chief Laure Redifer, who was in Rwanda in mid-May, had said “We have already seen the trade deficit go down by 17 per cent since July 2016 and it is really having an impact. The Made-in-Rwanda policy, which encourages the domestic production of certain products that were previously imported along the with diversification of exports, will also boost the economy.”

The country is trying to increase the production of rice, wheat and sugar for local use – items which would help noticeably decrease its imports.

Meanwhile, the depreciation in the Rwandan franc against the US dollar should be helpful in boosting exports, thus putting further downward pressure on the trade deficit.

Rwanda has kept government spending under control, earning praise from the IMF in the process. Further, the country’s efforts towards stimulating economic growth and reducing deficits were applauded by ratings major Fitch, which affirmed a ‘B+’ rating with a stable outlook.

Fitch “expects the government’s initiative to support export diversification up the value-chain and the import substitution strategy to lead to a narrowing of the current account deficit in 2017-18 to 11.1 per cent of GDP.”

In this manner, Rwanda’s conscious efforts to improve its finances are making it an interesting investment destination in East Africa, among the likes of Kenya, Tanzania, and Uganda.

In the next article, let’s look at the country we’re contrasting Rwanda with: Zimbabwe.

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