Download economic outlook – 2012 and beyond

RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK
INTRODUCTION
1.
Economic performance in 2011 has been strong, albeit facing challenges arising from a
difficult external environment brought up by sovereign debt issues in the Euro area and rising
fuel and food prices. Real output growth stood at 8.6 percent, from 7.2 percent the year before
driven mainly by a good harvest, strong domestic demand and a boom in construction. While
inflation rose sharply, reaching 8.3 percent at end December 2011 from 0.2 percent a year
earlier, it remained the lowest in the region. Revenue collection for the first half of the fiscal
year at end December 2011 met forecasts and spending was broadly on track, while the overall
fiscal balance was in a higher surplus than expected – on account of higher donor
disbursements. A larger than expected surplus in the external position was recorded, from
strong exports performance, increased tourism receipts, and large public and private capital
inflows.
2.
Looming Euro area recession risks and a slower global economic recovery in general
continue to weigh on Rwanda’s economic outlook. While growth will remain robust, it is
projected to slowly decelerate in 2012 to around 7.7 percent owing to the negative outlook on
the global economy, and mainly as a result of higher international oil prices and declining
export commodity prices. Fiscal consolidation through increased revenue mobilization and
expenditure prioritization will remain the key components of the fiscal strategy aiming to close
the fiscal gap and gradually reduce aid dependency. Domestic economic policies will be geared
all through the year and beyond at sustaining robust economic growth while maintaining
macroeconomic stability by keeping a close eye at inflation developments and external
competitiveness.
RECENT ECONOMIC DEVELOPMENTS
3.
Good
agriculture
and
industry
performance contributed to robust output growth
in 2011. Real GDP growth for 2011 was initially
projected at 7 percent, slightly lower than the 7.2
percent achieved in 2010, anticipating adverse
effects from rising food and fuel prices and then
revised upward to 8.8% in October 2011. However,
estimates for 2011 put real GDP growth at 8.6
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18.0
15.0
9.0
Real GDP Growth,
annual percent change
8.5
8.0
12.0
7.5
9.0
7.0
18
6.5
6.0
3.0
0.0
8
6
1
2009
8
5
9
9
5
6.0
5.5
5.0
2010
2011
Agriculture
Industry
Services
Real GDP (right)
percent. This growth was mainly achieved with a strong 18 percent growth performance from
the industry sector, led by the construction, mining, chemicals and non-metallic minerals sub
sectors – mining grew by an impressive 49 percent while growth in construction was 24
percent. The agriculture sector with a good season ‘B’ food crop harvest maintained a strong
growth of 5 percent, the same as was achieved in 2010. Services growth at 9 percent was
mainly driven by wholesale and retail trade, finance and insurance and public administration
sub-sectors – wholesale and retail trade growth was at a remarkable 10 percent while that of
public administration was 15 percent. All sectors of the economy are currently performing well.
In the area of agriculture, the good weather conditions and the positive impacts of the crop
intensification program have contributed to a good season “B” harvest and a high contribution
of agriculture to growth. Growth in the industrial and service sectors are being driven by the
increase in private and public investments in key infrastructure. The construction sub sector is
registering a boost from expansion in domestic credit as well as flows of external finances. The
services sector is also booming with improved financing of the private sector, significant
contributions to growth from the finance and insurance sub-sectors resulting from new
entrants in the markets and increased profitability, and improved public service delivery.
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Percent
4.
Consumer price inflation remains in the single digit and the lowest in the region.
Inflation rose sharply in 2011, but remained in single digits reaching 8.3 per cent at end
December 2011 from 0.2 percent at end December 2010. The good season “B” harvest in food
crops and the lower prices for transport and fuel reflecting the implementation of the reduction
in fuel taxes during the year contributed to
CPI Inflation, end
12.0
of period percent
the recent decline in inflation. Headline
10.0
change
Inflation stood at 8.18 percent in March,
8.0
from 7.85 percent in February and 7.81
6.0
percent in January 2012. Inflation in the first
4.0
two months of the year was driven by food
2.0
and non-alcoholic beverages amounting to
0.0
5.4 percent of headline inflation owing to
increased prices for vegetables and cereals.
Communication price indices fell for six
Overall Inflation
Local Inflation
consecutive months, reflecting increasing
Imported Inflation
competition in the telecommunication
industry. In February 2012, domestic inflation contributed to 6.65 percent of headline inflation
against 1.2 percent imported. In the EAC countries, inflation continued to rise throughout 2011
and the first two months of 2012 on account of high oil and food prices as well as the drought
in the horn of Africa. Despite the sharp rise of inflation in Rwanda, it still remains below the
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levels of regional peers – inflation as of end March 2012 stood at 21.2 percent in Uganda, 24.5
percent in Burundi, 19.4 percent in Tanzania (February figure), and 15.6 percent in Kenya.
5.
Fiscal performance in the first half of fiscal year 2011/12 ending December 2011 was
broadly on track. Fiscal performance was satisfactory despite challenges in the resource area
stemming from uncertainties concerning disbursements of donor support funds that
complicated government cash flow management, and administrative delays in the
implementation of capital projects. Domestic revenue collections for the first half amounted to
RwF 284.2 billion with tax revenue collection at RwF 5.6 billion higher than the projected,
reaching RwF 258.6 billion by the end of December – driven mainly by higher direct taxes
especially PAYE (Pay As You Earn) collections and consumption taxes (excise duties and VAT).
Non-tax revenue collection at RwF 25.6 billion fell short of projections of about RwF 5.8 billion
due to lower collections from administrative fees and charges as well as dividends. By end
December, total provisional spending for the first half of fiscal year 2011/2012 had reached RwF
480.4 billion compared to projections of RwF 524.2 billion for this period. Whilst total recurrent
spending at RwF 298.5 billion exceeded projections by RwF 11.3 billion, capital spending at RwF
198.6 billion was RwF 53.2 billion lower than projected. Excess spending on recurrent
expenditures was mainly due to regularization of teachers’ salaries and frontloading of
transfers from RLDSF (Rwanda Local Development Support Fund) in districts for the
implementation of various projects and programs. Lower spending, particularly on capital
expenditures was due to administrative delays in the completion of payment documents and
tender requirements. The overall fiscal balance for the first half of the fiscal year 2011/2012
was higher than projected, standing at a positive balance of RwF 99 billion (about 2.4 percent of
GDP), and leading to a buildup of deposits in the banking system of RwF 173.6 billion. This
performance reflected the accrual of higher budget support funds (loans and grants) as well as
the lower total spending – budget support that accrued to the budget up to December 2011
amounted to RwF 210.9 billion with the World Bank and the UK as the largest donors (US$ 57.5
million and US$ 49.1 million respectively), while budget loans disbursed amounted to RwF 53.4
billion.
6.
Fiscal performance for the remainder of fiscal year 2011/12 augurs well, with spending
that has started picking up and good revenue performance. Since the beginning of the year,
there has been an acceleration of spending under goods and services and capital expenditure,
as the bottlenecks that delayed spending have been resolved. Provisional tax revenue collection
for the first quarter 2012 were RwF 145.1 billion compared to RwF 120.5 billion for the same
period in 2011. Total revenue collection for the whole 2011/12 fiscal year is projected at around
RwF 565.1 billion (about 13.8 percent of GDP) while donor disbursements in the form of budget
support and project support is projected at around RwF 463.5 billion (about 11.3 percent of
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GDP). Total expenditures are projected by end June 2012 to reach RwF 1.1 trillion (about 26.9
percent of GDP) with recurrent spending projected at around RwF 596.3 billion and capital
spending at around RwF 508.6 billion. The resulting overall fiscal balance (including grants) is
projected to be in deficit of around RwF 77.1 billion (about 1.9 percent of GDP).
7.
A larger than expected balance of payments surplus in 2011 resulted from robust
exports performance and large public and private capital inflows. Total exports of goods in
value terms showed a strong growth of 56 percent in 2011 compared to 2010 led by minerals
exports. At the same time, total imports of goods also in value terms rose sharply by 44 percent
in 2011 compared to 2010. This sharp growth was due to a large surge in capital goods imports
responding to the investment requirements for growth as well as higher outlays for energy
products reflecting the high prevailing world oil prices. As a result of these developments, the
trade deficit widened by about 40 percent in 2011 compared to 2010. The services and income
balances improved, mainly from an increase in tourism receipts and the AirTel (telecom) license
fee. Current transfers, including from the Global Fund, also increased sharply resulting in only a
marginal deterioration of about 10 percent in the current account deficit in 2011 compared to
2010. Both public and private borrowings increased in 2011 compared to 2010, reflecting
ongoing implementation of some public strategic investment projects as well as private sector
projects in the transportation, communication, real estate and coffee sectors. As a result of this
performance in the capital and financial accounts the overall balance of payments closed with a
surplus of US$ 233.5 million in 2011 compared to a surplus of US$ 72.1 million in 2010. Gross
international reserves increased and reached coverage of about 7 months of imports.
ECONOMIC OUTLOOK – 2012 AND BEYOND
8.
Real GDP growth in 2012 is projected to remain robust, albeit lower than in 2011 on
account of bleak prospects in the global economy. Real GDP is projected to grow by 7.7
percent in 2012, lower than the 8.6 percent achieved in 2012. Agriculture is projected to grow
at 6.5 percent, slightly higher than the 5 percent recorded in 2011, lead by a growth in the food
crops sub-sector projected at 6 percent and that of export crops (coffee and tea) projected at
22 percent. The industry and services are projected to grow by 11 percent and 8 percent
respectively mainly driven by construction, manufacturing of food and furniture sub-sectors in
the industry, and wholesale retail and trade, finance and insurance, education and health subsectors in the services.
9.
The fiscal program for the 2012/13 fiscal year and the medium term seeks to deepen
fiscal consolidation. Fiscal consolidation will be the key component of the fiscal strategy,
through increased domestic revenue mobilization and expenditure prioritization to further
anchor macroeconomic stability and support growth.
Page 4 of 6
10.
Over the medium term, domestic revenue will be expected to rise on average by 0.3
percent of GDP per annum and reach 14.9 percent of GDP by 2015/2016. Projections for
external resources are guided by the uncertainties in donor grant commitments in the two
outer years of the medium term. Total budget support grants are expected to decline in the
medium term and reach 7.2 percent of GDP by 2015/2016. Total outlays in the medium term
are projected to decline by 3.3 and 0.9 percent of GDP respectively in 2013/14 and 2014/15 to
reach to 23.7 percent of GDP by 2015/2016. Mirroring these projections the overall fiscal
balance deficit (including grants) is projected to decline from 2.6 percent of GDP in 2012/2013
to 1.6 percent of GDP in 2015/2016.
11.
The external sector continues to be strong despite lower export commodity prices,
higher energy prices and downside risks on the global economy. While exports increased
robustly in 2011 compared to 2010, they are projected to increase by about 1 percent in value
terms for the whole of 2012 on account of projected lower export commodity prices adversely
affecting Rwanda exports. For coffee and tea, volume increases of 41 percent and 10 percent
respectively are projected whilst prices will decline by 27 percent and 7 percent respectively in
2012. In the case of minerals, volume of exports is projected to rise by 11 percent even though
a 6 percent decline in prices is expected. Imports on the other hand are projected to increase by
about 14 percent in value terms in 2012 consistent with the investment needs of the country but
also owing to higher projected energy import prices. The current account deficit is projected to
widen by about US$ 240.5 million in 2012 compared to 2011. Net capital flows including public
and private borrowings to finance ongoing public and private investment projects cover the
current account gap and allow a small overall balance of payment deficit. Gross reserves at end
2012 are projected to remain at comfortable levels (5 months of imports). The country’s
external sector performance in the medium term will be influenced by the results of the
comprehensive export strategy as well as global financial developments including behavior of
commodity prices.
12.
Monetary policy will aim at maintaining stable inflation while insuring adequate
financing of the economy to support growth. The central bank (NBR) aims at tightening
monetary policy in 2012. Inflation is targeted at 7.5 percent in 2012 (end period), with the aim
of gradually reducing it to 6.5 percent in 2013, 5.5 percent 2014 and to return to 5 percent in
the medium term. Broad money and Reserve Money growth is projected to slow down from
26.8 percent and 23.4 percent respectively in 2011 to 17 percent in 2012. Similarly, the credit to
the private sector growth is projected at 18.4 percent in 2012, from 27.9 percent in 2011.
However, the risks of higher inflation remain due to uncertainties related to exogenous shocks,
including food and fuel prices. The NBR stands committed to further tighten monetary policy to
Page 5 of 6
maintain a low level of inflation whilst ensuring adequate provision of credit to the private
sector to promote the required growth. Growth in monetary aggregates is expected to be in
line with nominal GDP growth.
STATISTICAL APPENDIX
RWANDA - SELECTED ECONOMIC AND FINANCIAL INDICATORS
2009
2010
I. National Accounts
Real GDP
Agriculture
Industry
Services
Inflation
end of period
period average
6.2%
7.7%
1.3%
6.3%
7.2%
5.0%
8.4%
9.0%
5.7%
10.3%
0.2%
2.3%
II. External Accounts
Export of Goods, f.o.b
annual percent change
of which Coffee and Tea
Minerals
Imports, f.o.b
annual percent change
of which Capital Goods
Energy Goods
Trade Balance
Services and Income
of which Tourism
Remittances inflows
Current Transfers
of which Public Transfers
Current Account Balance( Incl Transfers)
Capital Transfers
Financial Account
of which Foreign Investments
Long Term Public Borrowing (net)
Overall Balance
234.9
-12%
85.5
55.4
997.0
13%
372.4
178.0
-762.1
-218.4
174.5
88.1
604.0
531.7
-372.5
200.0
233.5
118.7
81.4
57.0
1
III. Fiscal Accounts
Total Revenue and Grants
percent of GDP
Domestic revenue
percent of GDP
Tax revenue
Non Tax revenue
Total Grants
percent of GDP
Total Expenditures and Net Lending
percent of GDP
Current Expenditures
percent of GDP
Capital Expenditures
percent of GDP
Overall Balance, payment order basis
including grants
percent of GDP
excluding grants
percent of GDP
Financing
Foreign, net
percent of GDP
Domestic, net
percent of GDP
800.7
25.6%
391.4
12.5%
376.4
15.0
409.3
13.1%
804.0
25.7%
459.1
15.6%
459.1
10.1%
-3.3
-0.1%
-412.6
-13.2%
14.7
26.1
0.8%
-9.7
-0.3%
2012
2011
Proj.
est.
(annual percent change)
7.7%
8.6%
6.5%
4.7%
11.3%
17.6%
8.3%
8.9%
2014
Proj.
7.5%
6.6%
8.8%
7.8%
7.2%
6.6%
9.1%
7.2%
7.5%
7.9%
6.5%
7.0%
6.0%
6.5%
(million $US, unless otherwise specified)
466.9
464.2
297.3
1%
56%
27%
141.8
138.5
111.8
142.0
151.4
67.9
1,778.4
1,563.8
1,084.0
14%
44%
9%
765.6
465.3
357.6
406.4
345.6
210.8
-1,311.5
-1,099.6
-786.7
-329.9
-242.5
-292.1
276.0
251.8
201.6
171.7
166.2
98.2
939.3
880.6
657.4
815.6
757.6
580.0
-702.1
-461.5
-421.4
206.3
196.7
285.6
486.0
485.2
213.7
181.4
137.5
63.7
169.7
206.6
51.9
-9.7
233.9
72.1
492.2
5%
152.6
147.3
1,771.9
-0.4%
737.8
418.9
-1,279.7
-332.5
317.5
178.4
853.4
727.7
-758.7
251.1
416.0
130.3
238.1
-91.6
514.0
4%
163.9
143.5
1,841.4
4%
801.0
317.5
-1,327.4
-322.1
365.0
185.3
759.6
633.3
-889.9
230.6
499.0
125.5
209.0
-155.1
(billions of Rwanda francs, unless otherwise specified)
1,360.8
1,206.6
1,028.6
863.4
24.9%
25.4%
25.1%
24.8%
781.0
665.7
565.1
484.3
14.3%
14.0%
13.8%
13.9%
754.8
641.2
519.7
463.7
26.2
24.5
45.4
20.6
579.8
540.9
463.5
379.0
10.6%
11.4%
11.3%
10.9%
1,521.4
1,331.0
1,105.6
984.3
27.8%
28.0%
26.9%
28.2%
782.0
679.9
596.3
527.0
14.7%
14.5%
14.5%
15.7%
782.0
679.9
596.3
527.0
13.1%
13.5%
12.4%
12.6%
1,376.0
22.2%
903.5
14.6%
874.0
29.5
472.5
7.6%
1,520.5
24.5%
857.8
14.5%
857.8
10.1%
-160.6
-2.9%
-740.4
-13.5%
168.6
168.6
3.1%
0.0
0.0%
-144.5
-2.3%
-617.1
10.0%
151.5
151.5
2.4%
0.0
0.0%
unless otherwise specified)
636.5
661.8
671.8
431.0
251.6
110.9
-141.0
-171.5
-223.6
750.4
601.5
509.8
25%
18%
28%
14.7%
13.6%
13.4%
1,067.5
913.4
780.7
17%
17%
27%
21%
21%
21%
----------
5,110
5,829
-120.9
-3.5%
-500.0
-14.3%
132.8
68.5
2.0%
58.0
1.7%
(billion RwF,
IV. Monetary Accounts
519.0
441.8
Net Foreign Assets
97.0
85.3
Net Domestic Assets
-131.3
-141.3
Credit to the Government (net)
397.1
357.3
Credit to the Private Sector
11%
4%
annual percent change
12.2%
12.1%
percent of GDP
615.9
526.6
Money Supply
17%
13%
annual percent change
19%
18%
percent of GDP
Memo Items
3,257
2,964
Nominal GDP (billion Rwf, calendar year)
Source: MINECOFIN, NISR, RRA and BNR staff estimates and projections.
1
2013
Proj.
8.3%
5.6%
-77.1
-1.9%
-540.5
-13.2%
88.7
116.6
2.8%
-28.0
-0.7%
3,801
The fiscal accounts are on fiscal year - 2009 stands for 2009/10, 2010 for 2010/11 and so on.
Page 6 of 6
-124.4
-2.6%
-665.3
-14.0%
132.4
119.6
2.5%
12.8
0.3%
4,409