Rwanda

Robust growth driven by public investment

Growth remained robust in 2023 despite numerous headwinds. The decline in agricultural production, due to the major floods in May 2023, was largely offset by the good performance of services (transport, tourism) and industry, driven by construction-related activities. In 2024, growth is set to remain robust, driven mainly by an increase in private consumption, and public and private investment. The sharp fall in inflation should reduce pressure on household purchasing power and thus boost private consumption expenditure. Public consumption will also rise, driven by increased government spending linked to the Parliamentary and Presidential elections scheduled for July 2024. In addition, with inflation back within the National Bank of Rwanda's target range (between 2% and 8%), the Institution has shown itself to be accommodating by lowering its key rate in May 2024 (by 50 basis points to 7.0%), a decision that could stimulate private investment. The government will also pursue its long-term strategic diversification plan with its “Vision 2050” project, which is essentially based on private sector development, with a focus on improving the business climate, thereby supporting private investment. Public investment will also be robust, particularly in construction, spurred by post-flood reconstruction and numerous infrastructure projects, in line with the National Transformation Strategy (2017-2024). These projects include expanding access to electricity, with investments in green energies, reflecting the country's determination to reduce its dependence on fossil fuels (construction of nuclear reactors), refurbishing the road network and ongoing construction of the Bugesera international airport which is scheduled for completion in 2026. Public investment in the manufacturing sector will also be significant, as part of the government's “Made in Rwanda” policy initiative. The services sector, a major growth driver, should remain robust thanks to government investment in business tourism, with Rwanda set to host several events in 2024, including the Energy Expo in November. Export volumes are set to grow, buoyed by favorable prospects in the mineral sector. At the end of January, the country signed an agreement with Anglo-Australian mining giant Rio Tinto for the exploration and exploitation of lithium, reflecting the country's determination to modernise the mining sector.

Persistently very high twin deficits

The fiscal consolidation sought by the government will remain limited in fiscal years 2023-2024 and 2024-25, due to the increase in public spending linked to post-flood reconstruction and the elections scheduled for July 2024. The government has announced an 11.2% increase in spending for fiscal 2024-2025, compared with the previous year. While public spending to bolster household purchasing power is set to ease in line with inflation, spending on the post-Covid economic stimulus plan (Manufacture and Build to Recover Programme, introduced in 2020) will remain high, even though the programme has been extended until 2025. In addition, the numerous infrastructure projects (energy, roads, health), as well as agricultural projects (increasing crop productivity, strengthening resilience in the face of climate change) will contribute to maintaining a particularly high deficit. Moreover, reducing the deficit will remain difficult due to high recurrent expenditure, such as the massive public sector wage bill and high security spending linked to the high tensions with the DRC. Public revenues are expected to increase, driven by higher exports of agricultural products and minerals, as well as improved revenue mobilisation. The deficit will be financed by borrowing from official foreign partners, such as the IMF (new financing of USD 164.6 million in March 2024, of which USD 76.2 million under the Resilience and Sustainability Facility and USD 88.4 million under the Standby Credit Facility), and by issues on the domestic market. Although public debt continues to grow, it will remain sustainable thanks to the almost entirely concessional nature of its external share (80% of total public debt, 83% of which is held by multilateral and bilateral creditors) and its long average maturity (around 14 years).

The heavy current account deficit will persist in 2024 due to the country's structural dependence on imports of food products and fuel, as well as the capital goods needed to develop and rebuild infrastructure. Export revenues are expected to grow on back of persistently high global prices, although agricultural production will remain vulnerable to weather risks. The surplus on the services account should be confirmed thanks to sustained growth in service exports, tourism and upcoming international events. FDI inflows will remain strong thanks to one of the most favourable business climates in Africa, reinforced by the IMF programme in force until December 2025. The current account deficit will therefore be financed by these investment flows, through concessional loans, including those from the IMF, thus containing pressure on foreign exchange reserves, which will remain stable at around 4 months of import cover.

Relative political stability but significant tensions with neighbouring countries

President Paul Kagamé, who has ruled the country for 23 years, was re-elected President of his ruling Rwandan Patriotic Front (RPF) party in April 2023 after obtaining almost 99% of the vote. The President has also announced his candidacy for a fourth term in the July 2024 Presidential elections, as permitted by past constitutional amendments. Regularly accused of stifling dissent by frequent arrests of regime opponents, Paul Kagamé and the RPF are also credited with restoring civilian peace and political stability, as well as reducing the poverty rate (43% in 2023 versus 75% in 2000). Their domination of the political arena is therefore unlikely to be challenged until the postponed legislative elections are held in July 2024 (originally scheduled for September 2023) and the presidential elections, although the government announced in early 2023 that it would synchronize the two elections to reduce the time and cost of the polls.

On the external front, the UK's Immigration Act, which provided for some asylum-seekers who had entered the UK illegally to be sent to Rwanda, was abandoned in early July by Keir Starmer's new government. The Rwandan government clarified that the agreement contained no repayment clause, although the UK had already paid £240 million, without any asylum seekers having been sent. These funds, paid under the Economic Integration and Transformation Fund (ETIF), have already been used to cover operational costs linked to the expected arrival of migrants and to build social housing for Rwandans. In addition, China is stepping up its commitment to Rwanda, particularly in the mining, agri-food and construction sectors. On the regional front, while relations with the Democratic Republic of the Congo (DRC) had partially normalised following the signing of three bilateral cooperation agreements in June 2021, tensions have resurfaced since March 2022. The DRC accuses Rwanda of providing military support to the M23 rebel group in eastern DRC. Similarly, relations between Burundi and Rwanda are likely to remain tense; in January 2024, Burundi announced the closure of its border, accusing Rwanda of harbouring rebels opposed to the Burundian regime.

Last updated: July 2024