[Rwanda] Country Gets $11.8 Million IMF Grant to Fight Poverty

from All Africa

Peter Munaita, the Eastafrican
Nairobi

The International Monetary Fund has granted Rwanda $11.8 million over the next three years to support policies aimed at accelerating growth and reducing poverty.

The approval follows the signing of a technical agreement between the fund's managing director Rodrigo de Rato and the country's Finance and Economic Planning Minister James Musoni on a new Poverty Reduction and Growth Facility (PRGF).

Although the new facility took effect on June 12, only $1.7 million can be accessed immediately. The other disbursement is tied to periodic reviews, the first in November this year and the next in March 2007.

PRGF, the IMF's concessional facility for low-income countries, carries an annual interest rate of 0.5 per cent and is repayable over 10 years with a 5.5-year grace period on principal payments.

On June 8, the IMF concluded a review of its Poverty Reduction and Growth Facility with Rwanda, which was negotiated in 2002. It released a final tranche of $0.85 million, bringing the total disbursements under the facility to $6 million.

The funds were released despite Rwanda's delay in meeting two critical benchmarks related to priority spending and an audit on the Prime Holdings hotel business, which were due in September last year.

"Supported by debt relief under the Enhanced HIPC and the Multilateral Debt Reduction Initiatives, the government of Rwanda is well placed to accelerate its reform agenda aimed at enhancing economic growth and reducing poverty," the letter of intent says.

Besides targeting a growth rate of between 5 and 7 per cent by 2009, the government intends to focus on a new wave of reforms to raise productivity, particularly in the agriculture and export sectors, where tea exports are expected to be boosted by the recent privatisation of three factories.

The key medium-term objectives also include maintaining inflation at around 5 per cent; keeping an import cover of reserves of at least four months and increasing the ratio of revenue to 14 per cent of the total value of the country's goods and services.

The country expects a moderation in import growth when electricity generated by the Lake Kivu project replaces diesel-generated electricity, reducing fuel imports from 2007 onward substantially. Overall, agriculture, trade, and private sector-driven initiatives are expected to be the main sources of growth.

The National Bank of Rwanda is also expected to be strengthened through amendments to the banking law that were submitted to stakeholders in December to deal with problem banks. The managers say NBR has reached an agreement on a restructuring plan, including a possible capital injection by shareholders.

But the problems of transparency with regard to the running of two hotels held by Prime Holdings remain following a recent audit. "It was not possible to determine if proper books of account were kept by the hotels, the auditors concluded.

The findings forced the government to cancel the contract with the management company and is in negotiations with the Intercontinental group to take on the management of the hotels. The hotels were one issue on which the IMF executive board granted waivers for non performance when they released the sixth tranche of $0.85 million under the previous PRGF.

The IMF deputy managing director Agustin Carstens said Rwanda's economic performance strengthened last year with agricultural recovery pushing growth to 6 per cent.

"Macroeconomic policy implementation was broadly on track. On the structural side, progress was mixed, partly due to capacity constraints. In particular, reforms in public expenditure management remain pending," Mr Carstens said.

He said the new program will improve the quality and efficiency of fiscal spending with priority given to critical sectors like education. He said the MDRI would free resources for food imports arising from drought and the Lake Kivu project that will generate electricity from Methane gas.