Rwanda has been making remarkable strides in its economic growth, with the country’s economy expanding by an impressive 9.2 percent in the first quarter of 2023.
This growth follows a solid 8.2 percent increase in 2022 as reported by the World Bank in its 21st edition of the Rwanda Economic Update (REU) report. However, despite these positive developments, the recent floods that have ravaged the nation pose a significant threat to Rwanda’s economic momentum.
The World Bank acknowledges the devastating impact of the floods, which resulted in the loss of lives and substantial destruction of critical infrastructure.
As a result, the bank anticipates a moderation in the country’s economic growth to 5.8 percent in 2023, compared to the pre-disaster forecast of 6.2 percent.
This adjustment accounts for the challenges posed by the floods and their aftermath, requiring extensive efforts in rebuilding and recovery.
Private consumption and the services sector have been the primary drivers behind Rwanda’s robust economic growth. Also, the country has experienced positive developments in the labor market, contributing to the overall positive trajectory.
However, inflation remains a concern, as it has eased but still remains above the target range set by the National Bank of Rwanda during the first half of 2023.
In more favorable news, Rwanda’s current account deficit improved in 2022, mainly due to higher export revenues and remittances that outweighed rising import prices. Similarly, the fiscal deficit has narrowed in the first half of FY2022/23, attributed to a drop in public spending. These developments have led to a reduction in Rwanda’s debt as a percentage of GDP, marking the first decline since 2013.
The World Bank emphasizes the importance of maintaining fiscal consolidation through rationalizing expenditure and raising domestic revenues, particularly in light of declining foreign aid.
The timely implementation of revised excise and corporate income tax laws, along with the development of a strategy for medium-term spending, is recommended to support this objective.
The REU’s special topic focuses on the inclusiveness of Foreign Direct Investment (FDI) in Rwanda. Although FDI inflows experienced a slowdown during the COVID-19 pandemic, the report highlights that at their peak in 2014, these inflows were significantly higher than the Sub-Saharan and East African average. FDI has played a crucial role in creating high-quality jobs and providing access to social security, particularly for women and youth.
