Unemployment and poverty threaten Rwanda’s growth, says IMF
Rwanda’s economy is recovering and growing rapidly, but problems are looming, including rising unemployment and poverty.
This year, the country’s economy is expected to grow by 7.0%, slightly below the expected 10.2%, according to the latest figures from the International Monetary Fund (IMF) released last week.
Still, the projected rate is well above the original forecast of 5.1%, signaling a strong rebound as key sectors of the economy reopen from a 3.4% contraction in 2020.
The government now faces the dual challenge of mitigating the pandemic-induced increase in unemployment and poverty.
The World Bank estimates that due to lockdowns, social distancing rules and increased costs associated with the pandemic, the number of poor is expected to increase by 5.1 percentage points (more than 550,000 people) in 2021 , with more than 80% of the new poor in rural areas.
Although the government has acted quickly to mitigate the shocks, including creating a special multimillion-dollar economic stimulus fund and expanding its social protection programs, analysts say more interventions are needed to put more Rwandans back at work.
According to Bo Li, Deputy Managing Director and Acting President of the IMF, the Covid-19 pandemic has increased unemployment and poverty in Rwanda, which risks undoing hard-won gains.
“With the acceleration of vaccinations and the resumption of economic activities, a strong economic rebound is underway, although the risks remain on the downside given the still low vaccination rate and the prospect of repeated waves of Covd-19. “, he said in a statement.
Rwanda’s successful vaccination campaign has enabled it to reopen key sectors of the economy, including service sectors. Conference tourism and hospitality, which employ a majority of Rwandans, have been hit hard during the pandemic.
The recovery is also supported by regional trade, particularly with the Democratic Republic of Congo.
Analysts, however, are cautiously optimistic. They expect the economy to experience a strong recovery in 2022, but say the new Covid restrictions implemented in the latter part of the year pose a risk.
“I suspect that a key driver of growth in 2022 will be a revival of the tourism and MICE sectors. Rwanda stands out in the region for the high share of the population that has been vaccinated, particularly in the capital Kigali, and it is reasonable to think that this will give Rwanda a head start in terms of being able to welcome visitors again from both the region and the world,” said Andrew Mold, head of the integration group regional and AfCFTA, United Nations Economic Commission for Africa.
For business executives, the past year has been difficult as revenues have fallen due to the adverse effects of the prolonged pandemic.
As the government ramps up the rollout of vaccines, business leaders say the worst of the virus may be over. They expect the government to keep the economy open despite the emergence of new variants.
“We have the cash, so we will expand our loan portfolio this year and look into financing sectors such as mining, agriculture and traditional exports, which are doing well during this time,” Hannington said. Namara, CEO of Equity Bank Rwanda.
But despite the positive outlook, there are headwinds. According to the IMF, new waves of infections and new variants of the virus are creating uncertainty and continue to undermine confidence and could lead to increased fiscal and external financing needs.
The recent sharp increase in public debt – estimated at 70% of GDP in 2021 from 55% in 2019 – limits the government’s financing options.
The IMF says additional fiscal spending is expected in FY21/22 for urgent social needs and to support the recovery.
Rwanda received $219 million under special drawing rights from the IMF, which should ease liquidity pressures and help stabilize national reserves.
However, Fitch Ratings analysts say the continued impact of the pandemic will set back any improvement in Rwanda’s public finances.
“We expect the general government deficit to narrow to 8.6% of GDP for the year ending June 2022 (FYE22), below the 9.2% estimated for FYE21 but well above the median ‘B’ forecast. current 5.3%.