With its finger on the pulse of the economy, the Monetary Policy Committee of the Central Bank of Rwanda, or MPC, has issued a Monetary Policy and Financial Stability Statement (MPFSS), for the first and second half of the year. year is good news, bad news.
On the one hand, it is stable as it goes, for the Rwandan economy as it continues to recover from the effects of the Sars-Cov-2 pandemic. Growth should remain strong and exports are on the rise.
On the other hand, in this interconnected world, events over which Rwanda has no control, continue to weigh on global economic performance, casting a shadow over the country’s economy.
The International Monetary Fund (IMF) World Economic Outlook (WEO) released earlier this year in July projected global economic growth of 3.2%, down from 6.1% in 2021. lingering effects of the Sars-Cov-2 pandemic. , exacerbated by Russia’s invasion of Ukraine.
In line with lower growth in the United States, the Eurozone (member states of the European Union), the United Kingdom and Japan, growth in advanced economies is expected to reach 2.5%, down from 5, 2% in 2021.
The situation is similar in emerging markets and in those of the poorest countries, where growth is expected to slow to 3.6% this year, from 6.8% last year. Growth is also projected lower for next year, largely due to a slowdown in key emerging markets China and India.
In sub-Saharan Africa, growth remains unchanged from last April’s projection of 3.8%, compared to 4.6% last year.
Global average inflation is expected to rise to 8.3% from 4.7% last year, mainly due to higher food and energy prices.
In advanced economies, inflation is expected to rise to 6.6% from 3.1% in 2021, again driven by higher inflation in advanced economies in the United States of America (US ) United Kingdom of Great Britain and Northern Ireland (UK), Japan and the Eurozone.
As almost anyone will have noticed, global commodity prices have been rising in the first half of this year, year on year. This reflects a rebound in global demand as supply failed to keep pace with demand.
Energy prices rose 83.1% from 61.6% last year, mainly due to higher crude oil and natural gas costs. Crude oil prices, which rose 63.6% on average, from 59.2% last year, are expected to rise 50.4% for the rest of the year, before falling 12.2% l next year.
Natural gas prices jumped 194.3% this year, from 101.0%, due to Russia’s invasion of Ukraine, which among other things disrupted Russian gas exports.
The Rwandan economy continued its steady recovery from the effects of Sars-Cov-2, registering an average growth of 7.7%, compared to 11.6% during the same period last year. The main drivers of this performance were industry and the service sectors. Growth is expected to remain strong at 6%, although it has slowed from 10.9% last year.
The agricultural sector underperformed, mainly due to unfavorable weather conditions, in addition to higher fertilizer prices, again due to problems in global supply chains, disrupted by the war in Ukraine.
Export earnings rose 37.2% to $708.3 million from $516.2 million last year. This is explained by the rise in commodity prices, but, which is encouraging, also by the added value in the mining sector and the better performance of the manufacturing industry.
But what the market gives with one hand, it can also take away with the other. Rising commodity prices may mean higher export earnings, but the same rise, especially in oil prices, means higher import costs. Merchandise imports rose 22.5% to $1,817.7 million from $1,483.8 million.
And the theme of good news, not so good news continues here too. On the one hand, the post-Covid-19 recovery led to higher import demand, but coupled with higher import costs, this demand translated into an increase in Rwanda’s trade deficit by 13.7 %, to $1,112.9 million, from $978.7 million. But the impact of the widening trade deficit was also offset by the increase in the coverage of imports by exports which, including the cross-border informal sector, rose to 47.0% from 40.3%.
Headline inflation, which is very high, increased to 9.0% on average, compared to averages of 1.4 and 0.3% in 2021, measured during the first and second halves of the year. To contain these inflationary pressures, the central bank’s Monetary Policy Committee (MPC) raised interest rates a further 100 basis points, from 5.0 to 6.0%.
The Rwandan franc has done better this year than last, depreciating against the dollar by 3.8% compared to 5.3% last year. The improvement was attributed to increased export earnings, tourism receipts, reopening of informal cross-border trade, as well as remittances from Rwandans abroad.
Despite the difficult global economic conditions, the financial sector not only remained stable, but managed to register growth. Total assets increased by 17.5% to reach FRW 8,145 billion in June 2022 from FRW 6,933 billion in June last year. The sector remains sufficiently capitalized, with capitalization in the banking sector, still the best performer in the sector, above the regulatory requirement.
Whether in insurance, pensions or banking, the sector does not cause any concern and performance should remain solid. Perhaps the only fly in the ointment are non-performing loans, some of which need to be written off.
Overall, the Rwandan economy continues its healthy recovery from the effects of Sars-Cov-2, but the pace of recovery is expected to be limited by the remaining effects of the pandemic not only on the Rwandan economy but on the global economy in general, all exacerbated by the effects of Russia’s invasion of Ukraine on the global economy. Domestically, agricultural performance should improve, which could have a welcome effect on the inflation rate.