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On Thursday morning, February 9, 2012 at Serena Kigali Hotel the Governor of National Bank of Rwanda (BNR) Ambassador Claver Gatete said that Rwanda has maintained inflation at single digit, recorded at 8.3 per cent on annual basis and 5.6 percent on annual average.

The revelation made by the Governor while presenting the 2011 Rwanda Monetary Policy and Financial Stability Statement raised participant’s curiosity wondering what magic exactly Rwanda applies to avoid what her neighbours are going through.
Figures from the Central bank indicate that as of December, Inflation in Uganda was at 27 percent, Kenya at 18.9 percent, Tanzania at 19.8, Burundi was at 14.9 percent while Rwanda at 8.3 per cent .

Presenting to a fully-packed audience of participants including top government officials, diplomats, business leaders, academia, and representatives of development partner institutions, Amb. Gatete explained that prudent Government decisions saved the day.

As of December 2011, headline inflation was recorded at 8.3 % and increasing but contained at moderate levels despite unfavorable global and regional environment. The Governor said, this good result is explained by a combination of factors including the ongoing agriculture sector reforms leading to sustained good harvests, an efficient monetary and exchange rate policy by BNR, as well as good coordination of Government policies undertaken to mitigate the exogenous supply chocks.

Globally, inflation among developed countries stood at 2.6% in 2011 and 7.5% for emerging and developing economies which is higher compared to the previous year—mainly driven by oil prices.
Rwanda’s real Gross Domestic Product (GDP) grew by 8.8 per cent—reflective of how impressive performance of most sectors of the economy faired; Industry sector production significantly increased (15 percent), followed by Agriculture (8.2 per cent) and services (7.2 per cent); this is against 8.4% in industry sector, 4.9% in agriculture, 9.6% in services sector in 2010.

Rwanda’s economy is projected to grow at 7.6 percent in 2012 and if all goes according to projections, inflation would be contained at a single digit not exceeding 7.5 percent.
Makonnen Negatu, AfDB’s country representative, wanted to know Rwanda’s magic to contain inflation. Gatete responded that the strategy was the close coordination between the government and Central bank.

Rwanda ended 2011 with a positive Balance of Payments (BOP) standing at USD 120.13 million from 72.01 million recorded in 2010. However, a huge trade deficit of USD 1,194.3 million occurred; mainly brought about by higher imports. The Governor noted that the deficit was offset by the increase of official and private capital inflows—total foreign direct investments more than doubled; from USD 63.71 million in 2010 to USD 137.50 million in 2011.  Besides capital inflows, more foreign exchange came from tourism as total revenues collected from the sector increased from USD200million to USD252million in 2011—an increase of 26 per cent. Increase in the number of tourist is attributed to the peace and security in the country.

Additionally, private transfers of foreign exchange continue to play a major role in Rwanda’s economy. Total current transfers increased by 20.8 per cent, from USD657million in 2010 to USD790million. Notably, transfers by Rwandans in the Diaspora grew by 69 per cent. The drop in humanitarian aid transfers is indicative of the fact that Rwanda is safe and peaceful, with even minimum natural calamities.

Music to Bankers’ Ears
The Monetary Policy report indicates that banks continued to trust their clients by giving them more loans.  The outstanding Credit to the Private Sector, according to the Governor’s presentation, increased by 28.4% against 11.2% realized in 2010. Whereas total credit to borrowers in 2010 stood at over Rwf397.1 billion, it increased to 509.8 billion in 2011.

New authorized loans by the banking sector increased also from Rwf 262 billion in 2010 to Rwf 336 billion in 2011. Capital adequacy ratio of banks increased to 27.2% from 24.4% in 2010 compared to regulatory required capital of 15%. He explained that a number of reasons are attributed to this, namely; market interest rates developments in line with banking liquidity conditions, competition in the financial sector, aggressiveness in managing loans by banks, and improving trust of clients by banks due to decreasing levels of nonperforming loans.

Non-Performing Loans (NPL) decreased to 8.0% in 2011 (Rwf 50.5 billion) from 10.8% in 2010. Amb Gatete is optimistic that the level of NPL will reduce even further this year to at least 7%, if surveillance is strengthened through off-site and on-site inspections. The Minister of Justice Hon. Tharcisse Karugarama noted that: “the stability of the monetary policy and financial sector of a country is an assurance of the political and social stability”.

Commenting on Umurenge Sacco, a government programme intended to encourage Rwandans, especially those at grassroots to pool savings and invest to fight poverty, Minister Karugarama said that efforts need to be invested in strengthening UMURENGE SACCO management so that it can yield expected results for community development.  Ambassador Gatete said that the deadline for refunding 50% of the claims by clients of closed MFIs in 2009 has been extended until April this year, and there will be no more extension.

The government has put aside over Rwf1.5billion for this purpose, and BNR has put in place recovery committees at district level to recover all debts so that those clients’ balance would be settled. The Vice Governor of BNR Monique Nsanzabaganwa said the issue of refunding monies of closed MFIs’ clients would be closed by this year and strict regulatory measures are now in place to avoid such happening again.

A Stable Rwanda Franc
The Rwanda franc remained stable—although it depreciated against the US Dollar and British Pound Sterling by comparatively smaller margins (1.6% and1.5% respectively) compared to elsewhere, it appreciated by 0.4 percent with the Euro. It also appreciated against all regional currencies. As the Governor noted, this could be a major pull factor for FDIs—a stable exchange rate policy. It is also important to note that the impressive performance of Rwanda’s external sector and significant drawings from her reserves fetched in a lot of dollars that helped maintain a stable Rwanda Franc.

Capital Market Developments
The Rwanda Stock Exchange (RSE) was vibrant both in terms of operations and listings. In September 2011, BK listed its shares of the stock exchange which has recorded impressive turnover, according to Governor. In the same month the law regulating Collective Investment Schemes in Rwanda was published. Participants called on parliament to expedite the trust law which will guide regulations of Small and Medium Enterprises (SMEs) to raise long term capital. The law will also provide guidelines to support the issuance of Municipal Bonds, Commercial Papers and Infrastructure Bonds.

Economic Sector Productivity
According to the monetary statement, agriculture sustained great performance in the last three years with 10.4 percent increase of harvest in season A and B of 2011, compared to the previous year. In 2011, the industry sector grew the highest, 15 percent, led by construction 22.3 percent mining 15 percent and manufacturing, 6.8 percent.

The service sector followed with 7.2 percent boosted by business environment which significantly improved, especially finance and insurance sectors, which registered an increase of 10.3 percent followed by transport and communication at 5.6 percent growth while wholesale and retail trade grew by 4.9 percent. On his part, the Vice president of the senate, also the former Prime Minister, Mr. Bernard Makuza urged BNR to disseminate the monetary policy and financial stability statement information to a wider audience, preferably in the local language.

He also proposed that the statement be made more regularly (quarterly) to match the fast moving Rwanda and global economic trends. Dissemination of the 2011 monetary policy and financial statement policy continues over the next months to lower levels (province and district levels) and is also being done through the media.

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