Is Rwanda’s economy resilient?

Jun 24th, 2016 at 11:50 | By | Category: Economy, News analysis, Top news

Rwanda’s recorded high trade deficits since 2014 have made headline news. However, in depth analysis shows that Rwanda’s economic challenges are far beyond its most recent trade deficits.

The trade balance of Rwanda has indeed widened to 16% of GDP in 2014 and then to 17 % of GDP in 2015 due to a sharp drop in mining exports caused by a global decline in mineral prices. The National Bank of Rwanda recently announced that the country‘s trade deficit widened by 12.7% in the first two months of 2016. However, the revision of Standard and Poor’s (S&P) outlook on long term ratings on Rwanda, from stable to negative in March 2016, brought in new dynamics that prove serious economic distress for the country. Considering all facts, this article demonstrates that the most recent trade deficits, though a concern, are not the principal issue. Built up deficits on Rwanda’s external account[1] over the past twenty years are the persistent obstacle to Rwanda’s progress. Furthermore, the transformation of official transfer by international partners from aid to loan that kicked off in 2014, exacerbates the economic challenges of the country more than the recently recorded trade deficits. As such, the resilience of Rwanda’s worldwide acclaimed economy is surely being tested to the maximum.

Built-up deficits and repercussions

Capture d’écran 2016-06-24 à 11.17.11Rwanda’s current account, which is an indicator of macroeconomic stability, has been in deficit for the past 20 years. Its current account balance has moved from 4.6% of GDP in 1995 and gradually decreased to -13.8% of GDP in 2015 (see graph on the left[2]). Such chronic and gradual increasing negative balance account implies that Rwanda has been living outside its means. While some economists can argue that persisting current account deficits are not harmful to a country’s economy, this is only when an economy is able to attract sufficient external flows of capital such as Foreign Direct Investment (FDI) or remittances to finance the shortfall. The impact of FDI on financing Rwanda’s current account deficits is rather limited, because the net exports of FDI companies are negative (REU June 2015, pg 63). In addition, remittance inflows to Rwanda also remain small. Between 2009 and 2013, they have been on average 2.2 % of GDP. That is below the average of Sub-Saharan Africa countries’ and significantly lower than that of the lower middle income countries’ (REU June 2015, pg 37 ). Of greater concern are persistent negative trade balances that have also built up on Rwanda’s current account over the past 20 years. The lead up to this situation has not passed incognito to Rwandan policy makers. A study titled: Current Account Deficits in Sub Saharan Africa: Do they Matter? published by the United Nations Economic Commission for Africa (UNECA) in 2007 had ranked Rwanda third among surveyed African countries with unsustainable current account deficits that are unbeneficial to their economies over a longer horizon. Such ranking could have been enough to draw the attention of Rwanda’s policy makers on the situation and cause them to act. Instead, the current account balance kept on building up to reaching -13% of GDP in 2015.

Capture d’écran 2016-06-24 à 11.17.39In addition, Rwanda’s trade balance account (difference between imports and exports), a main component of the current account, has consistently been in deficit for the past 20 years (see graph on the right[3]). The World Bank data show that Rwanda’s imports have been on average 26.35% of GDP each year, almost three times higher than the exports’ level for the same period over the past 20 years. In February this year, officials at the Rwandan Ministry of Trade and Industry (MINICOM) had admittedly explained that the current country’s trade deficit situation has reached its extreme level, stating that one earned dollar for exports is equivalent to three spent on imports. Against that background, it was not until 2014 that Rwanda launched a campaign targeting to change the mind-set of Rwandans towards consuming locally made products. Whilst the campaign is a belated ideal initiative, improving purchasing power across Rwanda is also a prerequisite in order to boost consumption of local product. This is because products made in Rwanda, a landlocked country, tend to be more expensive than those made in coastal countries. Additionally, the middle class level remains low in Rwanda.

Repercussions of Rwanda’s consumers’ preferences for imported over locally made products are that local businesses have not been able to prosper. As such, consumer spending on imports has, over time, contributed toward deterring the development of the private sector in Rwanda. The country’s Gross fixed capital formation by private investment was 8.1% of GDP in 2013. This was below the average of the total sample for low and middle income countries and in particular lower than Burundi, Tanzania and Uganda’s for the same period (REU June 2015, pg 2-3). Since dependency on large imports has prevented businesses to develop, the creation of employment within formal economy has been low in Rwanda over time. Only 7% of the estimated 5.9 million working population in Rwanda are employed in the formal economy, out of which only 3% are employed in the private sector (REU Feb. 2016, pg 36-37). Money has also been flowing out of Rwanda because the country’s economic activities relies on imports. This, and the low household income base, have limited the growth of domestic savings in the country over time. Rwanda’s domestic saving rate in 2010’s was 10 % points lower than the region’s best performers: Ethiopia, Tanzania and Uganda (REU June 2015, pg30). Lack of ample domestic savings limits the availability of investments which could have promoted a vibrant private sector development that can, in return, create employments inside the country.

Rwanda’s exports as share of GDP has been increasing over the past 20 years but the country’s exports level is still low compared to regional countries and similar economies. Its exports level was below 15% of nominal GDP and considered low in comparison to Kenya, Tanzania, Uganda, other low income countries and Sub Saharan developing countries’ between 2009 – 2014 (REU, June 2015, pg3). Before 1995, Rwanda was recognised to have a narrow export base, and this was an opportunity for the new regime to develop a tradable sector (export crop, manufacturing and mining) and boost the country’s export base. However, today, the tradable sector remains almost unchanged since the late 1990’s, ranging between 7 and 10 percent of GDP (REU, June 2015, pg4).

Some principal reasons deterring the export development in Rwanda can be tabled. First, delays in the completion of numerous ideal projects for electricity generation to enable the tradable sector to flourish in Rwanda have been, and still are, dire. For instance, the completion of the Nyabarongo hydroelectric plant construction was delayed for 4 years. The recently inaugurated first phase of the KivuWatt Methane Gas Project was reported to have been delayed for 3 years in 2015. Yet another project is the construction of the Kigali Convention Centre (KCC), which once completed would increase Rwanda’s tourism sector’s revenues, has also passed its completion date that was set in 2012. The list of stalled projects in Rwanda is long and raises concerns. According to the Office of the Auditor General (OAG) in Rwanda, 78 projects worth FRw 126 billion (US$ 184 Million) were delayed or abandoned by contractors in 2014 (OAG 2014, pg 50). Out of these projects, only 16 involving FRw 3,5 billion (US$ 4,9 Million) were completed and the final handover was done in 2015 (OAG 2015, pg 42 ).

Second, the conflicts in the Great Lakes region which Rwanda is alleged to have engineered, have also had a share in deterring Rwanda’s exports over the past decades until today. The eastern Democratic Republic of Congo (DRC) conflict that started in the late 1990’s has never enabled Rwanda to fully maximise its exports potential in DRC over time. Since the crisis in Burundi, Rwanda’s exports to Burundi have also decreased to between 10 – 20 %.

Third, events such as exceptional weather and crop pests and diseases have exceedingly been affecting Rwanda’s agricultural production and consequently the country’s exports. These events generated agricultural production losses worth US$1.2 billion between 1995 and 2012 (REU Feb. 2015, pg37). Fourth, the low production of the mining sector hasn’t enabled Rwanda to maximise the export revenue from its minerals. For example, Rwanda’s mining revenue was US$225 million in 2013, more than half way its 2017 target of US$ 400 million. However, the achieved high revenue in 2013 was due to favourable mineral prices rather than an increase in mining production (REU August 2014, pg 24). Furthermore, the loss of Rwanda’s revenue from its mining sector in 2015 was largely due to lower production than the ongoing global decline in commodity price (IMF, 2016, pg 5).

Capture d’écran 2016-06-24 à 11.18.27Rwanda’s low level of export has led to the Rwandan currency depreciating against the US dollar over the past 20 years (see graph on the left[4]). However, the currency depreciated less in comparison to other EAC currencies. For that reason, the Rwandan Franc has remained competitive in the region. This was not essentially due to the increase of Rwanda’s exports as share of GDP, but mainly to abundant and regular official transfer from donors that Rwanda has been receiving over the past 20 years. Had official transfer receipts been invested towards developing a tradable sector that is operational today, the Rwandan currency could not have depreciated to the scale it has.

The repercussions of the continuous depreciation of the Rwandan currency are that it has exacerbated foreign investors’ contempt to invest in the country for fear of losing value on their investments. Rwanda’s FDI flow has been much lower than the global and regional averages and was estimated at 1.5% of GDP in 2013 (REU June 2015, pg 3).

The real challenge: Decline of official transfer

Capture d’écran 2016-06-24 à 11.18.54However, the trade deficit recorded in 2014 and 2015 as a result of the global decline of minerals prices is not principally the real challenge Rwanda is facing today. The losses that Rwanda made on mineral exports during the indicated years were mostly compensated by gains made from the decline in energy imports (mainly oil) (REU, Feb. 2016, pg19 & REU, Feb. 2015, pg23 -25 ). The real issue is the repercussions of the built up deficits on Rwanda’s external account over the past 20 years as explained above. Exacerbating these is the rolling transformation of official transfer to Rwanda from grant aid to loans by major development partners such as The World Bank and the African Development Bank. The latest Debt Sustainability Analysis[5] shows that the official transfer to Rwanda as share of GDP will be gradually declined in the future (see above graph[6]). Considering the role of official transfers in supporting Rwanda’s budget, sustaining the country’s current account and stabilising the exchange rate (Combes and al, 2011) as well as the reserves (IMF, 2014 pg 5), their decline will test the resilience of the worldwide acclaimed Rwandan economic success story.

Since aid decline in 2014, it has been noted that: 1) the fiscal deficit increased from -4% of GDP in 2013 to -6.2% of GDP in 2014 and then 5.30% of GDP in 2015 (REU, Feb. 2016, pg9). 2) The current account deficit expanded from -7.4% of GDP in 2013 to -11.8% of GDP in 2014. The World Bank stated that aid decline contributed the most to the current account’s deterioration compared to the trade balance (REU, June 2015, pg9). 3) The Rwandan franc also depreciated by 3% in 2014 and then by 7% in 2015 – the fastest depreciation in recent years (REU, Feb. 2016, pg25). 4) Rwanda’s gross reserve decreased from US$1,070 million in 2013 to US$ 951 million in 2014 and reached US$922 million in 2015 (REU, Feb. 2016, pg65). Continuous decrease of the reserves prompted Rwanda to seek for financial intervention from the IMF to finance its international obligations such as import, indicating that the country’s economy is struggling. The IMF approved US$204 Million Standby Credit Facility for Rwanda early this month. However, the question is whether the loan provided by IMF will solve the economic challenges Rwanda is presently facing. In the meantime, due to the transformation of official transfer to Rwanda from grants to loans, Standard & Poor, a credit rating agency, revised its outlook on the long term ratings on Rwanda from stable to negative in March 2016. This was because of the credit rating agency’s view that pressures on Rwanda’s external and fiscal accounts could increase further over the next 12 months. In case further aid cuts are initiated due to disturbances in Rwanda’s internal political matters or its alleged involvement in Burundi’s political crisis, the country’s economic situation will deteriorate further.


As explained above, the main problem of Rwanda’s economy has been the built up deficits on the country’s external account over the past 20 years. This is exacerbated by the recent transformation of official transfer to Rwanda from aid grant to loan by international partners. The most recent trade deficits, though a concern, should not divert stakeholders’ attention from the real challenges of Rwanda. Aid reduction to Rwanda comes at a time when the country’s economy is not dependent on export and the private sector, and therefore not resilient. Even the country’s social sector, which has seemingly transformed, masks huge inequalities. Rwanda’s most recent human development index has moved from 0.232 in 1995 to 0.483 in 2014. However, when it is discounted for inequality, Rwanda loses 31.6 % of its HDI that then falls to 0.330, almost close to the level it was 15 years ago. Rwanda also remains at the bottom of the Happiness index, ranking 152th out of 157 countries (WHR, 2016). Climate change is another challenge to Rwanda’s economy that also requires huge capital for adaptation and mitigation. It is evident that a lot more needs to be done to make the Rwandan economy resilient in spite of the ongoing economic progress stories portrayed in the Rwandan and international media.

The way forward 

As aid reduces, Rwanda will inevitably compensate for its fiscal shortfall by enforcing higher taxes to consumers and through borrowings. However a study titled: “Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda gauged the consequences of different financing mechanisms and investment efficiency levels on the Rwandan economy and concluded that financing the fiscal shortfall by a combination of higher taxes, external commercial or/and concessional borrowing would build up unsustainable debt to the country that will range between 70 and 90 percent of GDP after only ten years. Such high debt-to-GDP ratio should raise concerns among stakeholders. It is therefore important that stakeholders break the silence and inquiry the policy makers at the helm of Rwanda’s economic affairs on how they intend to manage the finance emanating from borrowings. Transparency on how these finances will be used to develop infrastructure projects that will enable Rwanda’s economy to be resilient and bring about economic transformation to Rwandans, while at the same time guaranteeing repayments, must be provided in details to stakeholders. The reasons for this public inquiry are that major infrastructure projects that could have reduced the reliance of Rwanda on imports have been delayed over the past 20 years when Rwanda was still in receipt of abundant aid money.

Initiatives to enhance the quality of export products and support export businesses such as recently implemented by Rwanda are ideal. However, for a poor country such as Rwanda that has limited financial resources, it is important to figure out ways to improve the public sector’s productivity at a reduced cost so that efficiency in public investments is achieved. One option Rwanda should explore is to implement a Pay for Performance Scheme in all public sector ministries and departments. This scheme is based on two basic concepts: the first being that financial rewards are a key motivator in employee performance and, the second one, that financial rewards linked to work output will increase employee productivity because employees will behave in ways that maximize their earnings. Though the scheme has considerable critics, a number of countries have already implemented it, the most remarkable pay for performance model – that Rwanda should learn from– being the Hungary scheme. This scheme is designed in a way that it pays for results but also penalizes for lack of results. Rwanda should apply similar pay scheme particularly to those civil servants working on key infrastructure projects to advance the country’s economic interests. The Rwandan public sector needs focused, disciplined and social development passionate leaders to steer the delivery of public investments in timely and efficient manners. These should be leaders who are willing to take cost-effective salaries that are measured not purely by attaining or improving social and economic indicators, but on achieved systemic change and tangible results.

Written by Aime Muligo Sindayigaya

To read more articles written by the author visit

[1] External account is referred to as balance of payment (BoP) and summarises a country’s economic transactions between its residents and the rest of the world for a specific time period. It consists of three main accounts namely current account, capital account and financial account.
[2] Source: IMF World economic outlook Database. Data accessed April 2016
[3] Source: World Bank world Development indicators. Data accessed in June 2016
[4] Source: World Bank world Development indicators. Data accessed in June 2016
[6] Source: Joint World Bank/IMF Debt sustainability Analysis 2008, 2010, 2011, 2014




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5 Comments to “Is Rwanda’s economy resilient?”

  1. Gregoire says:

    There is no more Congo minerals passing through Kigali. If there is its very little to compensate the loss and suspend donor funds

    Now we will know who is who in the zoo.

    Good Luck Rwanda


  2. Eric says:

    Rd has been going through tough time since 1995! Had the country leadership told the truth about its economy problems rather than manipulating statistics to prove Rd is developing…all that to sell the image of one person i.e. PK to the detriment of a population of 12 million… Rd could have developed anyway. Rwandans are hard working ppl. They could have still made it without rushing into forging economic numbers. It is clear from above well researched article that Rd economy is not as strong as it is often said to be by local and international politicians and ecinomist. It is important that people around the world be alerted of the false information they are being fed by media and PR companies. Rd is an example of what the world thought to be raising as a developement model country..but now…we have all been fooled!!!!!!


  3. Gregoire says:

    Now we are seeing some military movements in Eastern DRC. I guess PK is in need of cash.


  4. Andysoly says:

    Thanks for sharing this post !! Very informative about Lead generation economic development.I’m looking forward to seeing more of your posts.


  5. Andysoly says:

    Thanks for sharing this post !! Very informative about Lead generation economic development.I’m looking forward to seeing more of your posts.


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