This edition’s forecast of Rwanda’seconomic growth for 2019 is revised upward from the 7.8percent projected in the REU14 to 8.5 percent. The strongergrowth is driven mostly by the unexpected magnitude of thefiscal expansion. Medium-term growth also looks strong withannualgrowth projected to be about 8 percent. Although thecurrent public investment push will continuein themedium-term, this issue’s high growth scenario assumes thatthe role of the private sector in investment will grow;public investments alone may not sustain growth at 8 percentover themedium-term. The medium-term outlook assumes thatdebt will accumulate faster than was projected in REU14. Theprimary explanation is the large fiscal expansion of 2019.Fiscal deficit for 2020 will continue to be well above thehistorical average. Despite the increasing indebtedness,reliance on concessional financing will help keep Rwanda’sdebt sustainable. In the medium term, the CAD will againstay high, hitting 10 percent of GDP. Monetary policy willremain accommodative, although with the return of inflationto the “normal” range and continuing pressures on theexchange rate and reserves, the policy space has narrowed.The risks to Rwanda’s economic outlook, both domestic andexternal, have risen. The main risk is the growing relianceon public-sectored investments. Fiscal expansion to achievethe government’s targets for expanding access toinfrastructure raises the debt, widens external imbalances,and may crowd out access of the private sector to finance,thus undermining long-term growth. If the reliance on thepublic sector persists, Rwanda may have difficulties infinancing its growth model. Rwanda’s commitmenttoconcessional borrowing and monetary stability reduces therisks to macroeconomic stability, but overall fiscal riskshas gone up because of the reliance on the public sector forachieving NST1growth targets. Despite continuing efforts,the ineffectiveness of the private sector remains a majorrisk to Rwanda’s growth outlook--growth projections for themedium to long term depend on the ability of the privatesector to take the lead. As the fiscal expansion for NST1subsides in the medium term, it will become increasinglydifficult to keep the growth rate at 8 percent withoutincreased private sector investment. Now, to achievesustainable and productivity-led growth, attention must turnto improving allocation of economic resources through bettermarket functioning.
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