Authors : Bernis Byamukama, Yemesrach Workie
Real gross domestic product (GDP) growth is estimated to have slowed down to 6.0% in 2016 due to weak external demand and tight monetary policy from 6.9% in 2015 but it is projected to bounce back to 6.2% in 2017 as conditions improve.
Headline inflation increased to an annual average of 7.2% in 2016 from 2.5% in 2015 due to a combination of poor harvests and some limited pass-through effects from foreign exchange rate depreciation. This was the highest level in 20 years and beyond the target ceiling of 5.0% set by the National Bank of Rwanda (NBR). Improved food supply in the new agricultural season and a tight monetary policy are expected to reverse the rise in prices and bring down headline inflation to an average of 5.5% in 2017.
The current account deficit is expected to have widened to 13.2% in 2016 from 13.1% of GDP in 2015. This is largely due to the current drought, which has made food imports necessary and the purchase of two aircrafts by RwandAir. The deficit is expected to increase in the medium term, despite an increase in export diversification.
The fiscal deficit is estimated to have decreased to 3.2% of GDP in 2016 from 5.3% of GDP in 2015 before increasing to 5% in the fiscal year 2017/18. This is due to fiscal containment measures aimed at minimising the impact of external shocks from a decline in aid and export receipts.
With a stable macroeconomic environment and an increasingly attractive investment climate, Rwanda is creating a favourable environment for business start-ups, entrepreneurs and other private sector actors. It has embedded entrepreneurship development into its policy frameworks, such as its employment policy in 2007, small and medium-sized enterprises (SMEs) policy in 2010 and Private Sector Development Strategy (PSDS) in 2013. However, structural challenges continue to constrain the potential of SMEs. These challenges include access to affordable credit, business management, closing the skills gap and integrating the promotion of SMEs with broader efforts, such as urbanisation, infrastructural development and regional integration.
Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017
AfricanEconomicOutlook.org offers comprehensive and comparable data and analysis of 54 African economies.