Emerging uncertainties in the global economy are gradually taking a toll on Rwanda, East Africa’s freest economy. Its latest growth outlook has been pegged at 6.5 percent for 2015 and 2016, down from 7 percent last year.
This is a result of its heavy dependence on aid, which fluctuates in times of uncertainties, and tax receipts, which stood at 9.8 billion francs ($14.2 million) in 2014. This is short of the 416.1 ($604 million) billion forecast.
“The donor aid … is unpredictable and it’s very small. It’s shrinking every day,” said Claver Gatete, Rwanda’s Finance Minister. He is keen for his country to reduce its dependence on unpredictable donor aid, which account for about 20 percent of Rwanda’s budget. Foreign loans also constitute 13 percent, meaning 33 percent of the country’s annual expenditure is funded externally.
Perhaps no better demonstration of the volatility of these grants exist than in the freezing of donor payments to the country in 2012 over allegations that its Federal Government aided and abetted rebels in nearby Congo. Although, Rwanda denied the accusations, its economic growth slumped to 4.7 percent after the resulting aid cuts.
Rwanda is arguably the most densely populated country in Africa with a huge chunk of the population engaged in subsistence agriculture. It has few natural resources and its industries are far from competitive. The country’s long-term development goals are entrenched in its Vision 2020 strategy which seeks to effect a transformation from a low-income agriculture-based economy to a knowledge-based, service-oriented economy with a middle-income country status by 2020.
The IMF says Rwanda’s economy is likely to remain stable and benefit from low oil prices.
By Emmanuel Iruobe