By Clement Uwiringiyimana
KIGALI – Rwanda has said it expects its official foreign exchange reserves, hit by falls in the prices of its mineral exports, to fall to 2.5 months of import cover at the end of 2017 from an estimated 3.2 months at the end of this year.
Commodity producers across Africa have been hurt by a slide in prices. After tourism, mining exports – mostly of the metallic ore coltan – are Rwanda’s biggest foreign exchange earner.
This month, Rwanda secured an 18-month $204 million standby facility from the International Monetary Fund to bolster reserves. The IMF said reserves stood at $817 million at the end of March, or 3.4 months’ import cover at that time.
Rwanda has a policy of keeping its foreign exchange reserves at above three months of import cover. By comparison, nearby Kenya usually has four months’ import cover, and now has reserves giving five months’ cover.
Despite the commodity price shock, Rwanda’s economy grew at 6.9 percent in 2015 and is forecast to expand by 6 percent in both 2016 and 2017. But the exchange rate has come under pressure and the current account deficit has widened.
“A sharp drop in mineral prices and in global demand for those products has resulted in an unexpected significant loss of export receipts,” Finance Minister Claver Gatete and Central Bank Governor John Rwangombwa said.
“This has posed a serious issue for international reserves of the banking system,” they said in a letter to the IMF dated May 25 and released by the IMF on Thursday.
Reserves would slide to 3.2 months’ import cover by the end of 2016 and 2.5 months at end-2017, before rising to 2.9 months by the end of 2018, they said.
The IMF said policy adjustments would help Rwanda stabilise its current account. The current account deficit was projected by Rwanda and the IMF to widen in 2016 to 16.5 percent of gross domestic product before narrowing to 12 percent in 2017 and 10 percent in 2018.
Rwanda has been seeking to promote exports and encourage import substitution, although the IMF said these measures would take time to have an impact.
The IMF said downside risks to growth remained, such as a deeper slide in commodity prices, a rise in the oil price and pressures from a growing crisis in neighbouring Burundi, which has already resulted in many refugees fleeing to Rwanda.
“Finally, there is a more fundamental risk that the authorities’ new plans to promote more export diversification and value added and import substitution will be less successful than expected in moderating external trends,” the IMF said.(Reuters)
