COVID19: IMF Rushes to Rwanda’s Rescue as Economy Grinds to a Halt; Urges International Grants

The Executive Board of the International Monetary Fund (IMF) has approved the disbursement of SDR80.1 million (about US$109.4 million) to be drawn by Rwanda under the Rapid Credit Facility (RCF).

This will serve to meet Rwanda’s urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic which has so far affected 84 people.

IMF said the economic impact of the COVID-19 pandemic is “rapidly unfolding, with the near-term outlook deteriorating quickly.”

The Rwandan government on Wednesday extended its lockdown for 14 more days to “further contain the outbreak.”

Unnecessary movements and visits outside the home are not permitted except for essential services such as healthcare, food, shopping or banking.

Timothy Manzi, a resident of Kigali, told ChimpReports this Thursday that the extension of the lockdown “means more pain. Essential supplies and our meager resources are running out. We are hungry and hopeless about our situation.”

IMF said in a statement that the rapidly deteriorating situation “has given a rise to significant fiscal and external financing needs” but also acknowledged that the authorities have acted fast by putting in place measures to help contain and mitigate the spread of the disease.

“The RCF funds will support the authorities’ efforts by backstopping the decline in international reserves and providing financing to the budget for increased spending aimed at containing the epidemic and mitigating its economic impact,” said IMF, adding, “This additional IMF financing also ought to help catalyze further assistance from the international community, preferably in the form of grants.”

Rwanda, which closed its border with Uganda in February 2019 hence denying its citizens cheaper essential commodities, is the first country in East Africa to have its economy grounded to a halt by the spread of the virus.

Officials told this investigative website on Friday morning that Rwanda has in the last one year spent heavily on military operations to counter a rebel threat in DRC and also prepare for a possible armed conflict with Uganda.

This saw critical sectors of the economy denied ample resources to withstand the impact of the COVID19.

Rwanda’s first Coronavirus was first confirmed in March and cases quickly swelled, leading a lockdown.

Tourism, which was grounded by COVID19, is the largest source of foreign exchange earnings in Rwanda.

The tourism sector which generated $438m in 2017, has also attracted Foreign Direct Invest- ments with major international hotel brands setting shop in the country, including the Marriot, Raddison blue, Park Inn by Raddison, sheraton, Protea, Golden Tulip and Zinc.

Support

The IMF said it would continue to monitor Rwanda’s situation closely and stands ready to provide policy advice and further support as needed.

Following the Executive Board’s discussion of Rwanda, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, said, “The COVID-19 Pandemic has ground Rwanda’s economy to a halt, creating an urgent balance of payments need. To contain and mitigate the spread of the virus, the government swiftly implemented measures that have affected all sectors of the economy. With uncertainties surrounding the duration and spread of the pandemic, the economic fallout could intensify further.”

“The IMF emergency support under the Rapid Credit Facility will help with COVID19-related pressures on trade, tourism and foreign exchange reserves, and will provide much-needed resources for health expenditure and for households and firms affected by the crisis. It should also help to catalyze donor support.”

IMF advised that a temporary widening of the budget deficit is appropriate to mitigate the health and economic impact of the pandemic. “Spending should be well-targeted and cost-effective to not crowd-out other priority areas. Once the crisis abates, the fiscal adjustment path should be adjusted to preserve debt sustainability in the medium-term,” IMF cautioned Rwandan authorities.

“Contingency plans should be prepared given the uncertain outlook. Monetary policy needs to be data-driven and the central bank should stand ready to provide additional liquidity support if warranted. A flexible exchange rate should be maintained as a shock absorber.”

The National Bank of Rwanda has taken various measures to help maintain the health of the financial sector and has been told to continue to show flexibility, while encouraging prudent loan restructuring and stepping up reporting requirements.

“Additional donor support is critical to close the remaining financing gap, ease the adjustment burden, and preserve Rwanda’s development gains over the last two decades,” said IMF.

Kagame last week said a statement to the nation that, “Our resilience and solidarity is needed now more than ever, to prevail in this struggle against coronavirus. We have to win this fight. What we do today, will determine how quickly we can defeat this pandemic, so we can continue with our normal lives.”