A pandemic pushes the Rwandan economy into recession

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The COVID-19 (coronavirus) pandemic pushed Rwanda’s economy into recession in 2020 for the first time since 1994, according to the latest Rwanda Economic Update from the World Bank.

The 17th edition of the Rwanda Economic Update: The role of the private sector in bridging the infrastructure gapk.org/en/publication/documents-reports / documentdetail / 992631626808031540 / the-role-of-private-sector-in-closure-infrastructure-gap>, indicates that the economy shrank by 3.7% in 2020, as measures implemented to limit the spread of the coronavirus and alleviate pressures on health systems have almost crippled economic activity in many areas. many sectors.

Although the economy is expected to recover in 2021, the report notes that growth is expected to remain below the pre-pandemic average until 2023.

The decline in economic activity has also reduced the government’s ability to collect revenue amid increased fiscal needs, thus worsening the fiscal position.

Public debt reached 71% of GDP in 2020 and is expected to peak at 84% of GDP in 2023.

In this context, the report underlines the importance of the government’s commitment to implement a fiscal consolidation plan once the crisis has subsided in order to reduce the country’s vulnerability to external shocks and liquidity pressures.

“The shrinking fiscal space requires a gradual shift in Rwanda’s development model from the public sector to a predominantly private sector-driven model, while intensifying efforts to improve the efficiency of public investment,” said Calvin Djiofack, the World Bank’s senior economist for Rwanda. .

According to the update, private sector financing, whether through public-private partnerships or pure private investments, will be essential for Rwanda to continue investing in the critical infrastructure needed to achieve its goals. development goals.

The analysis highlights the need to capitalize more on Rwanda’s regulatory framework for foreign direct investment (FDI), considered one of the best on the continent, to attract and retain more FDI; promote the mobilization of domestic private capital through risk-sharing mechanisms that would absorb a percentage of losses on loans granted to private projects; and avoid unsolicited proposals for public-private partnership (PPP) initiatives; as well as building a solid pipeline of multi-sector PPP projects, targeting sectors with clearly identified service needs such as transport, water and sanitation, waste management, irrigation and housing.

While the report’s findings clearly establish the gains from public infrastructure development for the country as a whole, it also pointed out that these gains tend to benefit urban and wealthier households the most.

“Rwanda will need to rebalance its investment strategy by prioritizing large capital-intensive strategic projects over projects essential for large-scale social returns in order to strengthen the potential of public infrastructure to reduce inequalities and poverty” said Rolande Pryce, World Bank Country Director for Rwanda. .

“Any step towards the Malabo Declaration to allocate 10% of future infrastructure investments to agriculture, related activities and rural infrastructure will go a long way towards achieving this goal. “

The World Bank’s International Development Association (IDA)/ ida>, established in 1960, helps the world’s poorest countries by providing grants and loans at low-to-zero interest rates for projects and programs that boost economic growth, reduce poverty and improve the lives of people. poor.

IDA is one of the most important sources of assistance for the 76 poorest countries in the world, including 39 in Africa. IDA resources are bringing positive change to the 1.6 billion people who live in IDA countries. Since 1960, IDA has supported development work in 113 countries.

Annual commitments have averaged around $ 21 billion over the past three years, of which around 61 percent has gone to Africa.

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