2. Rwanda’s
premier business
school since 2002
www.facebook.com/SchoolofFinanceandBanking www.twitter.com/SFBRwanda
3. Outline
Global economy: cautious optimism
What went wrong in the Eurozone
Rwanda: strong growth, moderate
inflation
Is Rwanda becoming less competitive?
4. Global outlook
“Optimism has returned, but it should
remain tempered” (World Economic
Outlook, April)
Global economy is projected to grow at
3.5 – 4.0 percent
Africa to grow at 5.0 – 5.5 percent
6. Brakes on growth
In advanced economies:
Fiscal consolidation – lower demand, lower
growth
Bank deleveraging – tighter supply of
credit, lower growth
Additional global risks:
Possibility of another crisis in Europe
Oil price shock
7. The euro – what’s in a name?
By definition, a single currency area
implies common monetary policy for all
member countries
A single currency area should also be
supported by consistent fiscal policies
and uniform financial regulations
The former was in place; the latter was
not.
8. The euro – the central issue
Consistency of policies was mandated
but not enforced
Nevertheless, introduction of the euro
created an illusion among the investors
that all member countries are “the
same”
The countries that did not pursue
prudent polices could, therefore, avoid
market scrutiny and borrow cheaply
9. The euro – complications
Support systems were not in place to
deal with the emerging crisis
Belated recognition of problems led to
more problems
10. The euro – the way forward
Assistance to the weakest members
Measured fiscal consolidation in order
to achieve sustainability without
excessive decline in demand
Monetary easing
Bank recapitalization, including with
public money
11. Rwanda and the IMF
Rwanda is in the second year of a
successful three-year PSI program
supported by the IMF
Main elements of the PSI are revenue
collection, moderate inflation, and
strong financial sector
12. Third year of the PSI
Small increase in the revenue-to-GDP ratio
(to 14 percent), in line with original program
targets
Small increase in deficit (due to foreign-
financed capital expenditure)
Room for wage increases in the public sector
comes from cuts in gov’t purchases and from
domestic financing
Gradual monetary tightening to keep inflation
in single digits
13. Rwanda in 2012/13
Favorable macroeconomic outlook, but
with notable risks
Strong growth, moderate inflation (7 – 8
percent)
Should global risks materialize, revenue
and inflation objectives may be in jeopardy
14.
15.
16. Productivity and real exchange rate
Balassa-Samuelson: as a country becomes
more productive, its currency appreciates in
real terms
Rwanda franc has been appreciating in real
terms at an average of 3 percent per year
since 2004
Total factor productivity (TFP) has been
growing at about the same rate
17. Is Rwanda becoming more or less
competitive?
Rate of real appreciation equals rate of TFP growth
However, real exchange rate is a relative concept:
appreciation means Rwanda is becoming more
expensive vis-à-vis other countries
TFP has been growing in other countries too:
Rwanda’s relative productivity growth has been
less than 3 percent.
In other words, Rwanda may be getting more
expensive faster than it is getting more productive
18.
19. Last word on competitiveness
Sustained real appreciation means Rwanda
is becoming a more expensive place to do
business
The key issue is whether Rwanda’ relative
productivity rises fast enough to support the
observed real appreciation; further analysis is
needed
History tells us that many of the sustained-
growth countries had a depreciated currency
in real terms
20. In conclusion
Global recovery is uneven and subject
to risks
Rwanda has been doing well
Maintaining competitiveness and
sustainable current account are major
medium-term issues
Notes de l'éditeur
Four slides on IIP and borrowing costs
Fiscal transfers: US vs EuropeInterest rate and debt sustainability