Figure 1: Current Account Balance in Rwanda (2016-2023)
Source: IMF 2019, Rwanda 2019 Article IV Consultation; IMF 2017, Rwanda 2017 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
Total merchandise imports to Rwanda increased to USD 2.6 billion in 2018, from an annual average of USD 2.4 billion for 2015 to 2017[1]. Exports increased to USD 1.1 billion in 2018, from an annual average of USSD 819.6 million for 2015 to 2017[2]. The faster growth in exports has not been sufficient to improve Rwanda’s current account deficit, which widened from an average of -USD 901.7 million (approx. -10.2% of GDP) for 2016 to 2018, to a deficit of -USD 975.0 million (approx. -9.6% of GDP) in 2019[3]. The faster growth in export earnings has not been sufficient to improve Rwanda’s balance of payments but gross official reserves have increased due to the persistent capital and financial account surplus.
Figure 2: Capital and Financial Account Balance in Rwanda (2016-2023)
Source: IMF 2019, Rwanda 2019 Article IV Consultation; IMF 2017, Rwanda 2017 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
Rwanda’s capital and financial account balance improved from a surplus (net inflows) averaging USD 958.1 million (approx. 10.8% of GDP) for 2016 to 2018, to a surplus of USD 1.1 billion (approx. 10.2% of GDP) in 2019[4]. As a result, Rwanda’s balance of payments recovered from an average of USD 71.8 million (approx. 0.7% of GDP) for 2016 to 2018, to a surplus of USD 109.3 million (approx. -1.1% of GDP) in 2019[5]. Gross official reserves increased from USD 1.0 billion in 2016 to USD 1.3 billion in 2018, and continued increasing to USD 1.4 billion in 2019[6]. During this period, Rwanda experienced persistent inward FDI inflows.
Inward FDI inflows decreased from USD 379.8 million in 2015 to USD 356.4 million in 2017, before recovering to USD 398.5 million in 2018[7]. As a result, Rwanda’s inward FDI stock increased from an average of USD 1.7 billion for 2015 to 2017, to USD 2.3 billion in 2018[8]. Rwandans’ investments abroad have increased as inward FDI to the country persisted.
Figure 3: Gross Official Reserves and Balance of Payment in Rwanda (2016-2023)
Source: IMF 2019, Rwanda 2019 Article IV Consultation; IMF 2017, Rwanda 2017 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
Outward FDI outflows increased to USD 15.7 million in 2017 but there were no net flows in the prior two years, and continued increasing to USD 18.0 million in 2018[9]. As a result, Rwanda’s outward FDI stock increased from an average of USD 33.4 million for 2015 to 2017, to USD 61.0 million in 2018[10]. These capital flows have improved Rwanda’s balance of payment but deteriorated the country’s net international FDI position.
Figure 4: Inward Foreign Direct Investment in Rwanda (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Rwanda’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been increasing as inward FDI inflows persisted. Rwanda’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 2.0 billion (approx. -23.7% of GDP) for 2015 to 2017, to net liabilities amounting -USD 2.6 billion (approx. -25.8% of GDP) in 2018[11].
Figure 5: Outward Foreign Direct Investment from Rwanda (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels Rwanda’s foreign liabilities remain sustainable as a proportion of GDP. Given the relatively narrow domestic capital markets, Rwanda should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on raw commodity and agriculture-based exports. Nevertheless, Rwanda’s balance of payments surplus is projected to improve to a wider surplus in the medium-term, which is projected to support growth of gross official reserves.
Figure 6: International Foreign Direct Investment Position in Rwanda (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Improvements in the capital and financial account surplus should support a recovery in Rwanda’s balance of payments despite the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 975.0 million (approx. -9.6% of GDP) in 2019 to an average of -USD 1.0 billion (approx. -8.2% of GDP) from 2020 to 2024[12]. Rwanda’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 1.2 billion (approx. 9.5% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to improve from a surplus of USD 160.9 million in 2020 to a surplus of USD 189.0 million in 2024, which is equivalent to an average deficit of USD 148.2 million (approx. 1.2% of GDP)[14]. Thus, Rwanda’s gross official reserves are projected to increase from USD 1.6 billion in 2020, to USD 1.9 billion in 2024[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Rwanda 2019 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020]; IMF 2018. Rwanda 2017 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.; IMF 2018. Rwanda 2017 Article IV Consultation, ibid.
[5] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.; IMF 2018. Rwanda 2017 Article IV Consultation, ibid.
[6] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.; IMF 2018. Rwanda 2017 Article IV Consultation, ibid. There are relatively significant errors and omissions in Rwanda’s balance of payments data equivalent to USD 51.9 million in 2016, USD 26.1 million in 2017, and -USD 69.3 million in 2018.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.
[13] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.
[14] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.
[15] IMF 2019. Rwanda 2019 Article IV Consultation, ibid.
