IMF CONDUCTS SUCCESSFUL SIXTH REVIEW

UNCLAS KIGALI 000348 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EAGR EAID ECON EFIN PREL RW SUBJECT: IMF CONDUCTS SUCCESSFUL SIXTH REVIEW ¶1. (SBU) An IMF team successfully concluded its sixth review of Rwanda's three-year Poverty Reduction and Growth Facility (PRGF) program with a briefing for donor governments on May ¶29. The team found Rwanda had met all its 2008 PRGF performance targets; some early 2009 fiscal targets were missed due to late donor budget support payments. Robust growth of 12.2 percent in 2008 was projected to drop to 5.3 percent in 2009. Continued strong growth in the agriculture sector will be offset by declining growth in other sectors, including construction, mining and services, as the world economic downturn makes itself felt in Rwanda. While falling exports are evident, tourism receipts are apparently holding up -- a new system for measuring tourism receipts revised those figures upwards. ¶2. (SBU) Inflation, after reaching 22 percent at the end of 2008, fell to 13.5 percent in April, and could be down to single digits by later in the year. Domestic revenue will be negatively affected by declining tax revenues and by East African Community (EAC) integration -- and resultant decline in tariff revenues -- which however will be partly made up by payments from Common Market for Eastern and Southern Africa (COMESA) compensation funds. To help offset projected losses, fuel levies will be increased, and various fuel subsidies reduced, as well as taxes increased on mobile phone air time. ¶3. (SBU) The IMF team supported an increase in the budget deficit in 2009/10 to preserve poverty reduction programs. It also accepted a 10 percent salary increase for civil servants. The team expressed some unease concerning a proposed USD 30 million Chinese road maintenance loan, which does not meet current concessionality requirements (the Chinese loan has a 35 percent concessional component, versus the PRGF's required 50 percent). The team sought donor views on the impact of this projected loan on their own grant funding. The IMF will also continue discussions on improving banking sector liquidity. ¶4. (SBU) The Government of Rwanda (GOR) seeks a Policy Support Instrument (PSI) starting in FY 2010/2011 -- a PSI is a more flexible policy framework than a PRGF, offering IMF support and endorsement without a borrowing arrangement. An IMF team would send a mission to evaluate this request in February or March of 2010, in advance of an IMF Board decision in April 2010. SIM