Rwanda has achieved impressive development progress since the 1994 genocide and civil war. It is now consolidating gains in social development and accelerating growth while ensuring that they are broadly shared to mitigate risks to eroding the country’s hard-won political and social stability.
Rwanda’s long-term development goals are embedded in its Vision 2020 which seeks to transform Rwanda from a low-income agriculture-based economy to a knowledge-based, service-oriented economy by 2020.
In order to achieve the long-term development goals, the government of Rwanda has formulated a medium-term strategy. The Economic Development and Poverty Reduction Strategy (EDPRS 2)’s highest priority is growth acceleration and poverty reduction through its four thematic areas: economic transformation, rural development, productivity and youth employment, as well as accountable governance. The EDPRS 2 aims to achieve the following goals by 2018: (i) increasing GDP per capita to $1,000, (ii) reducing the poverty rate to below 30% and (iii) the reducing extreme poverty rate to below 9%. An underlying macroeconomic assumption is to accelerate annual GDP growth to 10% over the period 2013-2018.
These goals build on remarkable development success over the last decade including high growth, rapid poverty reduction and, since 2005, reduced inequality. Between 2001 and 2012, real GDP growth averaged 8.1% per annum. The poverty rate dropped from 59% in 2001 to 45% in 2011 while inequality reduced from 0.52 in 2005 to 0.49 in 2011.
Going forward, the private sector, still largely informal, will have to play a bigger role in ensuring economic growth. Poor infrastructure and the lack of access to electricity and limited generation capacity are some of the major constraints to private investment. Some reforms have been implemented successfully to improve the business environment and reduce the cost of doing business. As a result, the country was named top performer in the Rwanda Doing Business 2014 report, among the ten most improved economies in 2013 and Rwanda is now ranked as the second easiest place to do business in Sub-Saharan Africa.
In addition, reducing the country dependency on foreign aid (40% of the current budget) through a mobilization of domestic resources is critical. While Rwanda has been effectively using aid for development, the country remains vulnerable to fluctuations in aid flows. Starting in mid-2012, Rwanda experienced a sudden and sharp decline in aid. Through appropriate fiscal and monetary policies, high growth and stability prevailed throughout 2012 (economic growth was 7.3 percent and inflation below 6 percent). However, starting mid-2013, Rwanda experienced lagged impact of foreign aid shortfall, causing economic growth to decelerate to 4.6 percent. The government has successfully increased the domestic revenues to GDP ratio in the past several years, but the level is still far below the regional average.