Rwanda’s Economic Performance Strengthened in 2023 Despite Continued Challenges

Kigali, February 28, 2024 - Rwanda’s economy grew at 7.6% in the first three quarters of 2023 despite a challenging global environment and the recent floods that destroyed agricultural produce and infrastructure in April-May 2023. This is according to the 22^nd edition of the Rwanda Economic Update (REU): Mobilizing Domestic Savings to Boost the Private Sector in Rwanda. The report adds that the services sector, sustained domestic demand, and the rebound of the industrial sector, contributed to the robust growth and the positive economic trajectory.

Rwanda successfully balanced inflation control, managed external deficits, and ensured fiscal prudence, showcasing a resilient financial sector, notes the REU. Despite widening external deficits and the depreciation of the Rwandan franc, fiscal responsibility was maintained, with prudent fiscal management strategies in place. The banking sector remained stable and profitable, contributing to economic resilience.

“Rwanda’s economy showcased resilience and adaptability, achieving a robust growth rate in 2023, amidst a series of challenging external and domestic factors,” said Peace Aimee Niyibizi, World Bank Country Economist for Rwanda. “The World Bank encourages the country to pursue its prudent fiscal management by reducing non-essential spending and prioritizing investment in human capital.”

According to the REU, GDP growth is expected to regain momentum in 2024–26, with a projected average growth of 7.2%. Optimism stems from the anticipated recovery in global tourism, new construction projects, and increased manufacturing activities. Fiscal consolidation will continue, focusing on reducing subsidies, overseeing state-owned enterprises, and introducing tax policy measures to broaden the revenue base.

This outlook is, however, subject to significant risks including disruptions to the global economy, trade, and lower availability of concessional resources. On the domestic front, frequent weather-related shocks could result in a decrease in food production, and higher food prices, negatively impacting poor households.

The report, whose special focus is on the private sector, underscores the critical link between private sector investment growth and domestic savings capacity, which is presently limited. Despite notable achievements in savings mobilization, Rwanda's savings rates lag other East African countries, impacting financial resources for businesses, especially small and medium-sized enterprises.

“Though Rwanda has achieved notable strides in enhancing savings mobilization - as evidenced by a marked rise in financial inclusion and introduction of the innovative long-term savings programs - there are several levers that can be pulled to stimulate further domestic savings, which is fundamental in supporting the investment and growth necessary for achieving Rwanda’s aspiration,” saidSahr Kpundeh, World Bank Country Manager for Rwanda.

The REU suggests strategies to boost domestic savings, including the implementation of subsidies and incentives, educational programs promoting the benefits of saving, and a comprehensive policy approach. Encouraging customer-centric product development, leveraging digital financial literacy programs, and engaging the Rwandan diaspora are key interventions for effective savings mobilization.

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