The Country and the poverty context

The country and economic situation

Rwanda is a landlocked country of high altitude hills. Its population of about 8 million people is predominantly rural (90%) and is growing at 3% per year. The economy, which had experienced rapid growth during the 1960s and 1970s, propelled by the expansion of tea and coffee exports supported by good international market prices, came to a halt by the mid-1980s. As a result of falling coffee prices, over valuation of the currency, and increasing government intervention in the economy, the average annual economic growth fell from a high 6.5% per annum during 1973-1980 to 0.3% during 1986-90. Serious civil unrest had begun in many areas since the late 80s, until a civil war broke out by the end of 1993, causing enormous damage. Over a million people were reported dead and agricultural production almost ceased in many areas abandoned by the inhabitants fleeing abroad. A very large number of refugees were settled temporarily in nearby the Republic of Congo, Tanzania, Uganda, and Burundi.

With the restoration of peace in 1994 and the return of the refugees in 1995/96, the situation normalized. The new government initiated policy reforms to stimulate economic recovery. The growth of GDP resumed, albeit from lower levels than before war. Per capita income, which was USD 250 in 1993, was down to USD 180 in 1996, but recovered to USD 250 by 2000. Growth has continued on a sustained basis since 1996, supported by prudent fiscal policies, recovery of exports, and massive inflow of external grants and loans extended on highly concessional terms. The fiscal imbalances improved significantly as a result of adjustments of tax rates, of reforms in tax and customs administration, and of the flow of external grants and of food aid counterpart funds. In 2000, total government expenditure and the primary budget deficit were the equivalent, respectively, of about 26% and 15% of GDP. Inflation is now about 5% per annum.

The external value of the Frw has been relatively stable until mid-2000, but lost 25% of its value vis-à-vis the USD as a result of the strong appreciation of the American currency ever since. This trend, combined with the high prices of petroleum products and low coffee prices, generated strong pressure on the balance of trade. Nevertheless, Rwanda managed to keep the value of the foreign exchange reserves to the equivalent of about four months of imports. The external debt rose to USD 1.3 billion by the end of 2001. By that time, the domestic public debt stood at an equivalent of about USD 190 million. Despite the concessional terms of the bulk of external borrowings, and some recent debt relief operations, the external debt service is currently equivalent to one fourth of export earnings.