KAMPALA, May 5 (Reuters) - Rwanda’s balance of payments will swing into deficit in 2009/10 for the first time in five years as falling global demand cuts foreign exchange earnings, the Finance Ministry said on Tuesday.
The global financial crisis poses “significant challenges” for the coffee-producing central African country, the ministry said in a report seen by Reuters on Tuesday.
“International prices for Rwanda’s key exports have fallen rapidly, consequentially, so have export revenues,” it said.
Falling foreign exchange receipts and domestic credit have reduced Rwanda’s ability to import goods for domestic production and construction activities, the government said.
The report said falling tourism revenues, declining remittances and lower Foreign Direct Investment (FDI) flows would also contribute to contracting foreign exchange earnings but donor commitments will not be affected.
“It is clear that the overall balance (of payments) will be pressured into a deficit in the near term -- a deficit of $47.4 million is expected in 2009/10,” it said, but added this remained sustainable at less than one percent of gross domestic product.
Rwanda’s economy is being rebuilt after the 1994 genocide of 800,000 ethnic Tutsis and politically moderate Hutus. The report refined previous GDP growth estimates for the coming fiscal year, which starts in July, down to 5.7 percent, from roughly 6 percent as reported by the minister last month.
For the calendar year 2008, the central bank has said Rwanda’s GDP grew 11.2 percent helped by a strong performance in the agricultural sector which constitutes one third of GDP.
Initial indications show the government’s “green revolution” in agriculture has performed well in early 2009. Rwanda has prioritised improvements in agriculture supply, agribusiness, land reform and promotion of value addition for exports.
Rwanda said it had anticipated a medium-term deficit as part of its Economic Development and Poverty Reduction Strategy (EDPRS) because the land-locked country requires significant imports of construction goods and equipment to bolster development.
“Therefore, the balance of payments remains stable and affordable,” the report said.
However, if Rwanda does not receive adequate grants, the ministry said, the balance of payments deficit could widen to $251.5 million in 2011/12, representing 2.8 percent of GDP.
The government predicted a 10 percent rise in nominal per capita annual incomes to $663 in fiscal year 2009/10, up from $499 at present. It has focused on restructuring the tea and coffee sectors and financial system, while investing in energy, transport and telecommunications infrastructure.
Editing by Ruth Pitchford