Finance Minister of the Year Sub-Saharan Africa 2012
John Rwangombwa, Rwanda
Rwandas economy has grown fast, with an 8.6% advance last year. But poverty reduction rates are perhaps even more impressive
Against the backdrop of an increasingly volatile economic environment, Rwanda has achieved strong economic growth combined with a significant reduction in poverty rates over the past year.
For many analysts much of the credit for this can be attributed to John Rwangombwa, who was appointed finance minister in December 2009 and had previously been the departments top civil servant.
The economy grew by 8.6% in 2011 and the MF forecasts it will grow at rates of 7% or higher between now and 2016. The poverty reduction statistics are perhaps even more impressive.
The poverty headcount ratio has declined from 72.1% in 2006 to 63.2% in 2011, as measured by an internationally comparable threshold based on an income of $1.25 a day.
Access to clean drinking water and sanitation increased in all but one province: from 70.3% to 74.2% and from 58.5% to 74.5%, respectively, during the past five years, according to the IMF.
I think the finance minister of Rwanda has done a superb job, under very difficult circumstances, Shanta Devarajan, the World Banks chief economist for the Africa region, tells Emerging Markets.
Devarajan says the spectacular poverty reduction was more remarkable given that Rwanda had to face cutbacks on aid and that the country is certainly taking steps to try to make sure that the growth will continue after possible cuts in aid, such as making some progress in consolidating some aspects of their budget.
Devarajan adds that the finance ministry had embarked on a consolidation of their social protection programmes so that they can get an economy of scope.
The fiscal deficit for the second half of last year came in 1% of GDP lower than programmed, and Rwangombwa is on track to hit his target of reducing the deficit to just below 2% of GDP in the current financial year.
In the 2012/13 budget, Rwangombwa has secured additional external concessional financing to scale up investment in energy, transportation, and irrigation, as well as in the construction of schools and health facilities.
Mark Bohlund, senior sub-Saharan economist at IHS Global Insight, the analysts, points to the decision by credit ratings agency Fitch, to affirm the outlook of Rwandas sovereign debt B rating.
The finance ministry looks set to raise $300 million through a sovereign bond this year. Coming in ahead of Kenya and Uganda would be a feather in his cap, Bohlund says.
A good policy mix, reforms in agriculture and making it easier for investors to do business are a few of the secrets behind Rwandas impressive rates of growth. The countrys finance minister sees aid going down as a percentage of the total budget, as the economy advances.
Rwandas high growth rates are very much down to the mix of fiscal and monetary policy that allows the economy to expand, finance minister John Rwangombwa tells Emerging Markets in an interview.
The low inflation rate and a stable exchange rate that doesnt fluctuate much have supported trade. That has also allowed tremendous growth in our financial sector, Rwangombwa says.
Three main sectors contributed to our economic growth. One is services, which make up 36% of our economy, and growing at a rate of around 12%. Then we have agriculture, which makes up about 5% of our economy, growing at about 5.5%. Then the industry, driven by construction. We have booming construction here in our country, he says.
The overall services sector comprising communications and the financial sector as well as trade was affected by the global crisis. As the credit crunch hit in 2008, it quickly rebounded.
Another positive factor was the improvement in the business environment, as shown by the World Banks report on the ease of doing business. We used to be the 143th in the world and with the reforms we did we were able to jump to 45th in the world last year, says Rwangombwa. It helps a lot when it comes to attracting investment and also the competitiveness of our country has been upgraded.
In the sub-Saharan region, Rwanda ranks third overall in terms of ease of doing business, with Mauritius in first place and South Africa in second. Rwanda has the top spot in the region when it comes to starting a business and the second when it comes to getting credit and getting electricity for businesses.
The government targets economic growth of 7.5% over the next five years, with the financial sector in a better position to support private investment, Rwangombwa says.
Agriculture is another sector where the rates of expansion are expected to be impressive. The country is putting in place reforms like increasing the use of fertilizers and that of improved feeds and better utilization of land. With the policies that well be putting in place to support agriculture, the room for growth is very large. We expect to see this trend continuing and even going higher. On average we grew at 8.3% over the last five years, and now we are targeting to grow at about 12% [in agriculture] in the next five years, says the finance minister.
Around 41% of Rwandas budget is still made up of donor financing, and Rwangombwa does not see any impact from decreased aid because of the eurozone crisis or the US fiscal cliff problems.
What we expect is no more increase in donor financing, but we do not expect any reduction in nominal terms, he says. As a percentage of total budget and as a percentage of GDP we see aid going down because the economy is growing.