High growth, low inflation boost economic expansion

Wednesday July 3 2019

power

Rwanda has made great achievements in expanding generation and access to electricity. More than half of Rwandans have access to electricity in their home, compared with 10 per cent of citizens in 2009. PHOTO | CYRIL NDEGEYA 

RWANDA TODAY
By RWANDA TODAY
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The country’s economy expanded at 8.6 per cent in 2018 and headline inflation remained low at 1.2 per cent as of March 2019, according to the latest World Bank Rwanda Economic Update released last week.

The report forecasts favourable economic outlook with growth expected to be in the range of 7.6 per cent to eight per cent annually.

According to the report titled, Rwanda Economic Update: Lighting Rwanda, the growth was broad-based; with agriculture expanding by almost six per cent while industries, supported by construction and manufacturing, grew by more than 10 per cent, and the service sector recorded a nine per cent growth.

“Supported by conducive macroeconomic policies, Rwanda continues to enjoy a strong economic momentum characterised by high growth and low inflation,” said Aghassi Mkrtchyan, senior economist at the World Bank, adding, “While public investments will continue to support the growth over the medium-term, Rwanda needs to strengthen its private sector to stay on a high growth trajectory in the long-run.”

In its special focus on energy “Lighting Rwanda”, the 14th Rwanda Economic Update looks at the country’s achievements in expanding generation and access to electricity and outlines the main challenges facing the country in achieving its ambitions in expanding the power sector in a low-cost and fiscally sustainable manner.

The report established that Rwanda’s power sector has grown rapidly in the past decade and outpaced many of its peers in sub-Saharan Africa.

More than half of Rwandans have access to electricity in their home, compared with 10 per cent in 2009.

Generation capacity has more than tripled in the same period, and outages have become shorter and less frequent.

“Rwanda’s energy sector has been a success story in the region that many are trying emulating. The five-fold increase in electricity access within 10 years is almost unprecedented when compared with electricity access expansion in similar countries”, said Yasser El Gammal, World Bank country manager for Rwanda.

Despite this growth in the energy sector, the cost of electricity supply in the country is among the highest in the region and remains a constraint for Rwanda’s economic and industrial development. Household consumers have problems meeting the cost of electricity at the present tariffs.

The government has responded to this situation by adopting lifeline tariff that ensures the poor are cross-subsidised.

Since 2017, supported by the World Bank and other development partners, the government has implemented several reforms to make electricity service more affordable and ensure that it becomes an engine of economic growth and private-sector development.

Key priorities

To reap the benefits of and deepen this reform programme over the coming decade, the Rwanda Economic Update proposes the following priority measures:

• Pursuing sector expansion in line with least-cost sector planning.

• Putting REG into the driving seat of developing new PPP investments identified in the least-cost plan.

• Accelerating efforts to decarbonize the power sector and adapting to climate change.

• Regularly adjusting tariffs for changes in cost and, over time, expanding the groups of electricity consumers that do not need tariff subsidies and are charged the full cost of service.

• Providing a state-of-the-art framework for private sector participation in off-grid electrification.

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