World Bank cautions govt to cushion poor households

Friday March 03 2023
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The government removed subsidies, leaving many poor families exposed. Picture: File

By Ange Iliza

The World Bank has issued a warning to Rwanda, calling on the government to take measures to protect vulnerable people as high food prices continue to wreak havoc in impoverished households.

In the 20th edition of the World Bank's Rwanda Economic Update Report, the lender highlighted the risks of high food prices and inflation elevating poverty rates in poor regions by 8 percent.

The report comes after historically high headline inflation of 21 percent was recorded in November 2022, coupled with decreased local food production, which has affected the poorest quintiles in the country.

The World Bank reports that inflation has been highly regressive, and the poorest districts are the most affected.

The government had previously downplayed calls to increase subsidies to cushion businesses and poor households, citing the expense, and said it would instead maintain the existing fuel and agricultural inputs subsidies.

“Subsidies are very expensive to any government, they have to be selective and targeted in terms of which Subsidies to give. It is difficult to give blanket subsidies to all commodities consumed in the country, they can’t be spread across all commodities facing pressures, no country across the world can do this to deal with inflation,” said the Central Bank governor, John Rwangobwa, responding to the media in October.


Need to act with speed

The World Bank warns that failure to act could elevate the poverty rate in Rwanda by 8 percent to over 45 percent rate. Its report indicates that inflation has been highly regressive and is likely to accentuate geographical inequality, as the poorest districts seem to be the most affected.

“Poor people are getting hit harder by food prices probably because of their lower capacity compared to richer districts to cope with weather shocks and increased fertilizers price,” the report reads in part.

The report added that if not addressed, high food prices could undermine the hard-fought reductions of stunting with a risk of stunting reaching 50 percent from 30 percent reported in children under the age of five in 2020.

The World Bank recommended that given the severity of the crisis, Rwanda will need to reintroduce and expand social protection policies that were introduced during the Covid-19 pandemic.

The Bank recommended that Rwanda establish long-term measures for protecting the poor and vulnerable and strengthen policies and institutions, and investments to build resilience.

“The bank puts forward that further measures are needed to protect the poor and most vulnerable such as reinforcing social protection policies, that had been introduced in response to Covid-19, providing emergency support to agriculture production, and strengthening policies to address food insecurity and prevent child stunting,” said the World Bank Rwanda country director, Rolande Pryce.

The Bank projects lower economic growth of 6 percent in 2023 compared to 8 percent growth in 2022 and increased local inflation this year.