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Global Developments,European Crisis, and Rwanda     Dmitry Gershenson, IMF          June 6, 2012  School of Finance and Ba...
Rwanda’s      premier business      school since 2002www.facebook.com/SchoolofFinanceandBanking   www.twitter.com/SFBRwanda
Outline Global economy: cautious optimism What went wrong in the Eurozone Rwanda: strong growth, moderate  inflation I...
Global outlook “Optimism has returned, but it should  remain tempered” (World Economic  Outlook, April) Global economy i...
Output Growth, 2012-13International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, April 2012   5
Brakes on growth In advanced economies:    Fiscal consolidation – lower demand, lower    growth    Bank deleveraging – ti...
The euro – what’s in a name? By definition, a single currency area  implies common monetary policy for all  member countr...
The euro – the central issue Consistency of policies was mandated  but not enforced Nevertheless, introduction of the eu...
The euro – complications Support systems were not in place to  deal with the emerging crisis Belated recognition of prob...
The euro – the way forward Assistance to the weakest members Measured fiscal consolidation in order  to achieve sustaina...
Rwanda and the IMF Rwanda is in the second year of a  successful three-year PSI program  supported by the IMF Main eleme...
Third year of the PSI Small increase in the revenue-to-GDP ratio  (to 14 percent), in line with original program  targets...
Rwanda in 2012/13 Favorable macroeconomic outlook, but  with notable risks   Strong growth, moderate inflation (7 – 8   p...
Productivity and real exchange rate Balassa-Samuelson: as a country becomes  more productive, its currency appreciates in...
Is Rwanda becoming more or lesscompetitive? Rate of real appreciation equals rate of TFP growth However, real exchange r...
Last word on competitiveness Sustained real appreciation means Rwanda  is becoming a more expensive place to do  business...
In conclusion Global recovery is uneven and subject  to risks Rwanda has been doing well Maintaining competitiveness an...
Recent macro developments in Rwanda and the world including europe
Recent macro developments in Rwanda and the world including europe
Recent macro developments in Rwanda and the world including europe
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Recent macro developments in Rwanda and the world including europe

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Global Developments, European Crisis, and Rwanda by Dmitry Gershenson, Resident Representative and Country Director for Rwanda, International Monetary Fund (IMF), presented on June 6, 2012 during a public lecture at the School of Finance and Banking (SFB)

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  • Four slides on IIP and borrowing costs
  • Fiscal transfers: US vs EuropeInterest rate and debt sustainability
  • Transcript of "Recent macro developments in Rwanda and the world including europe "

    1. 1. Global Developments,European Crisis, and Rwanda Dmitry Gershenson, IMF June 6, 2012 School of Finance and Banking
    2. 2. Rwanda’s premier business school since 2002www.facebook.com/SchoolofFinanceandBanking www.twitter.com/SFBRwanda
    3. 3. Outline Global economy: cautious optimism What went wrong in the Eurozone Rwanda: strong growth, moderate inflation Is Rwanda becoming less competitive?
    4. 4. Global outlook “Optimism has returned, but it should remain tempered” (World Economic Outlook, April) Global economy is projected to grow at 3.5 – 4.0 percent Africa to grow at 5.0 – 5.5 percent
    5. 5. Output Growth, 2012-13International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, April 2012 5
    6. 6. Brakes on growth In advanced economies: Fiscal consolidation – lower demand, lower growth Bank deleveraging – tighter supply of credit, lower growth Additional global risks: Possibility of another crisis in Europe Oil price shock
    7. 7. The euro – what’s in a name? By definition, a single currency area implies common monetary policy for all member countries A single currency area should also be supported by consistent fiscal policies and uniform financial regulations The former was in place; the latter was not.
    8. 8. The euro – the central issue Consistency of policies was mandated but not enforced Nevertheless, introduction of the euro created an illusion among the investors that all member countries are “the same” The countries that did not pursue prudent polices could, therefore, avoid market scrutiny and borrow cheaply
    9. 9. The euro – complications Support systems were not in place to deal with the emerging crisis Belated recognition of problems led to more problems
    10. 10. The euro – the way forward Assistance to the weakest members Measured fiscal consolidation in order to achieve sustainability without excessive decline in demand Monetary easing Bank recapitalization, including with public money
    11. 11. Rwanda and the IMF Rwanda is in the second year of a successful three-year PSI program supported by the IMF Main elements of the PSI are revenue collection, moderate inflation, and strong financial sector
    12. 12. Third year of the PSI Small increase in the revenue-to-GDP ratio (to 14 percent), in line with original program targets Small increase in deficit (due to foreign- financed capital expenditure) Room for wage increases in the public sector comes from cuts in gov’t purchases and from domestic financing Gradual monetary tightening to keep inflation in single digits
    13. 13. Rwanda in 2012/13 Favorable macroeconomic outlook, but with notable risks Strong growth, moderate inflation (7 – 8 percent) Should global risks materialize, revenue and inflation objectives may be in jeopardy
    14. 14. Productivity and real exchange rate Balassa-Samuelson: as a country becomes more productive, its currency appreciates in real terms Rwanda franc has been appreciating in real terms at an average of 3 percent per year since 2004 Total factor productivity (TFP) has been growing at about the same rate
    15. 15. Is Rwanda becoming more or lesscompetitive? Rate of real appreciation equals rate of TFP growth However, real exchange rate is a relative concept: appreciation means Rwanda is becoming more expensive vis-à-vis other countries TFP has been growing in other countries too: Rwanda’s relative productivity growth has been less than 3 percent. In other words, Rwanda may be getting more expensive faster than it is getting more productive
    16. 16. Last word on competitiveness Sustained real appreciation means Rwanda is becoming a more expensive place to do business The key issue is whether Rwanda’ relative productivity rises fast enough to support the observed real appreciation; further analysis is needed History tells us that many of the sustained- growth countries had a depreciated currency in real terms
    17. 17. In conclusion Global recovery is uneven and subject to risks Rwanda has been doing well Maintaining competitiveness and sustainable current account are major medium-term issues
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