The COVID-19 (coronavirus) pandemic has pushed the Rwandan economy into recession in 2020 for the first time since 1994, according to the World Bank's latest Rwanda Economic Update.

The 17th edition of the Rwanda Economic Update: The Role of the Private Sector in Closing the Infrastructure Gap, says that the economy shrank by 3.7 percent in 2020, as measures implemented to limit the spread of the coronavirus and ease pressures on health systems brought economic activity to a near standstill in many sectors. Although the economy is set to recover in 2021, the report notes the growth is projected to remain below the pre-pandemic average through 2023.

Declining economic activity has also reduced the government's ability to collect revenue amid increased fiscal needs, worsening the fiscal situation. Public debt reached 71 percent of GDP in 2020, and is projected to peak at 84 percent of GDP in 2023. Against this backdrop, the report underlines the importance of the government's commitment to implement a fiscal consolidation plan once the crisis abates to reduce the country's vulnerability to external shocks and liquidity pressures.

"Narrowing fiscal space calls for a progressive shift in Rwanda's development model away from the public sector towards a predominantly private sector driven model, while also stepping up efforts to improve the efficiency of public investment," said Calvin Djiofack, World Bank's Senior Economist for Rwanda.

According to the Update, private sector financing, either through public-private partnerships or pure private investment, will be essential for Rwanda to continue investing in critical infrastructure needed to achieve its development goals. The analysis underscores the need to capitalize further on Rwanda's foreign direct investment (FDI) regulatory framework, considered one of the best in the continent, to attract and retain more FDI; to foster domestic private capital mobilization through risk sharing facilities that would absorb a percentage of the losses on loans made to private projects; and to avoid unsolicited proposals of public–private partnership (PPP) initiatives; as well as to build a robust, multisector PPP project pipeline, targeting sectors with clearly identified service needs such as transport, water and sanitation, waste management, irrigation, and housing.

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