Annual report – 2007 – national bank of rwanda

Annual report – 2007 – national bank of rwanda

BANKI NKURU Y’ U RWANDA— NATIONAL BANK OF RWANDA– BANQUE NATIONALE DU RWANDA June 2008 Table of contents Part I: Economic and financial developments SUMMARY…………………………………………………………………………………………………………………………….. 3 Chapter I International economic environment……………………………………………………………17 I. 1 Economic situation…………………………………………………17 I. 2. World trade…………………………………………………………………………………………………20 I. 3. Interest rates and capital markets……………………………………………………………. 22 Chapter II National economic development … ……………. …………………………………. ……………25 II. 1 Real sector ………. …………………………………………………………………………………………25 II. 1. Gross domestic product ……. ……………………………………………………………….. 25 II. 1. 2 Prices. …………. ………. …………………………………………………………………………36 II. 2 Public finance and domestic public debt ………………………………………………. 44 II. 2. 1 Public finance………………………….. …………………. ……………………………………47 II. 2. 2 Domestic public debt…………………………. ………….. ……………………………….. 47 II. 3 Monetary and financial sector II. 4 External sector II. 4. 1 II. 4. 2 ……………….. ………………………………………………48 II. 3. 1 Monetary Development …………………………………………………………………………. 48 …………………………………………………………………………………………54 ………….. …………………………………………………….. 54 Balance of payments External debt ………………………………………………….. …………………………….. 65 Part II Activities of the Bank Chapter III Activities related to the main missions of the Bank ………………………………. 71 III. 1 Foreign exchange policy and operations……………………………………………………71 III. 1. 1 Foreign exchange policy……………………………………………………………………71 III. 1. 2 NBR foreign exchange operations …. …………………………………………………72 III. 2 Implementation of monetary policy……………………………………………………………74 III. 2. 1 Liquidity Regulation …………….. ………………………………………………………………74 III. 2. 2 Money market operations …………………………….

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………………………………………. 74 III. 3 Management of special funds and lines of credit ….. ………………………….. 7 III. 3. 1 Introduction ………………………………………………………………………………….. 77 III. 3. 2 Special funds management ………………………………. ……………………………77 III. 4 Foreign reserves management ………………………………………………………………. 83 III. 4. 1. International …………………………….. …………………………………………………83 ……………. ………………………………………84 III. 4. 2. Financial performance in 2007 1 III. 4. 3. Foreign exchange market III. 5 Currency issuing activities ……………………………………………………………86 …………………………………………………………………88 ………………………………………………………90 …………………………100 III. 5. 1 Management of Currency in circulation ………. ………………………………………88 III. 5. 2 Control of counterfeit banknotes III. 5. Clearing house ……………………………………………………………………………………91 III. 5. 4 Importation of banknotes and traveller’s cheques III. 6 Banking Supervision III. 5. 5 NBR Branches Operation ……………………………………………………………………100 …. ………………….. …………………………………………………. 101 III. 6. 1 supervision of the Banks ……………………………. ………………………. …………102 III. 6. 2 Supervision of microfinance institutions ……………………………………….. 105 III. 6. 3 Centralisation of Loans and Outstanding loans Data III. 6. 4 Payment system Chapter IV Backup activities ……………………. 108 …………………………………. …………………………………………95 … …………………………………………96 ………………………………………………………………………………….. 95 ………. ………………………………………………….. 97 IV. 1 Statutory management organs of the Bank IV. 2 Human resources management IV. 2. 1 Staff movements IV. 2. 2 Social policy ……………………………………………………………………………….. 100 ………………………………………. ………119 …. ……………………. …………………………122 ……………………………………………………………………………………….. 102 IV. 3 Job Organisation and information system IV. 4 Internal audit of the Bank’s operations IV. 4. 1 General Assignment audit reports ……………………………………………………. 122 IV. 4. 2 Specific audits reports ……………………………………………………………………….. 124 IV. 5 Legal Affairs ……………………………………………………………………………………………………126 IV. 6 other backup activities …….. …………………………………………………………………………126 Part III. Financial Statement as at 31-12-2007 ……………………………………………………………128 2 EXECUTIVE SUMMARY I. INTERNATIONAL ECONOMIC ENVIRONMENT I. 1. ECONOMIC GROWTH 1. World economic growth was marked by a slight decrease as it dropped from 5. 0% to 4. 9% between 2007 and 2006. This was resulted from hardened financial conditions in several countries of the world and the inflationary pressures which remained high reflecting the rise in the oil prices and in the agricultural raw materials. 2. In Overall, all the big economic regions were affected by this economic strain, although in different proportions.

In the developed countries, on the whole year the economic growth rate slightly increased, reaching to 3. 0% against 2. 6% in 2006. In the euro zone, the economic growth remains strong in spite of a slight slowdown, that’s respective growth rates of 2. 9% and 2. 6% in 2006 and 2007. In the developing countries, as in the countries in transition, the economic growth rates slightly dropped, coming from 6. 5% to 5. 9% and from 7. 2% to 6. 5% respectively of 2006 to 2007. 3. In Asian emerging countries, the activity grew at a rapid pace during the first half of the year and it is envisaged to 9. 2% on the whole year.

In Africa, the economic growth rate reached to 5. 7% at the end of December 2007, against 5. 6% in 2006. Of which in sub-Saharan Africa, the economic activity increased by 6. 1% in 2007, against 5. 7% in 2006. I. 2. INFLATION 4. Overall inflation rate in Industrialised countries was 2. 1% in 2007 against 2. 2% in 2006. It was 2. 9% in 2007 against 3. 2% of 2006 in the United States, 2. 1% in 2007against 2. 2% of 2006 in the Euro zone, while it was 0. 1% in Japan. In developing countries of Asia average inflation rate was estimated at 5. 3% against 4% in 2006. In Africa, inflation remained almost stable at 6. % in average at the end of 2007 against 6. 3% in 2006. I. 3. WORLD TRADE 5. During the year 2007, the growth of the world trade continued but with a slight deceleration compared to the previous year. According to IMF estimates, the real growth of the world trade was at 9. 2% at the end of 2006 and is envisaged to 6. 6% at the end of 2007. According to these estimates, the world exports of goods and services would increase by 5. 4% in the developed countries and 9. 2% in the emerging countries and developing countries against 8. 2% and 11. 0% respectively in 2006. In the same way, the volume of imports would increase by 4. % in the developed countries and 12. 5% in the emerging and developing economies. 3 6. Concerning terms of trade, after depreciation over three consecutive years, they would improve slightly during 2007, reaching a rate of 0. 2% against 0. 9% in 2006. Conversely, in the emerging and developing countries, although the terms of trade are envisaged to improve, they would be less attractive than the previous year, that’s respective rates of 0. 2% and 4. 7% in 2007 and 2006. 7. African real exports increased by 4. 9% at the end of 2007 against 18. 1% in 2006, while the real imports increased by 13. 0% against 11. % on the same period. The terms of trade significantly depreciated for Africa whose exports are mainly made of primary commodities. This same tendency remained valid for sub-Saharan Africa whose trade was substantially influenced by the trend in relative prices. Exports, as well as imports in value, remained strong, but their growth rate considerably declined, dropping from 19. 2% to 5. 9% for exports and from 20. 4% to 12. 7% for the imports from 2006 to 2007. I. 4. INTEREST RATE AND FINANCIAL MARKETS 8. In the United State, the Federal Reserve reduced by 25 basic points its monetary policy rate to ring it back to 4. 25% in December 2007 while it was 5. 25% in December of the previous year. On annual average, the three months rates were recorded at 4. 70% in 2007, against 5. 36% the previous year. 9. On the government bonds market, the outputs were very volatile because of the situation of risk related to the prospects for the American economy. On the whole year 2007, the return on the 10 years government bonds, dropped from 4. 70% in 2006 to 4. 03% in 2007. In the Euro zone, the short-term interest rates, took again their upward trend in December after two successive falls in November and October.

While this rate was 3. 75% in 2006, it ends up being 4. 85% in December 2007. The same tendency remains valid in terms of annual average because this rate jumped from 3. 63% to 3. 76% from 2006 to 2007. 10. The Japanese central bank kept an accommodating monetary policy by maintaining its policy rate at 0. 5% since February because of the fragility of its growth, the absence of the inflationary tensions and its strong sensitivity to the financial crisis. Yearly, the average central bank rate amounted at 0. 75% against 0. 40%. Thus, the average short-term interest rates passed from 0. 57% to 0. 90% from 2006 to 2007.

Similarly, the long rates slightly dropped to 1. 51% in 2007 against 1. 69% in 2006. 11. On the foreign exchange market, after a long period of stability, the American dollar continues to be depreciated compared to the other strong currencies. Thanks to the divergences in the American and European monetary policies, the Euro recorded a strong appreciation vis-a-vis the dollar especially due to a new concern about the American financial market. 4 12. On average over the whole year, the euro was exchanged with 1. 46 dollars in 2007 against 1. 32 dollars in 2006 that is an appreciation of 10. 6%. In comparison with the yen, the dollar lost 6. % of its value between 2006 and 2007. 13. In the same way, the euro was appreciated in relations with the pound sterling. While it was exchanged with 0. 67 in average in 2006, it is worth 0. 73 pound sterling in average over 2007 that is an appreciation of 9%. Compared to the American dollar, the yen appreciated at the rate of 6. 6% on annual average in 2007 because of anticipations of the economic operators about the Japanese monetary policy. II. NATIONAL ECONOMY DEVELOPMENTS II. 1. REAL SECTOR II. 1. 1 GROSS DOMESTIC PRODUCT 14. The real GDP at constant prices of 2001 grew by 6% in 2007 against 5. 5% in 2006.

This growth emanated from the recovery of the tertiary and secondary sectors which recorded an increase of 11. 4% and 9. 2% respectively of the value added in 2007 compared to the previous year. 15. GDP per capita expressed in Rwandan francs, in current prices improved by 6. 6% as it rose from 181. 3 to 199. 9 thousand RWF. In terms of USD it registered an increase of 10. 3% that is from 331 USD in 2006 to 365 USD in 2007. Tertiary sector maintained the first position in the structure of GDP with 48% of the GDP at constant prices of 2001, followed by primary sector (31%) and then secondary sector with 15% of the GDP in 2007.

A. Primary Sector 16. In 2007, value added in constant prices of 2001 for the primary sector declined by 0. 5%. Agriculture decreased by 1. 96% whereas mining rose by 38. 9%. Substandard performance of the primary sector is due to unfavorable climatic conditions and difficulties of traditional products at agriculture level. 17. Food crops production realized poor performance during the last two years; their value added expressed in constant prices of 2001 decreased further by 1. 28% in 2007, against a decline of 1. 10% experienced in 2006. 18.

In volume, production of food crops total in 2007 estimated at 6 905 million of tons, that is a decline of 3. 3% compared to the previous year. The poor performance resulted from the precipitation which has not been regular in some region across the country, the delay of the rain season for stop instantly, negatively affected quasi plantation total. 5 19. During the year 2007, value added at constant prices of 2001 for export crops was estimated at RWF 9. 2 billion against 11. 0 billion in 2006, which is a decrease of 16. 4%. The production of tradable coffee declined by 44. % as it dropped to 14. 9 thousand tons, a drop which is essentially attributable to bad climatic condition during the year 2007 and lack of maintenance and repairing in the coffee factories. 20. Regarding tea, its production had increased by 20. 6% as it rose from 16 973 thousand tons in 2006 to 20 473 thousand tons in 2007. This improvement proved to be important, as the production of this crop had experienced a slight increase of 3. 1% in 2006, compared to the previous year. The performance is attributable to the privatization of some tea factories which led to improvement of heir production and trade of their product. 21. During the year under review, the mining and quarrying activities have registered an exceptional performance, with an increase of 40. 0% of the value added and 37. 3% of the volume of the main minerals production. To this effect, the price of Wolfram at the international market encourages the extraction of this mineral and its volume attained an increase of 87. 0% rising from 1 436 tons in 2006 to reach at 2 686 tons in 2007. The production of all other minerals has increased compared to 2006, such as 28. 7% for Colombo tantalite and 19. 1% for Tin.

B. Secondary Sector 22. Value Added at constant prices of 2001 of the secondary sector, experienced a growth of 11. 4% in 2007 compared to that of 2006, as a result of outstanding performance in manufacturing industries and « construction and public works » which recorded 7. 9% and 15. 9% respectively in 2007. 23. Manufacturing activities continued to progress in 2007, this sub sector represent 48% of the value added of industrial sector at constant prices of 2001. The production of alcoholic and non alcoholic beverages had slightly increased by 3. 6% in its volume compared to that of 2006(27. %). 24. Energy sector remained stagnant with a slightly increase of 0. 1% of the value added at constant prices of 2001 in 2007 compared to the year 2006. National production of electricity fall by 2% during the year under review compared to the previous year. However, as a result of imported electricity, electricity supply rose by 8% in 2007 as it raised from 230 million of KwH in 2006 to 249 million of KwH in 2007. C. Tertiary Sector 25. Outstanding performance sustained in tertiary sector was maintained in 2007 with an increase of 9. 2% of its value added at constant prices of 2001.

Tradable services in 2007 rose by 11. 4% in its value added at constant prices of 2001. Value added for the non tradable services rendered 6 collectively by public administration and other association and non making profit NGOs which constituted 18% of the tertiary sector declined by 1. 1% in 2007. 26. Transport and communication, finance and insurance continued their growth. They marked growth rate of their value added at constant prices of 2001 of 34. 6% and 20. 4% respectively. Commercial services had registered a growth of 8. 9% of its value added at constant prices of 2001. 27. Value added for the services endered collectively by public administration and other association and non making profit NGOs which constituted 18% of the tertiary sector declined by 1. 1% in 2007. These activities experienced a difficult period during the year under review. 28. Final consumption at current prices rose to 14. 2% in 2007 compared to the year 2006. This growth emanating from expenditures of private consumption and public expenditure which experienced an increase of 19. 9% and 13. 81 respectively. Gross Domestic Product, at current prices were improved by 13. 7% in 2007 to the level of 2006. II. 1. 2 INFLATION 29.

In spite of strong inflationary pressures at the beginning of Year 2007 which related to the increase in water distribution tariffs, excise duties on alcoholic beverages, school and medical care fees as well as telecommunication tariffs, a sensitive deceleration of inflation compared to the situation in the last two previous years was observed. 30. On year to year basis, overall inflation stood at 6. 6% in December 2007 against 12. 1% of the same month of 2006, while on average, annual overall inflation reached at 9. 1% against 8. 9% in 2006. Thus, for the third consecutive year, the objective to maintain one igit inflation was achieved. 31. During the Year 2007, inflationary pressures were particularly recorded in the first quarter during which its cumulated monthly change was 6. 7%, while for the remainder of the year, prices were slightly changing. During the second quarter, due to the seasonal effect of good season B harvest on consumer prices of locally produced foodstuffs, a 2. 2% disinflation was recorded. These prices significantly fall between May and June. During the Year 2007, the underlying consumer index excluding fresh foodstuff products and energy and the overall index followed almost the same trend.

The biggest rise was recorded during the first quarter while for the remainder of the year, it slightly increased. 32. Year to year basis, underlying inflation stood at 10. 6% in December 2007 against 6. 1% at the same month of 2006. On annual average, it stood at 9. 7% against 4. 0% recorded in 2006. This upward trend is exclusively explained by the increase in tariffs of water, excise duties on alcoholic beverages, health care and telecommunication tariffs as well as school fees in the first quarter. 7 However, during the rest of the year, underlying inflation was contained at a ow level, with a cumulated monthly change of 3% between April and December 2007. II. 2. PUBLIC FINANCE AND PUBLIC DEBT 33. One could observe a significant improvement in the public finance since 2004 but followed by weaknesses in 2007. Indeed, despite of these performances as regard to domestic revenue collection and the regular and important disbursements of external financial assistance, the proportional increase in expenditure led to an overall deficit (payment order) of 19. 1 billion RWF against a deficit of 3. 0 billion RWF as reported in 2006.

The deficit, cash basis also increased, passing from 11. 1 to 27. 2 billion RWF from 2006 to 2007, while the current deficit increased from 43. 4 to 61. 0 billion RWF. 34. The total revenue and grants stood at 472. 3 billion RWF (25. 9% of the GDP) at the end of 2007, against 375. 9 billion RWF (23. 0% of the GDP) in 2006, that is to say an increase of 25. 6%. The tax revenues rose to 252. 0 billion RWF (that is 53. 4% of the whole of the financial resources of the government) against 207. 2 billion RWF in 2006 (55. 1% of the total revenues). 35. The revenues from taxes increased by 23. %, passing from 192. 6 billion RWF to 237. 8 billion RWF between 2006 and 2007. Compared with those of 2006, the non tax revenues of 2007 dropped down by 0. 4 billion RWF from 14. 6 RWF to 14. 2 billion RWF. 36. The total expenditure and net lending at the end of 2007 were established at 491. 4 billion RWF, an increase of 29. 7% compared to the previous fiscal year. In proportion of the GDP, they represented 26. 9% against 23. 2% of the year 2006. The current expenditures achieved 66. 1% of the total expenditure, the difference being capital expenditure. 37.

Composed mainly of wages and salaries, expenditure on goods and services, exceptional expenditure, interest payments and the transfers and subsidies, the current expenditures were established at 313. 0 billion RWF against 250. 6 billion RWF at the end 2006 (that is an increase of 16. 6%). In proportion of the GDP, they represented 17. 1% against 15. 4% the previous year. According to their importance the current expenditures were divided into transfers and subsidies for 33. 1%, expenditure on goods and services for 24. 9%, salaries and wages for 23. 5%, exceptional expenditure for 15. % and the interest payments for 3. 5%. 38. The capital expenditures reached at 186. 3 billion RWF in 2007 against 118. 7 billion RWF the previous year (that is a rise of 57. 0%). Mainly, they were financed up to 65. 8% by external resources and by domestic resources for 34. 2%. The outstanding domestic debt increased from 150. 3 to 153. 4 billion RWF from December 2006 to December 2007 (that is an increase of 2. 1%). II. 3. MONETARY AND FINANCIAL SECTOR 39. Broad money grew by 31. 2% from December 2006 to December 2007. This was a result of a simultaneous growth of both net foreign assets (+23. %) and domestic assets (+2522. 2). Net foreign 8 assets increase resulted from an increase of foreign disbursement as budgetary support and other foreign exchange revenues, while net domestic assets increase resulted from an increase in credit to the economy(+20. 9%), net credit to government continued its downward trend started in 2004(16. 6%). 40. Net foreign assets of the banking system rose from RWF 285. 1 to 351. 5 billion between 2006 and 2007. This is an increase of 23. 3%, against 28. 2% recorded the previous year. 41. Made of domestic credit and other items net, net domestic assets rose from RWF 0. to RWF 23. 6 billion between 2006 and 2007, which makes an increase of 2522. 2%. Net domestic increase has been greatly influenced by the increase in credit to the economy, which rose from RWF 162. 6 to 196. 6 billion, that is an increase of 20. 9%, compared to 22. 5% recorded the previous. 42. Made of money and quasi-money, broad money rose from RWF 286. 0 to 375. 1 billion between December 2006 and 2007, which is a substantial increase of 31. 2%, drawn mainly by the rapid growth of deposits. 43. Among the factors that contributed to broad money growth, one can mention high level of economic activity (6. % of growth rate), public expenditure (29,7% change compared to the previous year) but also a probable improvement in banking coverage. 44. Made of currency out of banks and demand deposits with the banking system, money rose from Rfw 157. 7 to 228. 0 billion between 2006 and 2007 that is an increase of 44. 6%, far above 18. 8% recorded between 2005 and 2006. 45. Demand deposits increased by 55. 8%, while currency in circulation rose by 23. 4%. December recorded the highest increase of 15. 0% compared to end November level, as households withdraw a lot of cash for the end of the year’s ceremonies (Christmas and New Year). II. 4.

EXTERNAL SECTOR II. 4. 1. BALANCE OF PAYMENTS 46. The year 2007 registered excess of global Balance of Payments. Compared to 2006, Balance of goods, services and revenue deteriorated with deficits of respectively 38% and 17%. Consequently the current account balance deficit was 9% despite an increase of current transfers by 41%. Nevertheless, the excess of Capital and Financial Operations absorbed the current account deficit and led to an excess of global balance of payments. 47. The external trade of the country was marked by a high increase of imports and exports. Despite good performances on exports registered in 2007, reaching USD 176. millions, their value 9 remains by far lower than imports CIF of USD 782 millions. Compared to 2006, exports and imports registered value increase of respectively 20 % and 32 %. Nevertheless, exports covered only 23 % of the expenses of imports of goods and services in 2007, while this rate was at 30. 5 % in 2006. 48. The high level of imports of goods and services combined with their progressive increase resulted in a more deteriorated deficit of current transactions. From a level of 207. 29 millions USD in 2006 the current account deficit reached 226. 27 millions in 2007; an increase of 9. 16%.

The level of deficit in 2007 corresponded to 7. 75% of GDP estimated at 2 918. 59 millions USD. 49. The mining sector continued the trend started since 2004 to become one of the key sectors of Rwanda exports. In 2007, mineral products generated the highest export earnings. The main mineral products exports (tin, coltan, wolfram), represented 40% of total exports followed respectively by coffee (20%) and tea (18 %. ). The exports of the coffee decreased by 48. 5 % in volume in 2007 compared to 2006 level due to bad rains cyclic phenomenon of good and bad production alternation. 50. The volume of coffee exported in 2007 is 13. 73 tons against 26. 000 tons registered in 2006, which is a significant decline of 48. 5 %. Coffee exports earnings are estimated at around USD 36 millions in 2007 against USD 54 millions registered in 2006; a decrease of 34 %. II. 4. 2. EXTERNAL DEBT 51. In 2007, the public external debt of Rwanda was mostly composed of loans from Multilateral Institutions, such as World Bank, African Development Bank and IMF and has represented 85. 51% of total public external debt, while the remaining 14. 49% was for bilateral partners. The later component of public external debt is mainly borrowed from Saudi Arabia, Abu-Dhabi, Kuwait and France.

This structure, with a big component in multilateral loans, has been enhanced by the cancellation of public external debt from Paris Club Countries in 2005. 52. In addition to the cancellation of Paris Club countries loans in 2005, the implementation of the G8 countries decision to cancel the total debt due to IMF and an important part of debt stock due to IDA and AfDB Group by the heavily indebted poor countries have contributed to reduce the public external debt stock of Rwanda in 2006 from 1523. 4 millions USD in 2005 to 449. 8 millions USD in 2006 and 503. 2 millions USD in 2007. 53.

As compared to the previous year, the public external debt stock increased by 11. 86% in 2007, standing at USD 503. 3 millions at the end of 2007, against USD 449. 8 millions at the end of 2006. This increase resulted mainly from new disbursements on multilateral loans in 2007, while at the same period, the bilateral debt decreased due to the cancellation of the China loan of about USD 17. 2 millions. 10 54. Due to the cancellation of most of the multilateral loans in 2006 following the implementation of the G8 member countries decision in July 2005 and the cancellation of Paris Club bilateral loans in 2005, the ervice due under public external debt continued to decline since 2006. The public external service due declined by 63. 06% in 2007 as compared to the previous year, standing at USD 12. 6 millions in 2007 from USD 34. 1 millions in 2006 and USD 50. 5 millions in 2005. That diminution resulted mainly to the multilateral debt service due which decreased by 71. 6% on principal payments and by 45. 6 % on interest payments in 2007. 57. With a very low magnitude, the bilateral debt service due decreased also in 2007 as compared to the previous year. It has been observed a decrease of bilateral service due of 50. %, standing at USD 1. 3 millions in 2007 against USD 2. 7 millions in 2006. III. ACTIVITIES OF THE BANK III. 1. MONETARY AND FOREIGN EXCHANGE POLICY 58. During 2007, the main activities in foreign exchange policy consisted in strengthening the achievements in informal foreign exchange market restructuring which aimed to integrate informal market in the official foreign exchange market and in improving the foreign exchange regulation. 59. It was observed in 2007, that the volume of exchange transactions carried out by restructured forex bureaus has been improved, due to continuous ensitization campaign which brought many former street foreign currency dealers to integrate the official foreign exchange market. Also, the restructuring of informal market has been extended to other regions, namely, Kagitumba and Akanyaru. 60. Main changes made earlier 2007 on Foreign exchange regulation were essentially related to removal of ceiling on anticipated payments of imports, foreign accounts withdraws and to simplification of formalities on buying foreign currencies and more extension of authorized capital operations. 1. The volume of foreign exchange operations carried out by the NBR in 2007 and which generated resources in foreign currency were consisted mainly of current budgetary support disbursements, provisioning of projects accounts and other customers’ accounts in foreign currency located in NBR. Compared to year 2006, the resources in foreign currency generated by NBR foreign exchange operations registered a increase of about 46. 3% in 2007, passing from USD 448. 1 millions in 2006 to USD 655. millions in 2007. 62. In order to suitably fulfil its mission, during the year 2007, the National Bank of Rwanda implemented a prudent and stern monetary policy consistent with the economicsituation so as to achieve monetary target agreed upon with the IMF. 11 63. In this regard, the National Bank of Rwanda continued to use indirect instruments for monetary aggregates control through its interventions on the money market, the monitoring of reserve requirements and the discount rate. 64.

In addition of the new policy of interest rate management implemented in August 2005, an adjustment was done by instruction number 01/2007 modifying the existing instruction number 02/2005 on reserve requirement. The only one modification is the reduction of the reserve requirement constitution period of two weeks to one week and comes into force since july2007. The aim of periodicity modification was to reduce the volatility of the operational aggregate. 65. Steady growth in excess liquidity that was observed in the banking system for more than three years continued during the year 2007.

This growth in banks’ treasury is a result of high level of government expenditure due to a huge amount disbursed as budget support. To avoid the expansionary tendency which can result to those government expenditures, the Monetary Authority intensified its interventions on the money market by mopping up liquidity on a weekly basis, combined with Treasury Bills issuance and overnight investment facility. 66. During the year 2007, total liquidity borrowing amounted to RWF 594. 55 billion against RWF 360. 25 billion in 2006.

During the same period, the Bank carried out overnight investment operations with a total amount of RWF 3 031. 9 billion in 2007 against 1401. 979 billion in 2006. The increase in the amount of liquidity borrowed and invested in overnight in 2007 is explained by the Monetary Authority’s preference to issue Treasury Bills of more than four weeks. Thus, to avoid sudden treasury shortages commercial banks preferred to invest in short term namely one week instead of long maturities. III. 2. MANAGEMENT OF SPECIAL FUND AND LINES OF CREDIT 67.

In the framework of economic policy development and poverty reduction strategies, the Government of Rwanda put in place different facilities and lines which serve as financial instruments to stimulate investments in priority sectors thereby eradicating poverty among Rwandans. 68. These lines are Agriculture Guarantee Facility, Guarantee Fund and Credit Line for the retrenched civil servant of republic of Rwanda, Rural Investment Facility, Preferential Refinancing Facility for medium and long term loans for Agriculture exports and Agro- business Activities and Women Guarantee Fund. 69.

The NBR continued to manage all these facilities as part of a support policy to the Government of Rwanda for the fulfilment of its objectives of fighting poverty and strengthening of the national economy. 12 III. 3. CURRENCY OPERATIONS 70. Like previous years, currency in circulation outside the NBR experienced during the financial year 2007 a strong growth, passing from RWF 58,44 billion at the end of 2006 to RWF 72,76 billion, that is to say an increase of 25 % approximately. This developments show the same upward trend for the period of March to July and the period of the end of the year.

As for the other financial years, this acceleration known during 2007 is in general due to the coffee season period (MarchJuly) dynamism and the households’ financial behaviour for the Christmas and New Year festivals for the end of the year. 71. Concerning the composition of the currency in circulation outside the NBR at the end of financial year 2007, the 5 000 RWF banknote was still predominant in the stock of currency in circulation, representing approximately 71 % against 74 % at the end of 2006. However, it is hoped that the introduction of 2. 00 RWF banknotes, put into the circulation since December 20, 2007, will provide the solution to that anomaly. III. 4. FOREIGN RESERVE MANAGEMENT 72. During the year 2007, the NBR’s forex gross reserves registered a significant growth from 440. 69 million of USD to USD 553. 99 millions, between end December 2006 and end December 2007, i. e. a remarkable increase of external aid in budget support comprised of, replenishment of banks’ accounts, and other receipts in forex. The budget support increased from 121. 22 millions to 234. 9 millions USD in 2006 and 2007 respectively. I. e. an increase of 94%. The UK, the World Bank, The African Development Bank and the European Union disbursed funds in the following order respectively; 65. 53 millions, 51. 50 million, 31. 55 millions and 23. 52 USD millions. The banks’ replenishment increased from 76. 77 to 94. 84 USD millions, from end December 2006 to end December 2007, i. e. , an increase of 23. 54%. 73. Other receipts also increased from 45. 39 USD millions to 123. 47 USD millions, i. e. an increment of 78. 08 USD millions. This increase essentially ame from a disbursement of 50 USD million of LAP GREEN in favour of Privatization secretariats due to the privatization of RWANDATEL. 74. It can be noted that the average levels of NBR’s gross reserves that were at 422 USD million in 2006, increased to 486 USD millions in 2007, i. e. an increment of 15. 17%. Meanwhile, one can highlight that the project financing occupied the second source of the growth of NBR’s gross reserves for the last years, after the budget support, but, we registered a decline in 2007; the last one decreased from 150. 70 to 123. 47 USD millions from end December 2006 to end December 2007, i. . a down wards variation of 18%. III. 5. BANKING SUPERVISION 75. During the year 2007, Banking Supervision efforts were focused primarily on the reorganisation of a failed bank through its sale, the privatization process of the country’s largest bank, drafting 13 regulations to carry out the purposes and provisions of new Banking Act as well as Microfinance Act, the establishment of a regulation relating to the Write Off loans older than six months in banks’ assets, off site examination and the establishment of an automatic data reporting system for financial institutions s well as on site examination of banks based on the new risk based supervision approach. 76. During the period under review, banking supervision also focused on proceeding licensing operations of microfinance institutions as well as the rehabilitation of this sector through meetings between, on one hand, Central Bank Management with some MFI’s and, on the other hand, between the Governor of the NBR, local authorities represented by provincial governors and the Mayor of the City of Kigali in the presence of directors of MFI’s operating in those Provinces and the City of Kigali and the liquidators of closed MFI’s in 2006. 7. The year 2007 was characterized as well by the programme of supervision of the IMF, the continuation of the integration of the IMF to the public credit registry, the increase in the authorized capital of 1. 5 billion to 5 billion RWF and 100 million to 300 million RWF, respectively for the commercial banks and the IMF having adopted the legal form of limited company. 78. After the reorganisation of a failed bank, all banks recorded a solvability ratio higher than the required 10%. Consolidated solvability ratio stood at 12. % as at the end of September 2007 against 13,7% in December 2006 with net worth of RWF 27,2 billion and risk weighted assets of RWF 212,9 billion RWF. 79. In regard to loans statistics, data on new loans disbursed by 6 commercial banks was made available every week. From January to November 2007, commercial banks authorized balance sheet loans amounting RWF 125. 075 million, including RWF 6. 788 million coffee seasonal loans of 2007. The table below shows the distribution of loans by economic sectors from January to November 2007. 80.

Outstanding loans granted by the banking sector (commercial banks, BRD and BHR) to the economy as provided by the centrale d’information stands at RWF 192,32 billions as at 31 august 2007. III. 6. PAYMENT SYSTEM 81. Cash in form of Currency in circulation (notes and coins) continued to be the most widely used means of payment in 2007. Currency in Circulation at the end of December 2007 was RWF 72. 76 billion and averaged 60. 48 billion for the whole year. 82. In terms of volume (number of transactions), cheques have continued to dominate the non cash instruments, whereas the credit transfers take the lead in terms of value.

The non cash 14 instruments include; cheques, credit transfers, traveller’s cheques, certified cheques, direct debits, standing orders and bank cards both debit and credit. 83. During the course of 2007, concerted efforts were put on finding a strategic partner for SIMTEL. A request for proposal was sent to many companies that have a wealth of experience in running electronic payment platforms. Upon evaluation of the bids and proposals the African Development Corporation (ADC) emerged with the best proposal and was selected.

All the SIMTEL shareholders approved that ADC should be the preferred partner and a MoU was signed where ADC is slated to inject 3. 5 Million USD into SIMTEL and take a 70% stake. 84. During the course of 2008, the debit cards issued by Rwandan banks shall be personalized in Rwanda at SIMTEL on a 24 hours basis. This means that Banks will be able to issue their clients with cards in 24 hours contrary to the present two/three months. This will quicken the process of issuing cards and hence more people will “carded”.

In order to ensure that all categories of people do posses cards, different categories of cards shall be issued; a simple national debit card for payment at PoS and ATM, the VISA branded debit card which can be scaled with international features, and the VISA branded credit card for the top clients of Banks. The aim is to increase cards usage and move away from cash payments to electronic and card based payments. 85. In the spirit of promoting accessibility to payment and banking services by the population, most especially the unbanked.

The NBR in liaison with the World Bank and the Government of Rwanda will support initiatives in the introduction of M-banking and payments and encourage remittances both internally and from the Rwandan Diaspora. The NBR will, however, ensure that there exists an appropriate policy and regulatory framework for these products so that competition is not stifled, and consumer protection is ensured. In the same breath, mobile phone companies will be encouraged to enter the payments market so as to introduce the use of mobile phones in the funds transfer system.

V. BACKUP ACTIVITIES V. 1. AUDIT ACTIVITIES 86. During the year 2007, the Management of the Bank directed that Internal Audit Department (IAD) activities be focused on the operations of the departments in direct liaison with the customers of the Bank. 87. It is in that context that general audit assignments were carried out in the activities of the Emission and Banking Operations, foreign reserves management activities, Human Resource management activities, foreign exchange and Balance of Payments activities, and general services activities.

Moreover, specific audits as well as investigations at the request of the Management have been carried out. 15 PART I ECONOMIC AND FINANCIAL DEVELOPMENTS 16 CHAPTER I: INTERNATIONAL ECONOMIC ENVIRONMENT I. 1. ECONOMIC SITUATION I. 1. 1. Production There were multiple shocks that shook the world economy in 2007 originating mainly from the credit crisis in the USA and the rise in oil prices. However the world economy remained dynamic, drawing the strength of the growth in the emerging countries like India and China.

The economic growth rate slightly dropped, coming from 5. 0% to 4. 9% between 2006 and 2007. The financial conditions tightened in several countries of the world and the inflationary pressures remained high reflecting the rise in the oil prices and in the agricultural products. In the developed countries, the economic activity recorded a rebound of growth during the third quarter of 2007 that is a rate of growth of 0. 9% against 0. 5% in the second quarter. On the annual average however, the economic growth rate slightly decreased, reaching 2. 7% against 3. 0% in 2006.

In the United States, the economic activity has shown its resistance after a persistent crisis in the real estate sector. In the second and third quarter, the economy recorded a growth rate of 3. 8% and 4. 9% respectively on annual basis after a slight decline shown at the beginning of 2007. This performance is explained by the strong contribution of net exports which was stimulated by the depreciation of the American dollar as well as the vigour of private consumption. With IMF estimates in April 2008, the annual average economic growth rate returned to 2. 2% whereas it was 2. % in 2006. In the euro zone, the economic growth rate stood at 2. 6% in 2007 against 2. 8% attained in 2006. This decline in the growth rate is explained by the weak performances recorded in industries and services sectors. In addition, the market of the real estate presented signs of weakness in many member countries and the world demand which is addressed to the euro zone weakened. Moreover, the dynamism of business investment would be diluted by the tightening of financial conditions and the slowdown in private consumption sapped by the upward inflationary pressures.

In Japan, the economic activity has continued to recover but the growth rate slightly contracted after a rebound between the second and third quarters 2007, that’s the rates of 2. 1% and 1. 6% respectively. During the fourth quarter, the growth slowed down due to reduced of business confidence particularly in industry and by the weakness of the domestic demand. The weakness particularly, in the real estate sector, in which the conditions of granting building permits were made more stringent since June 2007. For the fourth quarter 2007, the economic growth rate in 7 Japan was estimated at 0. 2% while the annual average year 2007 (according to IMF estimates) was 2. 1% against 2. 4% in 2006. Table 1: Economic growth developments in the world (annual growth rate) Designation World Developed countries Major Developed countries – United-States – Japan – European Union Of which Euro Zone Other Developed countries -Asian NIC Other Emerging and Developing – Africa – Asia – Western Hemisphere 2003 3. 6 1. 9 1. 8 2. 5 1. 4 1. 5 0. 8 2. 5 3. 2 6. 2 5. 3 8. 1 2. 1 2004 4. 9 3. 2 3. 0 3. 6 2. 7 2. 7 2. 1 4. 1 5. 9 7. 5 6. 5 8. 6 6. 2005 4. 4 2. 6 2. 3 3. 1 1. 9 2,1 1. 6 3. 2 4. 8 7. 1 5. 7 9. 0 4. 6 2006 5. 0 3. 0 2. 7 2,9 2. 4 3. 3 2. 8 3. 8 5. 6 7. 8 5. 9 9. 6 5. 5 2007 4. 9 2. 7 2. 2 2,2 2. 1 3. 1 2. 6 3. 9 5. 6 7. 9 6. 2 9. 7 5. 6 Source: IMF, World Economic Outlook, April 2008, P. 241. In the emerging market and developing economies, the economic activity kept its strength and the growth rate attained 7. 9% in annual average at the end of 2007 against 7. 8% in 2006. These performances were obtained thanks to vigour of the demand for primary commodities and to the rise in their prices.

However, in spite of the improvement of internal conditions, the majority of the developing countries remain vulnerable to a possibly deceleration in the developed economies, to the volatility in the prices of the primary commodities, to the risk of increase of the protectionist pressures and to a potential hardening of the financing conditions on the international capital markets. In Asian emerging countries, the activity grew at a rapid pace during the first half of the year and the growth rate is estimated at 9. 7% on the whole year against 9. 6% in 2006.

In China in particular, the economic activity remains vigorous drawn by the investment and strength of the foreign trade. The trade balance surplus for the first ten months of the year 2007 exceeds 210 billion dollars, that’s a rise of 60% compared to 2006. On annual average, the economic growth would attain 11. 4% at the end of 2007. In Latin America, the level of activity remains constant in spite of a slight moderation of the growth rate, that’s 5% in 2007 against 5. 5% the year before thanks to the improvement of terms of trade of raw materials, the strength of domestic demand and the volume of foreign direct investments.

In Africa, the economic growth rate reached 6. 2% at the end of December 2007, against 5. 9% in 2006. These performances are the result of a combination of factors such as the appreciation of 18 the terms of trade for non-energy primary commodities, the increase in the foreign assistance and capital inflows in favour of certain countries. Indeed, foreign direct investments in favour of Africa increased by 26. 5% in 2006. Moreover, the contribution to the growth of the oil-producing countries was very significant and, the importing oil countries could resist to the rise in the oil prices.

In sub-Saharan Africa, the economic activity increased by 6. 1% in 2007, against 5. 7% in 2006. Table 2: Economic growth developments in neighbouring countries (annual growth rate) Designation Africa Angola Burundi Comoros Djibouti Erythrea Ethiopia Kenya Madagascar Malawi Mauritius Namibia DRC Rwanda Seychelles Sudan Swaziland Tanzania Uganda Zambia Zimbabwe 2003 5. 3 3. 3 -1. 2 2. 5 3. 2 -2. 7 -3. 5 2. 8 10. 8 4. 2 3. 8 3. 5 5. 8 0. 3 -5. 9 7. 1 3. 9 6. 9 4. 7 5. 1 -10. 4 2004 6. 5 11. 2 4. 8 -0. 2 3. 0 1. 5 9. 8 4. 6 5. 3 5. 0 4. 7 6. 6 6. 6 5. 3 -2. 9 5. 1 2. 5 7. 8 5. 4 5. 4 -3. 8 2005 5. 7 20. 6 0. 9 4. 3. 2 2. 6 12. 6 5. 8 4. 4 2. 3 3. 1 4. 8 7. 9 7. 1 1. 2 6. 3 2. 2 7. 4 6. 8 5. 2 -4. 0 2006 5. 9 18. 6 5. 1 1. 2 4. 8 -1. 0 11. 6 6. 1 5. 0 7. 9 3. 6 4. 1 5. 6 5. 5 5. 3 11. 3 2. 8 6. 7 5. 1 6. 2 -5. 4 2007 6. 2 21. 1 3. 6 -1. 0 5. 2 1. 3 11. 4 7. 0 6. 3 7. 4 4. 6 4. 4 6. 3 6. 0 5. 3 10. 5 2. 4 7. 3 6. 5 5. 3 -6. 1 Source: IMF, World Economic Outlook, April 2008, P. 245. I. 1. 2. Inflation The inflationary pressures moderate in 2007 thanks to the decrease in the oil prices since the end of 2006 and to the deceleration of the world economic growth and the tightening of the monetary policy in many countries.

In the industrialized countries, the inflationary pressures intensified in November, but average inflation over the whole year is estimated at 2. 2%, rate slightly lower than that of 2. 4% recorded in 2006. The OECD countries recorded an annual inflation rate of 3. 3% in November against 2. 8% in October while inflation excluding foodstuffs remained unchanged to 2% on annualised rhythm. In the United States, while the inflation had been 4. 3% higher in November compared to the level reached the previous year, core inflation remained stable at 2. 3%. On the whole year 2007, overall inflation would attain 2. 9% against 3. % in 2006. In the Euro Zone, the HICP stabilized at 3. 1% in December 2007, level reached in November because of the rise in the prices of energy and the foodstuffs. On average annual, the rate of inflation would account for 2. 1% in 2007, against 2. 2% in 2006. 19 Table 3: Inflation Developments (annual change in %) Designation Developed countries United States Euro Zone Japan Other developed countries Other market economies and developing Africa Asia 2003 1. 8 2. 3 2. 1 -0. 3 1. 8 6. 6 8. 6 2. 5 2004 2. 0 2. 7 2. 1 1. 7 5. 9 6. 3 4. 1 2005 2. 3 3. 4 2. 2 -0. 3 2. 1 5. 7 7. 1 3. 8 2006 2. 4 3. 2 2. 2 0. 3 2. 1 5. 4 6. 4. 1 2007 2. 2 2. 9 2. 1 0. 1 2. 1 6. 4 6. 3 5. 3 Source: IMF, World Economic Outlook, April 2008, P. 249. In Japan, in spite of four years of none zero growth, the price level remained very low because of the low levels of wages. In November 2007, inflation is positive of 0. 6% after 0. 3% in October, while excluding foodstuffs, it was 0. 4% against 0. 1% in October. The risks of deflation remained however eminent in an expanding economy since five years. According to IMF estimates the annual average inflation rate was 0. 1% in 2007. In Asian emerging markets and developing economies, inflation was established to 6. % in November against 6. 5% in October due to fluctuations in foodstuffs prices. On the whole year 2007, average inflation rate was estimated at 5. 3% against 4. 1% in 2006. In Africa, inflation remained almost stable and accounted for 6. 3% in average at the end of 2007 against 6. 4% in 2006. Prices of energy were characterized by a strong volatility during the year. While the prices of oil fluctuated between 60 and 65 dollars during the year 2006, their level did not cease increasing during 2007, reaching a proof of 96 dollars on 23 November. By the way, on 5 December, Brent crude oil was at USD 89. 7 per barrel.

The boost in oil prices is related to seasonal risks, to the continuing geopolitical tensions in oil-producing countries, to the insufficiency of the investments in refining capacities. In particular, during 2006, the announcement of the reduction in the production by OPEC from November, the relatively significant fall of American stocks, exerted pressures on oil prices. In relation to the previous year, the oil prices in USD increased by 10. 7% in 2007. The prices of the non-energy commodities increased already since the second half of 2006 because of seasonal conditions and following the increase in demand for biocarburants.

Consequently the surface allocated to the production of the foodstuffs has been reduced. In US dollars, the prices of the non-energy commodities increased by 14% compared to the previous year. I. 2. WORLD TRADE During the year 2007, the growth of the world trade continued but with a slight deceleration comparatively to the previous year. According to IMF estimates, the real growth of the world trade was at 9. 2% at the end of 2006 and at 6. 8% at the end of 2007. According to these estimates, the world exports of goods and services increased by 5. 8% in the developed countries and of 8. 9% in 0 the emergent countries and developing country against 8. 2% and 10. 9% respectively in 2006. In the same way, the volume of imports would increase by 4. 2% in the developed countries and 12. 8% in the emerging and developing economies. Concerning terms of trade, after depreciation over three consecutive years in developed countries, they improved slightly during 2007, reaching a rate of 0. 2% against -1. 1% in 2006. Conversely, in the emerging and developing countries, although the terms of trade improved, they were less attractive than the previous year, that’s respective rates of 1. % and 4. 7% in 2007 and 2006. Table 4: World trade developments (annual change in %) Designation Trade of goods and services – Volume – Deflator in USD Trade in volume – Exports Developed countries Emerging and developing countries – Imports Developed countries Emerging and developing countries – Terms of trade Developed economies Emerging and developing countries Trade of goods World trade – volume – Deflators in dollars World price in dollars – Manufactures – Oil – Non-energy commodities 14. 4 15. 8 5. 9 9. 5 30. 7 15. 2 3. 6 41. 3 6. 1 3. 8 20. 5 23. 2 9. 7 10. 7 14. 6. 3 9. 9 10. 8 9. 9 7. 5 6. 3 9. 1 5. 7 6. 4 8. 4 1. 0 1. 1 -0. 1 3. 0 -1. 5 5. 6 -1. 1 4. 7 0. 2 1. 4 4. 1 10. 1 9. 3 16. 1 6. 3 12. 0 7. 4 14. 4 4. 2 12. 8 3. 3 10. 5 9. 0 14. 1 6. 0 11. 1 8. 2 10. 9 5. 8 8. 9 5. 4 10. 4 10. 7 9. 6 7. 6 5. 5 9. 2 4. 9 6. 8 8. 2 2003 2004 2005 2006 2007 Source: IMF, World Economic Outlook, April 2008, P. 256. In parallel, the volume of the world trade of goods increased by 6. 4% against 9. 1%, the previous year. Concerning the evolution of the trade of the goods by sector, it was very influenced by the trend of relative prices.

Thus, the manufacturing products, would have known a significant rise of their prices i. e. 9. 7% against 3. 8% in 2006. The respective rise in the prices of oil and of nonenergy commodities was envisaged to lie at 10. 7% and at 14. 0% respectively at the end of 2007 against 20. 5% and 23. 2% in 2006. 21 Table 5: Sub-Saharan African world trade (annual change in %) Designation Total value in USD Exports Imports Volume Exports Imports Unit value in USD Exports Imports Terms of trade 17. 8 16. 0 1. 5 21. 0 15. 0 5. 2 21. 6 7. 4 13. 2 15. 0 4. 2 10. 3 10. 5 5. 3 4. 9 7. 8. 5 7. 9 7. 7 5. 3 14. 5 3. 4 14. 6 4. 7 14. 7 26. 6 25. 4 30. 2 23. 0 27. 4 22. 5 18. 9 19. 4 15. 6 20. 7 2003 2004 2005 2006 2007 Source: IMF, World Economic Outlook, April 2008. The African trade of goods remained robust even if their growth rate considerably bent as well as in volume and in value. African real exports increased by 4. 9% at the end of 2007 against 18. 1% in 2006, while the real imports increased by 13. 0% against 11. 1% on the same period. The terms of trade significantly depreciated for Africa whose exports are mainly made of primary commodities.

This same tendency remained valid for sub-Saharan Africa whose trade was substantially influenced by the trend in relative prices. Exports, in value, remained strong, but their growth rate considerably declined, dropping from 18. 9% to 15. 6% while imports in value augmented from 19. 4% to 20. 7% for the imports from 2006 to 2007. On the contrary, the exports in volume were envisaged to increase significantly attaining 4. 7% at the end of 2007, against 3. 4% in 2006. With regards to imports, their percentage change would lie at 14. 7% in volume at the end of 2007 after an increase of 14. 6% recorded in 2006.

Prices at export increased by 10. 5% in 2007 while they augmented by 15. 0% in 2006. On the contrarily, prices at imports slightly increased, attaining an annual change rate of 5. 3% against 4. 2% in 2006. Consequently, terms of trade improved by 4. 9% compared to the previous year. I. 3. INTEREST RATES AND CAPITAL MARKET On the financial markets, the tensions have difficult to dissipate itself in spite of the repeated injections of liquidity by the central banks. The real estate crisis which occurred in the United States caused a general shortage of liquidity affecting the money markets since August.

The monetary policy rates curved and the differential between these rates and the three months interest rates enlarged, the three months interest rates becoming unusually higher than the monetary policy rates. The Federal Reserve reduced by 25 basic points its monetary policy rate to bring it back to 4. 25% in December 2007 while it was 5. 25% in December of the previous year. This easing of the financing conditions, if likely to limit the degradation of the financial markets, would have as a consequence the weakening of the dollar vis-a-vis the principal currencies.

On annual average, the three months rates were recorded at 4. 70% in 2007, against 5. 36% the previous year. 22 On the government bonds market, the outputs were very volatile because of the situation of risk related to the prospects for the American economy. On the whole year 2007, the return on the 10 years government bonds, dropped from 4. 70% in 2006 to 4. 03% in 2007. In the euro zone, taking into account the tensions on the price stability and the strong growth of the money and credit, the central bank decided, in its meeting of December 6, 2007, to maintain constant to 4% its principal key interest rate.

The short-term interest rates, took again their upward trend in December after two successive falls in November and October. While this rate was 3. 75% in 2006, it ends up being 4. 85 in December 2007. The same tendency remains valid in terms of annual average because this rate jumped from 3. 63% to 3. 76% from 2006 to 2007. The return of 10 years government bonds increased thanks to the optimism growing of the economic operators because of the improvement of the economic outlooks in the short and medium term. At the end of 2007, the return rate of European ten years bonds is estimated at 4. 3% against 3. 95% in 2006. The Japanese central bank kept an accommodating monetary policy by maintaining its policy rate at 0. 5% since February because of the fragility of its growth, the absence of the inflationary tensions and its strong sensitivity to the financial crisis. Yearly, the average central bank rate amounted at 0. 75% against 0. 40%. Thus, the average short-term interest rates passed from 0. 57% to 0. 90% from 2006 to 2007. Similarly, the long rates slightly dropped to 1. 51% in 2007 against 1. 69% in 2006. Table 6: Interest rates developments (annual average in %)

Designation Monetary policy rate – United States – Japan – Euro Zone – United Kingdom – Canada Short-term interest rates Developed countries – United States – Japan – Euro Zone – United Kingdom – Canada – Asian Emerging countries Long-term interest rates Developed countries – United States – Japan – Euro Zone – United Kingdom – Canada – Asian emerging countries 2003 1. 0 0. 0 2. 0 3. 8 2. 8 1. 6 1. 0 0. 0 2. 3 3. 7 2. 9 2. 3 3. 6 4. 0 1. 0 3. 9 4. 5 4. 8 3. 9 2004 2. 2 0. 0 2. 0 4. 8 2. 5 1. 8 1. 4 0. 0 2. 1 4. 6 2. 2 2. 2 3. 7 4. 3 1. 5 3. 8 4. 8 4. 6 3. 7 2005 4. 2 0. 2. 3 4. 5 3. 3 2. 5 3. 2 0. 0 2. 2 4. 7 2. 3 2. 3 3. 6 4. 3 1. 4 3. 4 4. 3 4. 1 3. 8 2006* 5. 25 0. 40 3. 50 5. 00 4. 25 3. 8 5. 36 0. 40 3. 63 5. 32 4. 28 4. 1 4. 3 4. 70 1. 69 3. 95 5. 00 4. 09 5. 2 2007* 4. 25 0. 75 4. 00 5. 50 4. 25 4. 70 0. 75 3. 76 5. 99 4. 56 4. 03 1. 51 4. 33 5. 50 3. 99 – Sources: IMF, World Economic Outlook, April 2008, P. 235 *BLOOMBERG Data Base On the foreign exchange market, after a long period of stability, the American dollar continues to be depreciated compared to the principal currencies. Thanks to the divergences in the American 23 nd European monetary policies, the euro recorded a strong appreciation vis-a-vis the dollar because especially of new concerns about the American financial market. Nevertheless, at the beginning of December the dollar first regained the breath after macroeconomic data better than awaited were published and that a kind of confidence was restored by the coordinated decision of several central banks to inject liquidity on the money market. But, towards the end of the year, this tendency was again reversed and the euro regained its strength. On average over the whole year, the euro was exchanged with 1. 7 dollars in 2007 against 1. 26 dollars in 2006 that is an appreciation of 8. 7%. In comparison with the yen, the dollar appreciated by 1. 1% between 2006 and 2007 because of anticipations of the economic operators about the Japanese monetary policy. Historically, such levels of exchange rates occasioned concerted interventions of several central banks on the foreign exchange markets. In the same way, the euro was appreciated in relations with the pound sterling. While it was exchanged with 0. 67 in average in 2006, it is worth 0. 73 pound sterling in average over 2007 that is an appreciation of 9%.

Table 7: Exchange rate developments (nominal exchange rate) Designation 2003 2004 2005 USD /Unit currency Euro Pound sterling 1. 13 1. 63 1. 24 1. 83 1. 25 1. 82 Currency units / USD Canadian Dollar Japanese Yen 1. 40 115. 8 1. 30 108. 1 1. 21 110. 0 1. 13 116. 3 1. 07 117. 6 1. 26 1. 84 1. 37 2. 00 2006 2007 Source: IMF, World Economic Outlook, April 2007, P. 236. Contrarily, the Canadian dollar recorded a significant depreciation in relation with the American dollar, that’s a depreciation rate of 5. 3% in 2007 comparatively with the year 2006. 24

CHAPTER II: NATIONAL ECONOMIC DEVELOPMENT II. 1 REAL SECTOR II. 1. 1 GROSS DOMESTIC PRODUCT II. 1. 1. 1 GDP RESOURCES The real GDP at constant prices of 2001 grew by 6% in 2007 against 5. 5% in 2006. This growth emanated from the recovery of the tertiary and secondary sectors which recorded an increase of 11. 4% and 9. 2% respectively of the value added in 2007 compared to the previous year. GDP per capita expressed in Rwandan francs, in current prices improved by 6. 6% as it rose from 181. 3 to 199. 9 thousand RWF. In terms of USD it registered an increase of 10. % that is from 331 USD in 2006 to 365 USD in 2007. Table 8: Developments in resources and uses of GDP (in billion RWF, at constant prices of 2001) Description RESOURCES Primary sector Secondary sector Tertiary sector Impute bank service charges Import taxes GDP Economic growth in % USES Final Consumption Investment Export (G&NFS) Less: Imports (G&NFS) Memorandum item: Current GDP per capita (in Rwf) in USD 114 530 214 132 836 230 151 334 271 181 288 331 199 881 365 808 116 72 170 858 129 89 207 922 145 95 232 981 151 102 242 1,051 152 95 258 307 110 361 (14) 61 825 0. 309 123 389 (17) 64 869 5. 3 325 130 425 18) 69 930 7. 1 328 142 459 (22) 74 981 5. 5 326 158 501 (26) 81 1 040 6. 0 2003 2004 2005 2006 2007 Source: National Institute of Statistics of Rwanda and MINECOFIN Tertiary sector maintained the first position in the structure of GDP with 48% of the GDP at constant prices of 2001, followed by primary sector (31%) and then secondary sector with 15% of the GDP in 2007. 25 Graph 1: Resources Structure (In % of GDP at constant prices of 2001) 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 Primary sector Secondary sector Tertiary sector Sour