SCCD : K.M

AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND ADB/BD/WP/2014/102 ADF/BD/WP/2014/70 5 June 2014 Prepared by: EARC/RWFO Original: English

Probable Date of Presentation to the Committee Operations/ Development Effectiveness

(CODE)

TO DE DETERMINED

FOR CONSIDERATION

MEMORANDUM TO : THE BOARDS OF DIRECTORS FROM : Cecilia AKINTOMIDE Secretary General SUBJECT : RWANDA – COMBINED 2012-2016 COUNTRY STRATEGY PAPER MID-

TERM REVIEW WITH COUNTRY PORTFOLIO PERFORMANCE REVIEW *

Please find attached the above-mentioned document. Attach:

Cc: The President

* Questions on this document should be referred to:

Mr. G.NEGATU Regional Director EARC Extension 8232 Mr. N. MAKONNEN Resident Representative RWFO Extension 6061 Mr. E. SENNOGA Country Economist RWFO Extension 6064 Mrs. H. HASHI Principal Country Program Officer RWFO Extension 6062

AFRICAN DEVELOPMENT BANK GROUP

RWANDA

COMBINED 2012-2016 COUNTRY STRATEGY PAPER MID-TERM REVIEW WITH

COUNTRY PORTFOLIO PERFORMANCE REVIEW

This combined Country Strategy Paper (CSP) 2012-16 Mid-Term Review (MTR) and Country Portfolio

Performance Review (CPPR) Report was prepared under the general guidance of Mr. Gabriel NEGATU,

Regional Director EARC; Mr. Negatu MAKONNEN, Resident Representative RWFO; and Mr. Stefan

MULLER, Lead Economist EARC. The CSP Core Task Team comprises Mr. Edward SENNOGA,

Country Economist RWFO; Ms. Halima HASHI, Country Portfolio Officer RWFO; and Mr. Bernis

BYAMUKAMA, Macroeconomist RWFO. The members of the CSP MTR and CPPR include:

CSP MTR/

CPPR Task

Team

Edward Sennoga Country Economist RWFO

Halima Hashi Country Programme Officer RWFO

Bernis Byamukama Macroeconomist RWFO

Joseph Nyirimana Agriculture Specialist RWFO

Philippe Munyaruyenzi Infrastructure Specialist RWFO

Ephrem Rutaboba Water and Sanitation Specialist RWFO

Elke Isimbi Disbursement Assistant RWFO

George Karara Procurement Officer RWFO

Justin Murara Chief Poverty Alleviation Officer OSHD.1

Mulle Chikoko Principal Social Protection

Specialist

OSHD.1

Xin Long Senior Financial Economist OSHD.1

Borel Anicet Foko Tagne Senior Education Economist OSHD.1

Clement Ahossi Chief Regional Procurement

Coordinator

EARC

Francis Mukandawire Principal Regional Financial

Management Coordinator

EARC

Stephen Bahemuka Senior Statistician EARC

Frank Sperling Chief Climate Specialist ONEC.3

Maria Jose Moreno Ruiz Chief Gender Officer OSHD.0

Peer Reviewers

Kate Tench Lead Strategy Economist COSP

Peninah Kariuki Chief Regional Economist SARC

Late Lawson Zankli Country Programme Officer EARC

Prajesh Bhakta Country Programme Officer EGFO

AFRICAN DEVELOPMENT BANK GROUP

RWANDA

COMBINED 2012-2016 COUNTRY STRATEGY PAPER MID-TERM REVIEW WITH COUNTRY PORTFOLIO PERFORMANCE REVIEW

EARC/RWFO

June 2014

TABLE OF CONTENTS Currency equivalents ............................................................................................................................... i Acronyms and abbreviations................................................................................................................... ii Map of Rwanda ...................................................................................................................................... iii Executive summary ................................................................................................................................ iv 1. INTRODUCTION ..................................................................................................................... 1 2. COUNTRY CONTEXT AND PROSPECTS ......................................................................... 1

2.1 Political Context ........................................................................................................................... 1 2.2 Economic Context ........................................................................................................................ 2 2.3 Social Context and Cross-Cutting Themes ................................................................................... 6

3. STRATEGIC OPTIONS ........................................................................................................... 8

3.1 Country Strategic Framework ...................................................................................................... 8 3.2 Aid Coordination and Harmonization .......................................................................................... 9 3.3 Bank Group Positioning ............................................................................................................... 9 3.4 Strengths, Opportunities, Challenges and Weaknesses .............................................................. 10

4. CSP IMPLEMENTATION AND RESULTS ACHIEVED AT MID-TERM .................... 10

4.1 CSP Strategic Focus and Bank Group Resource Allocation to Rwanda .................................... 10 4.2 CSP Implementation Status at Mid-term .................................................................................... 11 4.3 Results Achieved at Mid-term .................................................................................................... 11

5. COUNTRY PORTFOLIO PERFORMANCE REVIEW .................................................... 12

5.1 Portfolio Characteristics and Performance ................................................................................. 12 5.2 Status of Implementation of the 2012 Country Portfolio Improvement Plan ............................. 13 5.3 Outcome of the 2013 Country Portfolio Performance Review .................................................. 14 5.4 Portfolio Monitoring and Evaluation.......................................................................................... 14

6. LESSONS LEARNED ............................................................................................................. 14 7. BANK GROUP STRATEGY FOR THE REMAINING CSP PERIOD 2014-16 .............. 15

7.1 Rationale and Strategic Selectivity ............................................................................................. 15 7.2 Bank Assistance Strategy ........................................................................................................... 15 7.3 Bank Indicative Assistance Program .......................................................................................... 17 7.4 Non-lending Activities ............................................................................................................... 18 7.5 Monitoring and Evaluation ......................................................................................................... 18 7.6 Risks and Mitigation Measures .................................................................................................. 19

8. CONCLUSION AND RECOMMENDATIONS ................................................................... 19 ANNEXES ....................................................................................................................................... I

Annex 1: CSP 2012-16 Indicative Non-lending Program ........................................................................... I Annex 2: Bank Lending Programme 2011-2013: Total Resource Envelope ............................................ II Annex 3: Original CSP Results-Based Framework and Results Achieved by Mid-Term ........................ III Annex 4: Revised Results Monitoring Framework for the remainder of the CSP period 2014-16 .......... IX Annex 5: Summary of Bank Group On-going Operations (as at 31/01/2014) ....................................... XII Annex 6: 2012 Country Portfolio Implementation Plan Recommendations ......................................... XIII Annex 7: 2013 Country Portfolio Improvement Plan ............................................................................ XV Annex 8: Donor Division of Labor (DoL) ......................................................................................... XVIII Annex 9: Definition of Micro, Small and Medium Enterprises (MSMEs)............................................. XX Annex 10: Selected Macroeconomic Indicators .................................................................................... XXI Annex 11: Comparative Socio-Economic Indicators ...........................................................................XXII Annex 12: Progress Towards Achievement of MDGs ....................................................................... XXIII Annex 13: Country Policy and Institutional Assessment Ratings 2005-13 ........................................ XXIV Annex 14: Fiduciary Risk Assessments .............................................................................................. XXV

Endnotes .............................................................................................................................. XXIX

i

CURRENCY EQUIVALENTS

April 2014

Currency = Rwandan Franc (RWF)

UA 1.00 = USD 1.53

UA 1.00 = RWF 996.90

1USD = RWF 677

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR

July 1 - June 30

ii

ACRONYMS AND ABBREVIATIONS

ADB African Development Bank GGCRS Green Growth and Climate Resilience Strategy

ADF African Development Fund GoR Government of Rwanda

BSHG Budget Support Harmonization

Group

IIAG Ibrahim Index of African Governance

CAR Commitments At Risk IMF International Monetary Fund

COMESA Common Market for Eastern and

Southern Africa

MDGs Millennium Development Goals

CPIA Country Policy and Institutional

Assessment

MTR Medium Term Review

CPIP Country Portfolio Implementation

Plan

KRR Key Repo Rate

CPPR Country Portfolio Performance

Review

ODA Overseas Development Assistance

CSOs Civil Society Organizations PEFA Public Expenditure and Financial Accountability

CSP Country Strategy Paper PFM Public Financial Management

DfID Department for International

Development

PSI Policy Support Instrument

DOL Division of Labor PSO Private Sector Operation

DPCG Development Partner Coordination

Group

RBF Results-Based Framework

DRM Domestic Resource Mobilization RMC Regional Member Country

EAC East African Community RO Regional Operation

EADI African Development Institute RWFO Rwanda Field Office

EAs Executing Agencies SEAP Scaling-up Energy Access Program

EDPRS Economic Development and Poverty

Reduction Strategy

SEEP Skills, Employability and Entrepreneurship

Programme

EDRE Development Research Department SMEs Small and Medium Enterprises

EICV-4 Rwanda Integrated Living

Conditions Survey-4

SPIUs Single Project Implementation Units

ESTA Statistics Department UA Unit of Account

ESW Economic and Sector Work UN United Nations

GBS General Budget Support USD United States Dollar

GDP Gross Domestic Product VAT Value-Added Tax

iii

MAP OF RWANDA

iv

EXECUTIVE SUMMARY

1. The combined mid-term review (MTR) of the Bank’s Country Strategy Paper (CSP) 2012-16 for

Rwanda and Country Portfolio Performance Review (CPPR) has provided a platform for the Bank and

the Government of Rwanda (GoR) to assess progress made to date in the implementation of the

strategy, review the current strategic focus of the CSP, and to define the Bank’s strategy for the

remainder of the CSP period (2014-16). As the main outcome of the CSP MTR/CPPR, the Bank and

GoR agreed that the CSP’s current strategic focus on (i) infrastructure development; and (ii) enterprise

and institutional development is still relevant. These pillars are also consistent with Rwanda’s Vision

2020, second Economic Development and Poverty Reduction Strategy (2013-18) and the Bank’s Ten-

Year Strategy (TYS) 2013-22. However, to ensure alignment with the TYS core operational priorities,

‘enterprise and institutional development’ will be renamed ‘private sector development’. 2. The design and implementation of prudent macroeconomic policies, sustainable debt levels and

strong reserve buffers have contributed to the country’s resilience to external shocks. Real GDP grew

robustly by an average 6.5% during the period 2011-13, mainly driven by services and industry.

Growth in agriculture was moderate due to fluctuations in commodity prices and adverse weather

conditions. The economic outlook remains positive and is expected to benefit from a strong services

sector and increased productivity in the agriculture sector. High dependence on aid and a fragile global

economic recovery are the major downside risks. Policy measures to increase domestic resource

mobilization are being implemented to offset these risks.

3. The implementation of the CSP was good at mid-term: 12 out of the 13 output indicators and 4 of

the 6 outcome indicators that were planned to be achieved by CSP mid-term were achieved or strong

progress was made. Key results include the upgrading and rehabilitation of over 190km of roads which

increased the share of the classified national paved road network in good condition from 60% to 97.5%

between 2011 and 2013. The completion of 642,000 new water connections between 2011 and 2013

contributed to an increase in the share of the population with access to clean water from 65% to 78%

during this period. The implementation of the non-lending program has also been good, with the

outcomes being used to reinforce the lending activities and to inform country dialogue and policy.

4. The performance of the portfolio improved steadily between 2012 and 2013 with the portfolio

rating increasing from 2.43 (on a scale of 0-3) in 2012 to 2.55 in 2013. The 2013 CPPR shows good

performance, as was the case for the 2012 CPPR. Strong progress has also been achieved in the

implementation of the 2012 CPIP, with 70% and 10% of the policy actions fully and partially

implemented respectively. However, more effort is required to improve the disbursement ratio, increase

the average project size, and to reduce delays in fulfilling effectiveness conditions especially for the

large infrastructure projects.

5. The CSP MTR/CPPR identifies several lessons which inform the Bank’s strategy for the remaining

CSP period 2014-16. These include the need for: (i) enhanced selectivity in supporting infrastructure

development; (ii) expanding the range of financing instruments to include partial credit and partial risk

guarantees as well as sovereign-guaranteed loans from the ADB window; and (iii) ensuring high

project quality at entry. The GoR and the Bank concur on maintaining the CSP’s strategic focus on

infrastructure and private sector development without any change in strategy, but with enhanced

selectivity. The TYS special areas of emphasis including gender equality and empowerment will be

mainstreamed into the Bank’s operations during the remainder of the CSP period.

1

1. INTRODUCTION 1. The overarching objective of the Bank’s Country Strategy Paper (CSP) 2012-16 for Rwanda

is to promote economic competitiveness for inclusive growth and poverty reduction. The CSP,

approved by the Boards of Executive Directors in November 2011, has two complementary pillars: (i)

Infrastructure Development; and (ii) Enterprise and Institutional Development. The CSP supports

Rwanda’s development aspirations as articulated in the Vision 2020 and the Economic Development

and Poverty Reduction Strategy (EDPRS). The CSP was aligned with EDPRS-1 (2008-12) and the

Bank’s Medium Term Strategy (2008-12). This CSP Mid-Term Review (MTR) is combined with the

annual Country Portfolio Performance Review (CPPR). The objective of the CSP MTR/CPPR is to

assess the extent to which the objectives and results expected by CSP mid-term have been achieved;

review portfolio performance; and define the Bank’s strategy for the remainder of the CSP period

2014-16. The MTR provides a platform to ensure alignment of the CSP with recently approved national

and Bank Group strategies including the EDPRS-2 (2013-18), the Bank’s Ten-Year Strategy (2013-22),

Private Sector Development Policy and Strategy (2013-17) and Gender Strategy (2014-18). 2. COUNTRY CONTEXT AND PROSPECTS 2.1 Political Context 2. Rwanda has recorded significant achievements in political stability, peace, security and rule

of law. International observers confirmed that the 2011 local government and senatorial elections and

the 2013 parliamentary elections were free and fair. The country’s ranking on Transparency

International’s Corruption Perception Index improved

from 50 out of 176 countries in 2012 to 49 out of 177

countries in 2013 which makes Rwanda the 4th

ranked

country in sub-Saharan Africa. Rwanda’s ranking on the

Mo-Ibrahim Index of African Governance also improved

from 23/52 (score of 53, 100 = best) in 2011 to 15/52

(57.8) in 2012. In recognition of its contribution to

fostering peace, security and reconciliation, Rwanda was

elected to the United Nations (UN) Security Council in

2012 to represent Eastern and Southern Africa for the

period 2013-14. Rwanda ranks higher than the African and East African average in terms of political

stability and rule of law, but lags behind in terms of voice and accountability (Figure 1). The current

social contract in Rwanda has delivered significant dividends in terms of peace, security and stability

which has enabled the country to make positive strides. The Government is committed to improving

political openness and participation and has taken measures to address the issue in recent years in order

to improve voice and accountability. For example, three new media pieces of legislation were ratified

in March 2013 which are aimed at improving media regulation to promote transparency and encourage

citizen economic and political participation. While these measures may not satisfy all stakeholders,

they represent positive and bold steps especially as the country approaches the next Presidential

elections scheduled for 2017. 3. Insecurity and instability in the Great Lakes Region (GLR) pose various challenges to

Rwanda’s development ambitions. The insurgency in eastern Democratic Republic of Congo (DRC)

that erupted in April 2012 has abated following efforts within the framework of the International

Conference on the Great Lakes Region (ICGLR) and African Union (AU) to find a negotiated solution.

This crisis affected Rwanda including through new refugee inflows, deterioration of relations with

some countries in the region and suspension of aid. While the situation has now stabilized, the

continuing presence of negative forces in the DRC particularly the Forces démocratiques de libération

du Rwanda, (FDLR) and the low intensity inter-communal conflict in eastern DRC are all factors that

can potentially create instability with negative effects on Rwanda’s security. The GLR comprises some

-1,5 -1,0 -0,5 0,0

Political Stability

Rule of Law

Voice and Accountability

Figure 1: Political Context, 2012 Score -4.0 (Worst) to 2.5 (Best)

Africa East Africa Rwanda

2

of Rwanda’s key trade partners and therefore any instability in the region could affect trade, economic

growth and development. 2.2 Economic Context 4. Economic performance has remained strong in spite of external shocks. Real GDP

growth increased from 6.3% in 2010 to 7.5% in 2011

before declining slightly to 7.3% in 2012 (Figure 2),

reflecting the beginning of the negative impact on

growth of the suspension of budget support

amounting to 1.2% of GDP (Box 1, p.3). Growth

continued to decline to 4.6% in 2013, when the

impact of the aid-cuts further unfolded. Growth

during the period 2011-13 was largely driven by

services and industry which grew at an average of

7% and 12% respectively. Growth in agriculture was

moderate at 3% with performance being adversely

affected by fluctuations in commodity prices and weather conditions.

5. The medium term growth outlook remains favourable. GDP growth is projected to benefit from

increased capital spending to finance the GoR’s strategic investments; increased agriculture

productivity due to scaled-up public and private investments in the sector; sustained growth in industry

and in the service sector. Reduced GoR borrowing from the domestic financial sector and stability in

donor aid flows are expected to drive growth in private sector credit with positive effects on GDP

growth. Real GDP growth is projected to increase from 4.6% in 2013 to between 6% and 7.5% in 2014

and 2015. Downside risks to the economic outlook derive from the high dependence on donor aid and a

fragile global economic recovery. 6. Efforts to achieve economic transformation are beginning to bear fruit and there is strong

potential for further gains through the development of value chains. Industry and services have

expanded much faster than agriculture over the period 2000-2013, with the service sector’s GDP share

increasing from 38% to 45% during this period. Growth in services has been driven by hotels and

restaurants, financial services and trade while construction has led growth in industry. Although

agriculture remains a key source of employment and exports, its share of GDP has decreased steadily

from 45.1% to 33% during the same period. While Rwanda is yet to experience the type of natural

resource discovery seen elsewhere in the region, mining, which accounts for 2% of GDP, is a major

source of foreign exchange and accounted for 32% of the USD 703 million export revenues in 2013.

Potential for expanding value chains exists in several areas, including principal exports (coffee, tea and

minerals); agro-processing; and ICT. Harnessing these value chains could drive further economic

transformation as appropriate policies and strategies are already in place. Infrastructure bottlenecks

particularly in energy and transport, skills deficits and low labor productivity are among the key

constraints to economic growth and structural transformation. The Bank, jointly with the Government

of Rwanda (GoR), is conducting a growth diagnostics study to, among others; inform a prioritized

approach to tackle binding constraints to growth. 7. The robust macroeconomic framework has kept the economy resilient to shocks.

Macroeconomic management is anchored on the 3-year IMF Policy Support Instrument (PSI) that was

approved in June in 2010 to support the implementation of the EDPRS while ensuring macroeconomic

stability. Implementation of prudent macroeconomic policies, sustainable debt levels and strong reserve

buffers contributed to the country’s resilience during the suspension of budget support disbursements in

2012. The Bank’s assessment, undertaken in December 2012, of the impact of the aid suspension on the

economy and progress towards the MDGs helped inform GoR’s policy responses to accommodate the

aid shortfalls. The suspended disbursements resumed in March 2013 and projections point to sustained

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure 2: Real GDP Growth (%)

Rwanda East Africa Africa

3

macroeconomic stability. The 7th

and final review of the PSI was successfully completed in December

2013 and a new 3-year PSI approved. The new PSI programme is anchored on four pillars including

private sector development, promotion of exports, domestic resource mobilization, and financial sector

development. Maintaining macroeconomic stability and strengthening public financial

management (PFM) remain key priorities. 8. Monetary policy remained tight in line with

the central bank’s twin objectives of low

inflation and stable growth in private sector

credit. The central bank’s policy rate (Key Repo

Rate, KRR) was increased successively from the

6% held since November 2010 to 7.5% in June

2012 and maintained at the same rate until May

2013 to contain inflationary pressures. The KRR

was reduced to 7.0% in June 2013 in line with the

easing inflationary pressures. Headline inflation

decreased from 5.7% year-over-year in January

2013 to 3.7% in December 2013 due to prudent

macroeconomic manage-ment and receding food

prices. Headline inflation averaged 4.2% in 2013

down from 6.3% in 2012, in line with the central

bank’s 5% medium term target. The reduction in

the KRR in June 2013 was also driven by the need

to reverse the slowdown in private sector credit

growth (Box 1). Growth in private sector credit is

projected to increase to 14% in 2014.

9. Fiscal policy has focused on achieving fiscal

consolidation. The GoR’s fiscal consolidation

strategy (FCS) aims to prioritize public spending, reduce domestic financing, and increase public

revenue mobilization. However, implementation of fiscal policy during FY 2012/13 was affected by the

abovementioned aid cut-backs. Fiscal adjustments to bridge this funding gap were undertaken including

postponing non-priority expenditures and borrowing from the domestic financial market. Following the

resumption of aid disbursements in March 2013, key productivity enhancing investments in transport,

energy and agriculture were implemented. Consequently, capital expenditure increased from 11.8% of

GDP in 2011/12 to 13.4% of GDP in 2012/13 while recurrent spending decreased from 15% of GDP to

13.6% during this period in line with the FCS. 10. Public revenues improved but higher spending increased the budget deficit. Tax revenues

increased to 14.2% of GDP in 2012/13, 0.6 percentage points higher than in 2011/12 due to the

implementation of revenue enhancing measures including revisions to the investment code and

introduction of a gaming tax. However, the increase in spending from 26.9% of GDP in 2011/12 to

30.5% in 2012/13 led to an increase in the budget deficit after grants from 1.2% of GDP to 5.0% during

the same period. Additional revenue enhancing measures are planned for the remaining CSP period

including introduction of comprehensive tax regimes for the agriculture and mining sectors and

improving property taxationi. These measures are projected to increase the share of tax revenues in

GDP from 14.2% in 2012/13 to 16.2% in 2014/15 with the budget deficit after grants decreasing from

5% of GDP to 4.3%. 11. Strong export growth and the rise in capital inflows contributed to an overall balance of

payments surplus. Growth in export receipts and a reduction in imports during the period 2012-2013

contributed to a reduction in the trade deficit from 17.9% of GDP to 15.1%. Export earnings increased

Box 1. Macroeconomic effects of the 2012 budget

support suspension

Rwanda’s key DPs suspended their budget support

disbursements amounting to 1.2% of GDP and 3.5% of the

2012/13 budget, following a UN report that Rwanda was

supporting insurgents in the eastern Democratic Republic of

Congo. Rwanda refuted these allegations. The GoR

responded to these aid cuts by postponing non-priority

expenditures and also borrowing from the domestic

financial market. These policy responses yielded several

outcomes. First, economic activity slowed. Real GDP

growth averaged 5.3% during the first three quarters of

2013 compared to 7.7% during the same period in 2012.

Second, growth in private sector credit was moderate.

The GoR’s use of the overdraft facility at the central bank

and treasury bills to bridge the funding gap crowded-out

private sector borrowing which slowed the expansion in

services and construction, the two key growth drivers in

2012. Growth in credit to the private sector was moderate at

10.8% in 2013 compared to the 35% in 2012. Third, the

Rwandan Franc depreciated. Use of foreign exchange

reserves to meet the high import demand in the midst of

reduced aid inflows contributed to a 4.5% depreciation of

the Rwandan Franc against US Dollar at end-2012. The

local currency depreciated by 6.1% against the US Dollar at

end-2013 due to high demand for intermediate and capital

goods imports.

4

by 19% to USD 703 million in 2013 compared to the previous year driven by higher mineral earnings

as a result of increased production and favourable prices for key mineral exports, particularly coltan

and cassiterite. Earnings from coffee and tea decreased in part due to reduced international prices.

Coffee, tea and minerals accounted for 48% of total exports in 2013, 4 percentage points higher than in

2012. Minerals receipts increased to USD 225.7 million in 2013, USD 89.6 million higher than in 2012

and are a major source of foreign exchange after tourism. Earnings from tourism increased to USD

293.6 million in 2013 compared to USD 281.8 million in 2012. Remittances increased from USD 166.2

million in 2011 to USD 175.3 million in 2012 before decreasing to USD 161.8 in 2013. These strong

inflows contributed to a reduction in the current account deficit from 11.4% of GDP in 2012 to 10.3%

in 2013. An increase in private and official capital inflows contributed to an overall balance of

payments surplus of 1.2% of GDP in 2013 compared to a deficit of 2.9% in 2012. Unused Eurobond

proceeds amounting to USD 121.2 million and a 3.5% increase in foreign direct investment to USD

165.4 million in 2013 led the increase in capital inflows. The 2011 National Export Strategy aims to

increase export earnings by diversifying into the non-traditional products in particular the agro-based

including horticulture while increasing production and pursuing value addition for the traditional

products such as tea and coffee. 12. Debt levels remain sustainable due to prudent debt management. A public debt manual was

adopted in July 2012 to guide the acquisition and management of public debt. The November 2013

IMF/World Bank Debt Sustainability Assessment indicates an improvement in Rwanda’s risk of debt

distress from moderate to low. In April 2013, Rwanda issued its first sovereign bond, a Eurobond of

USD 400 million. The 10-year bond, with a yield of 6.875% was eight times oversubscribed. The bond

proceeds are being used to repay current public sector loans that were acquired at higher interest rates

and to finance strategic investments. Rwanda’s strong track record of implementing prudent

macroeconomic policies positively influenced investor confidence. 13. Economic and financial governance continues to improve following the implementation of

comprehensive reforms to improve expenditure and revenue management. Starting in FY 2011/12,

the budget has been prepared in accordance with the IMF Government Financial Statistics Chart of

Accounts. This has improved the coverage and recording of budget transactions and strengthened the

harmonization of budgeting, financial accounting and reporting. The most recent PEFA assessment

conducted in 2010 revealed an improvement in several indicators of budget quality since the last PEFA

in 2007, including compliance with international best practices in budget credibility, transparency and

comprehensiveness. The Bank’s Country Policy and Institutional Assessment (Annex 13) shows a

steady improvement in the overall rating improved from 4.30 in 2011 to 4.68 in 2013, with the

Governance cluster rating improving from 4.1 to 4.6 during the same period. The Bank’s 2014

Fiduciary Risk Assessment (Annex 14) indicates that Rwanda’s fiduciary risk is moderate with

adequate Public Financial Management (PFM) systems and robust procurement systems. In 2012/13,

audit committees were established in all the 30 districts and in 10 out of 21 ministries. The percentage

of budget agencies submitting internal audit reports consequently increased from 70% in 2011/12 to

74.4% in 2012/13. The share of GoR expenditure audited by the Office of the Auditor General also

increased from 73% to 75% during the same period. However, the 2010 PEFA and the Bank’s 2014

Fiduciary Risk Assessment also identified two broad areas of PFM weaknesses (Annex 14): (i) external

scrutiny and audit; and (ii) accounting, recording and reporting. These weaknesses are being addressed

under the second phase of the PFM Reform Strategy (2014-18). The Bank actively contributes to

dialogue on financial governance within the framework of the PFM sector working group. 14. Rwanda remains one of the most consistent reformers in improving competitiveness and the

business environment. Rwanda remains the 3rd

most competitive country in sub-Saharan Africa

despite ranking 66/148 in the 2013 Global Competitiveness Index compared to 63/144 and 80/144 in

2012 and 2011 respectively. Strong and well-functioning institutions, low levels of corruption, efficient

labor markets and relatively well developed financial markets are among the factors behind these

5

strong ratings. Further improvements in ranking will require addressing infrastructure bottlenecks and

increasing labor productivity. The country’s Doing Business ranking also improved from 54/185 in

2012 to 32/189 in 2013, with improvements being recorded in 8 of the 10 dimensionsii that measure the

state of business climate. GoR’s focus, through the second Economic Development and Poverty

Reduction Strategy (2013-18), is to leverage these improvements to catalyse both domestic and foreign

direct investments. This will require sustaining measures aimed at addressing the high energy and

transport costs which increase the cost of doing business. The development of quality and relevant

skills for the country’s economic transformation is also a key priority. 15. The private sector has great potential but is impeded by various challenges. Over 90% of

Rwanda’s workforce is employed in the private sector. The Micro, Small and medium enterprises

(MSMEs) account for 98% of the estimated 123,000 businesses operating in the country (Annex 9) and

provide 84% of private sector employment. Due to a large informal sector – accounting for 51% of

total employment, only 14,000 firms are registered with the Rwanda Revenue Authority, 40% of which

are registered for VAT and an even lower 11% for income taxes. Key impediments to private sector

development include the high cost of energy and transport, skills gap and mis-match with an average

skills deficit of 40% in 2012iii

, and poor business planning and management skills, particularly for the

MSMEs. GoR adopted a Private Sector Development Strategy in June 2013 to holistically address these

bottlenecks, facilitate investment and promote private sector growth.

16. Financial inclusion has expanded and competition in the banking sector has improved. The

2012 FinScope survey reported that the percentage of the adult population with access to formal and

informal financial products increased to 72% (42% used formal financial services and 58% used

informal financial mechanisms) in 2012 from 52% in 2008. The banked population has also increased

from 14% in 2008 to 23% in 2012. However, financial exclusion is highest among women (32.2% of

excluded adults) compared to men (22.4%). Competition in the banking sector, which dominates the

country’s financial sector, has increased. The average share in total deposits, loans and assets of the

three largest banks (out of 16 banking institutions) decreased from 72% in 2002 to 49% in 2012. The

non-performing loans (NPL) ratio at 7.0% in December 2013 was at par with the regulatory benchmark

of 7% while the capital adequacy ratio (CAR) at 23.1% during the same period was better than

regulatory minimum of 15%. The banking sector remains profitable despite the decrease in the return

on average equity from 10.4% in December 2012 to 7.3% in December 2013. The microfinance sector

which comprises 491 institutions – 13 limited liability companies and 478 savings and credit

cooperatives – is well capitalized with strong asset quality. The sector’s CAR increased from 29.8% at

end-2012 to 33.4% at end-2013 while the NPL ratio decreased from 8.5% to 6.8% during the same

period. The Bank’s support through lines of credit to the Bank of Kigali and the Development Bank of

Rwanda is contributing to increased access to credit particularly for SMEs. 17. Infrastructure bottlenecks remain a key obstacle to achieving economic competitiveness. Progress has been made in infrastructure development. Electricity generation more than doubled from

45MW to 110.8MW between 2005 and 2013, increasing electricity access from 2% to 17% during the

same period. The share of national roads (paved and unpaved) classified to be in good condition

increased from 11% in 2005 to 63.5% 2013 while the ICT composite network coverage rate increased

from 75% to 90% during the same period. However, infrastructure bottlenecks continue to impede

progress towards achieving economic competiveness. Power tariffs at US$ 0.22/kwh exceed the

already high regional averages of US$ 0.10-0.12/kwh. In addition, Rwanda has the highest transport

costs in the region, estimated at 40% of the value of imports/exports compared to 12% and 36% for

Kenya and Uganda respectively. EDPRS-2 places emphasis on infrastructure development to improve

national and regional connectivity and to reduce the cost of doing business. The GoR targets increasing

power generation capacity to 563MW and paving an additional 830km and 2,478km of national and

district roads respectively by 2017/18. Rwanda is also working with the other EAC partner states to

develop railway connectivity with the ports of Dar es Salaam and Mombasa.

6

18. The GoR is keen on developing more clean and renewable energy projects to both diversify its

energy mix and support its green growth ambitions. Consequently, the EDPRS-2 energy investment

program relies on various sources of renewable energy such as hydropower, geothermal, methane gas

and peat-based electricity generation to reduce reliance on expensive and environmentally hazardous

fossil fuels. Moreover, all infrastructure investments, including energy, require environmental clearance

and impact certification prior to implementation. Renewable energy sources such as methane and solar

are already being harnessed and exploratory drills and feasibility studies are underway for geothermal

and peat respectively. The first major methane-to-power project, the 25MW KivuWatt project which is

co-financed by the Bank, is due for completion in 2014. The second phase of this project is expected to

add 75MW of capacity. An 8.5MW solar power plant is being developed and is also scheduled to be

completed by end-2014. The Bank is working with the authorities to support additional feasibility

studies for renewable energy projects. Mobilizing resources and expanding energy sector expertise are

key requirements for achieving the country’s energy development targets. 19. Rwanda is a key proponent of regional integration and has implemented several of the agreed

protocols. The National Policy and Strategy on EAC integration, adopted in February 2012, is aimed at

ensuring that the country adequately responds to the policies, decisions, and obligations enshrined in

the EAC treaty. Rwanda relies on the ports of Mombasa in Kenya and Dar es Salaam in Tanzania for

its imports and exports. Trade with the EAC more than doubled between 2007, when Rwanda joined

the EAC, and 2011. In 2012, the EAC accounted for 35% of Rwanda’s total exports and above the 32%

recorded with the country’s traditional trading partner, Europe. Measures to support movement of

persons, labor and the right of establishment are being implemented. Rwanda is signatory to the single

customs territory and monetary union protocols launched in October and November 2013 respectively

and is also part of the Tripartite with Kenya and Uganda. Key achievements from this Tripartite include

actualization of a single customs territory, single tourist visa and free movement of people across the

three countries. A pipeline of infrastructure projects has also been agreed upon for implementation. In

line with the Bank’s Regional Integration Strategy Paper (RISP) for Eastern Africa 2011-15, the on-

going (Annex 5) and planned (Table 3) multinational projects in transport and energy projects will

contribute to the realization of Rwanda’s and the EAC’s regional integration objectives. 2.3 Social Context and Cross-Cutting Themes 20. Strong progress has been made towards achieving the Millennium Development Goals (MDGs). The 2012 MDG Report notes that Rwanda is on course to achieving five MDGs

iv while

progress on the remaining three MDGs has been mixed (Annex 12). For instance, maternal mortality

decreased from 1,071 per 100,000 births in 2000 to 487 in 2010, but remains short of the 325 MDG

target. Swift policies to increase access to primary and secondary education as well as water and

sanitation, promote gender equality, increase access to and affordability of health services via a

country-wide community based insurance scheme have been key to the observed progress towards the

MDGs. 21. Poverty and income inequality have been reduced but imbalances related to spatial and

employment patterns remain. The 3rd

integrated household living conditions survey (EICV3)

conducted in 2010/11 confirms that poverty has been reduced significantly, from 56.7% in 2005/06 to

44.9% in 2010/11 (surpassing the EDPRS target for 2012 of 46%). This represents a graduation from

poverty of 1 million Rwandans. The remarkable reduction in poverty is due to several factors including

improvements in incomes in agriculture which accounts for over 70% of employment, expansion in off-

farm jobs, reduction in household sizes due to reduced fertility rates from 6.2 to 4.6 children per

woman during the period 2005/06 to 2010/11, and effective social protection programsv. Income

inequality, as measured by the Gini coefficient also decreased, albeit marginally, from 0.52 to 0.49

during the same period. Despite progress made in poverty reduction, 62% of waged farm workers

remain poor, compared to 22% of waged off-farm workers. Poverty rates are also over twice as high in

7

rural areas (61.9% in 2005/06 and 48.7% in 2010/11) than in cities (28.8% in 2005/06 and 22.1% in

2010/11). However, the overall employment rates at 83% in rural areas exceed those in urban areas at

76% due to the predominance of agriculture in rural areas and higher unemployment and school

attendance in the urban areas. The 2014-18 National Employment Programme (NEP) aims to guide the

creation of the target 200,000 off-farm jobs annually; equip the workforce with the required skills for

private sector growth; and consolidate and coordinate all employment interventions in both the public

and private sectors. Moreover, the NEP underscores the need to eliminate gender discrimination in

access to jobs and socio-economic opportunities. 22. Progress towards achieving gender equality has been remarkable but there is scope to

consolidate these improvements. The MDG target on parity between boys and girls in primary and

secondary education enrolment has already been achieved and the number of parliamentary seats held

by women increased from 56% in 2008 to 64% in 2013. Women’s participation in economic activities

at national level at 56.4% is higher than for men at 43.6%. Still, inequalities in economic participation

remain. For instance, the majority of women are employed as unskilled labourers, traders or artisans

with 38.7% of male workers employed in remunerated non-farm jobs in 2010/11 compared to 18.1% of

female workers which is short of the 50% MDG target. According to EICV3, while the median wages

increased between 2005/06 and 2010/11, the difference between male and female median wages

(gender pay gap) widened from a percentage difference of about 33% to 67% during this period.

However, the gender pay gap among individuals with post-secondary education dropped from 80% to

56% during the same period indicating the strong impact of increased education access in reversing

gender remuneration inequalities. Bank support under the on-going Skills, Science and Technology

project is aimed at increasing access to higher education particularly for women. 23. Progressive laws and policies are in place to promote the economic empowerment of girls and

women. Key among these is the Girl’s Education Policy to increase access, retention and performance

of girls and women at all levels in the education cycle. Girl’s access to science and technology

education is particularly emphasized. Laws on women and the economy have also been enacted

including Law N° 22/99 of 12/11/1999 related to matrimonial regimes, liberalities and successions,

which gives women the same rights of succession as men; and the Organic Land Law N° 08/2005,

which grants equal access to land for men and women. Gender has also been integrated into policy and

strategic planning across all levels of government, and specific interventions in such areas as education

and access to economic opportunities are incorporated in EDPRS-2 (2013-18).

24. Inclusion of the youth, who comprise 39% of the population, in economic activities remains a

major priority in the country’s quest for inclusive growth. The youth have benefited most from the

increase in wage opportunities with the share of employed youth in wage non-farm employment

increasing by 15 percentage points between 2005/06 and 2010/11 compared with an 11 percentage-

point increase for the entire population. However, over 42% of the youth are either unemployed or

underemployed in subsistence agriculture. EICV3 reveals that female and male youth have nearly

similar farm wage earnings, but male youth earnings are higher in non-farm employment. Youth

unemployment is a key driver of fragility and will need to be effectively addressed. A key contributing

factor to youth underemployment is skills mismatch, with an average skills deficit of 40%, and limited

job growth and expansion. The Bank’s Skills, Employability and Entrepreneurship Programme which

was approved by the Board in April 2013 is aimed at supporting GoR efforts – including the NEP – in

this area. The falling fertility rates which reduce the cultural constraints linked to women’s

reproductive roles – and increased access to education – are expected to free up time for women to

engage in high remunerative employment. 25. A robust strategic and institutional framework is in place to counter climate change and

promote green growth. The GoR’s goal of becoming a climate-resilient and low carbon economy is

articulated in its ‘Vision 2050: For Rwanda to be a developed climate resilient, low-carbon economy by

8

2050’. EDPRS-2 underlines the need to mainstream environmental sustainability into productive and

social sectors to mitigate vulnerabilities related to climate change and to guide the country’s transition

to green growth. EDPRS-2 proposes a ‘green economy’ approach to economic transformation in at

least two core areas: green urbanization and the promotion of green innovation in industry and the

private sector. The major interventions planned to be implemented during the EDPRS-2 period include

an environment and climate change innovation center and a pilot ‘model’ mine to support innovative

‘green’ technologies and environmentally sustainable natural resource extraction. The key outcomes

from the proposed interventions include increased levels of ‘green’ investment and sustainable urban

development that exploits ‘green’ economy opportunities. EDPRS-2 builds on the country’s Green

Growth and Climate Resilience Strategy (GGCRS) 2012-17) which encourages the elaboration of

carbon-friendly infrastructure development strategies, particularly the utilization of renewable energy

sources. The GGCRS also provides a framework for strengthening institutional capacity to ensure

sustainable use of natural resources. All Bank operations are subject to a rigorous review process to

ensure compliance with environmental and climate change standards. This will also directly contribute

to the GGCRS and Vision 2050 objectives. 26. The sustained implementation of environmental management tools has yielded several results.

A land management information system has been developed and all districts are receiving assistance to

enhance their capacity in land administration, land law, and land surveying. A wide range of

environmental assessment tools have also been adopted and continue to be rigorously applied to ensure

that infrastructure projects are climate resilient and this has contributed to marked progress in

preserving and protecting the environment. For instance, critically degraded ecosystems including

wetlands (56,118 hectares), lakeshores (2,454 hectares) and riverbanks (1,432 hectares), watersheds

(1,266 hectares) have been mapped, rehabilitated, and are fully protected by law. A National Fund for

Climate and Environment (FONERWA) has been set-up to ensure that the EDPRS-2 and GGCRS’

green growth targets are achieved. In line with its role as ‘catalyst, connector, and convenor’, the Bank

supported the GoR to develop a USD 8.8 million climate adaptation project identification form (PIF)

for support via the Global Environment Facility (GEF). The PIF was approved in February 2014 paving

the way for the development of the adaptation project. The project aims to increase the capacity of

vulnerable Rwandan communities to adapt to the adverse effects of climate change via livelihood

diversification and investment in rural infrastructure. The on-going Sustainable Management of

Woodlands and Restoration of Natural Forests in Rwanda project is also contributing to the protection

of Rwanda’s forest resources. 3 STRATEGIC OPTIONS 3.1 Country Strategic Framework 27. EDPRS-2 (2013-18) provides a sound medium-term framework for achieving Vision 2020.

The EDPRS-2 aims to contribute to the Vision 2020 goal of middle income status through accelerated

real GDP growth averaging 11.5% and reducing poverty levels from the current 44.9% to less than

30%. The strategy focuses on four thematic areas of Economic Transformation, Rural Development,

Productivity and Youth Employment and Accountable Governance. EDPRS-2 also aims to consolidate

the gains from EDPRS-1 (2008-12) during which period real GDP growth averaged 8% and one

million Rwandans were lifted out of poverty. The implementation of EDPRS-1 generated several

lessons which informed EDPRS-2. The key lessons include: wide ownership of the national

development strategy influences the development outcomes; community based solutions which include

the majority of the population are cost-effective and sustainable; and well-articulated sector strategies,

developed in partnership with all stakeholders including the private sector underpin the success of

sector interventions. The country’s strategic priorities have remained unchanged since the approval of

the CSP with EDPRS-2 sustaining emphasis on infrastructure and private sector development for

economic transformation and increasing the job creation content of growth. These strategic priorities

9

are also the core focus areas of pillars 1 and 2 of the Bank’s current CSP and consistent with the Bank’s

Ten-Year Strategy (2013-22) and Private Sector Development Strategy (2013-17). 3.2 Aid Coordination and Harmonization 28. Aid Coordination and Harmonization Architecture has been re-designed to better support the

implementation of the EDPRS-2. The Development Partners Coordination Group (DPCG) remains

the highest-level coordination forum in Rwanda. Progress has been made in the implementation of the

Paris Declaration on aid effectiveness between 2010 and 2012 (Table 1) in such areas as the use of

country PFM and procurement systems, aid predictability, joint missions and analytical work. The 2010

Donor Division of Labor (DoL) was revised in September 2013 to

ensure alignment with the EDPRS-2 priorities.

The revised DoL (Annex 8) limits donor support to

three core sectors based on a particular DP’s track

record in a sector, mandate, and expertise. The

Bank retained two of its core sectors, i.e. energy

and transport, while water and sanitation was

replaced with private sector development (PSD)

and youth employment. Moreover, the Bank is co-

chairing the transport and PSD and youth

employment sector working groups. ODA to GoR

increased from USD 938m in 2010/11 to USD

1.17bn in 2011/12, with the share of total ODA

provided by multilateral donors increasing from

44% to 52% during this periodvi

. The 7 major DPs,

including the AfDB, accounted for 85% of total

ODA in 2011/12. The share of the budget financed

by domestic revenues increased from 47% to 52%

between 2010/11 and 2012/13 in line with GoR’s

policy of reducing aid dependency. 3.3 Bank Group Positioning 29. The Bank is among the top five development partners. The AfDB was the 5

th largest ODA

provider to Rwanda in 2011/12 (USD 84m) behind the World Bank (USD 248m), US (USD 223m),

Global Fund (USD 194m), and UK (USD 127m). In line with the DoL, the Bank’s support was

concentrated in infrastructure which accounts for 62.4% of total commitments. The Bank has

established itself as the ‘go-to-DP’ and has developed a niche and leadership role in the transport,

energy, and private sector development. GoR requested the Bank in 2012 to undertake three ESWs to

inform the respective sector strategies under EDPRS-2. Support from the EARC has complemented

RWFO’s skills mix, enhancing portfolio management and country dialogue in such areas as financial

management, private sector and infrastructure development. 30. The Bank is participating in parallel financing in several key sectors. These operations include:

(i) Rubavu-Gisiza (Kivu-Belt) road project with China Exim Bank and the OPEC Fund; (ii) Skills,

Employability and Entrepreneurship Program (SEEP) with Germany and the Global Partnership for

Education; (iii) Scaling-up Energy Access Program (SEAP) with the World Bank, DfID, and the

Belgian Technical Cooperation; and (iv) regional Rusumo hydro power project with the World Bank.

Moreover, the Bank mobilized EUR 13 million from the EU-Africa Infrastructure Trust Fund for the

Rusumo hydropower project.

Table 1 Rwanda-Progress on Implementation of the Paris

Declaration on Aid Effectiveness: Selected Indicators

Indicators 2010/11 2011/12

All

DPs

AfDB All

DPs

AfDB

3 % of aid on budget

64 51 63 77

5a Use of GoR

PFM systems (% aid)

47 60 64 89

5b Use of GoR

procurement

systems (% of aid)

62 82 70 100

6 Number of

parallel PIUs

0 0 0 0

7 Predictability (% of aid delivered

in year in which

it was scheduled)

63 60 100 100

10a Joint Missions

(% of total)

49 100 58 100

10b Coordinated

analytical work (% of total)

67 N/A 100 100

Source: MINECOFIN

10

3.4 Strengths, Opportunities, Challenges and Weaknesses 31. Several of Rwanda’s main strengths, opportunities, challenges and weaknesses have remained

unchanged compared to when the CSP was approved. The preceding sections discuss these in

greater detail and Box 2 presents a summary. Inclusive and green growth has emerged as new

opportunities. In particular, national strategies and policies such as the EDPRS-2, GGCRS, and NEP

are being implemented to achieve the country’s inclusive and green growth objectives. Among other

things, these strategies champion key prerequisites such as increasing the job content of growth and

eliminating gender discrimination in access to jobs and socio-economic opportunities. Moreover, these

strategies are also aimed at ensuring that the country’s development needs including infrastructure do

not compromise environmental sustainability. Improving economic and financial governance and

expanding internal and regional markets have also emerged as strengths and opportunities.

4. CSP IMPLEMENTATION AND RESULTS ACHIEVED AT MID-TERM 4.1 CSP Strategic Focus and Bank Group Resource Allocation to Rwanda 32. The overarching objective of the CSP is to promote economic competitiveness for inclusive

growth and poverty reduction. The CSP has two complementary pillars: (i) Infrastructure

Development; and (ii) Enterprise and Institutional Development. Interventions in infrastructure address

the country’s energy and transport bottlenecks while support under pillar 2 is aimed at supporting

private sector development by bolstering local entrepreneurship for job creation. Pillar 2 prioritizes

business development and incubation, including the development of relevant skills and competencies

required to catalyse private sector development. Strengthening the GoR’s institutional capacity to

support private sector development including through the efficient provision of business development

services is also a key focus area under pillar 2. 33. A significant amount of additional resources has been mobilized from various facilities to

complement Rwanda’s ADF allocation. Rwanda’s ADF-12 (2011-13) allocation amounted to UA

104.2m, 50% in grants, at CSP approval but increased to UA 122.71m as at August 31 2013 due to

strong CPIA performance and the reallocation of unused ADF-12 resources. Additional resources were

leveraged from the Regional Operations (RO) envelope (UA 37.53m), Nigerian Trust Fund (UA 6.5m),

Box 2 Strengths and Opportunities; Challenges and Weaknesses

Strengths and Opportunities o Robust macroeconomic and business regulatory environment, which provides a solid foundation for the country to

achieve its inclusive growth and structural transformation objectives; o Regional integration and trade: especially given Rwanda’s central location and the sustained reforms to improve economic

competitiveness. Internal markets have also expanded in line with the rising per capita incomes; o ICT and services hub: sustained investments in ICT will facilitate its use as a lever for job creation and efficient public

service delivery; o Inclusive and green growth: sound strategies and policies such as the EDPRS-2, GGCRS, and NEP are being implemented

to achieve the country’s inclusive and green growth objectives, including gender equality; and o Tourism: public and private investments in such infrastructure as the Kigali Convention Centre and the Marriot Hotel

respectively, among other things, are expected to catalyse further growth in tourism. Efforts are also underway to market the country as a major tourist destination in the region;

Challenges and Weaknesses o Slow structural transformation: the country remains heavily dependent on natural resources and commodities. Agriculture

provides jobs to 73% of the workforce but only accounts for about 32% of GDP. This, among other things, also contributes to the high unemployment rates, particularly among the youth;

o Inadequate infrastructure: for instance, Rwanda’s power tariffs at US$ 0.22/kwh exceed the already high regional averages of US$ 0.10-0.12/kwh. Transportation costs at 40% of the value of imports and exports are also among the highest in the region;

o High poverty: while strong progress has been made in reducing poverty, the national poverty rate is still high at 44.9%; o Limited private sector development: due to several factors including infrastructure bottlenecks, skills deficits and low labor

productivity; and o Peace and Stability in the Great Lakes Region (GLR): the prolonged resolution of the instability in the GLR presents

several downside risks to Rwanda including undermining trade flows.

11

and cancellable resources from cancelled operations (UA 2.48m). Other resources included two grants

that were mobilized in 2013: one from the Governance Trust Fund (GTF) to support local government

revenue mobilization (USD 0.482m) and the other from FAPA for skills development in the energy

sector (USD 0.8m). This increased the total resource envelope available under ADF-12 for Rwanda to

UA 170.06m and all resources were committed (Annex 2) by end-2013. As discussed in section 3.3, the

Bank has leveraged additional resources through parallel financing with other DPs. Rwanda’s ADF-13

allocation has increased to UA 124.72m and additional resources amounting to UA 66m are expected

to be leveraged from the RO window, yielding a total envelope of UA 190.72m. 4.2 CSP Implementation Status at Mid-term

34. All lending operations programmed for approval by CSP mid-term have been approved. The

CSP programmed 8 new operations (6 operations under pillar 1 and 2 operations under pillar 2) to be

implemented during the entire CSP period. For the period 2012-13 covered by this MTR, 3 new

projects were programmed for implementation, 2 of which were under pillar 1 and 1 under pillar 2.

Both projects programmed under pillar 1 were approved (Annex 2) and had started implementation by

mid-term, including (i) the Rubavu-Gisiza multinational road project (2012); and (ii) the SEAP (2013).

The regional Rusumo hydro power project initially programmed for approval in 2014 was approved on

26th

November 2013 upon request from the three beneficiary countries (Burundi, Rwanda, and

Tanzania). For pillar 2, the Poverty Reduction Strategy Support Program V – a general budget support

operation – was programmed for approval in 2012. However, due to the suspension of budget support

(section 2.2), this operation was re-programmed as sector budget support (Skills, Employability, and

Entrepreneurship Program – SEEP), approved in April 2013. One un-programmed operation was added

to the IOP in 2013 under pillar 2 (Support to Rwanda’s 4th

Integrated Household Living Conditions

Survey – EICV4) to absorb reallocations of unused ADF-12 resources. EICV4 was approved on 18th

December 2013. 35. The non-lending program was largely implemented as planned. Five ESWs were programmed

for delivery during the entire CSP period, with three studies due by CSP mid-term (Annex 1). Two

studies were delivered: (i) the Energy Sector Review and Action Plan and (ii) the Transport Sector

Review and Action Plan. These studies were implemented jointly with the GoR to help inform the

respective sector strategies under EDPRS-2. One un-programmed study, Leveraging Capital Markets

for Small and Medium Enterprise Financing in Rwanda, was added to the non-lending program in 2012

upon request from the GoR to help inform the financial sector development strategy under EDPRS-2.

This study was also delivered in 2013. The Growth Diagnostics (GD) study initially programmed for

delivery in 2013 was carried over to 2014 due to the delayed delivery of the EICV-3 data which were a

key input for this study. The GD study and the Gender and Youth Employment study – which was

originally programmed for 2014 – are underway and on track for delivery in 2014. The study on

evaluating the Bank’s support to SMEs which was initially planned for 2015 will be replaced with a

study on labor productivity and SME development to inform GoR and Bank’s support to employment

creation and enterprise development. 4.3 Results Achieved at Mid-term 36. The CSP Results-Based Framework (RBF) contains 13 outputs and 6 outcomes that were

planned to be achieved by CSP mid-term. Under pillar 1, 9 outputs and 4 outcomes were planned to

be achieved in four infrastructure sub-sectors: transport, energy, water and sanitation, and integrated

rural infrastructure (Annex 3). Seven of the 9 outputs and 1 of the 4 outcomes were achieved. In

addition to the 7 outputs achieved, 1 indicator showed strong progress with 75% of the targeted number

of kilometers of upgraded roads achieved at mid-term. Furthermore, although progress was made, the

output related to the integrated management of water bodies and protection of watersheds was not fully

achieved due to an overestimation at project appraisal. Regarding the 4 outcomes under pillar 1, in

addition to the 1 outcome achieved, strong progress was recorded for the indicator related to the share

12

of the population with access to clean drinking water, which increased to 78%, i.e. two percentage

points short of the target. The outcome on power tariffs was missed due to GoR policy of reducing

energy subsidies to increase investments in energy generation, which contributed to an increase in

power tariffs as opposed to the programmed reduction. The outcome related to the volume and value of

livestock/dairy products could not be assessed due to a change in the indicator target under the

Livestock Infrastructure Support Program during the September 2013 Implementation Progress

Assessment. Under pillar 2, 4 outputs and 2 outcomes were expected to be achieved by CSP mid-term:

3 outputs and 1 outcome were achieved, with strong progress registered on the outstanding output and

outcome. Overall, 12 out of 13 outputs and 4 out of 6 outcomes were achieved or strong progress was

made at mid-term. 37. Implementation of the CSP has generated several key results at mid-term. Annex 3 presents in

detail the extent to which the programmed outputs and outcomes have actually been achieved at mid-

term. As an example, the Bank’s support to improving national and regional connectivity funded the

upgrading of 93km (31km short of the target) from gravel to bitumen surface standard and the

rehabilitation of 106km of paved roads. This contributed to an increase in the share of classified

national road network (paved) in good condition from 60% in 2011 to 97.5% in 2013 and above the

70% target. In water and sanitation, 642,000 new water connections serving 333,840 women and

308,160 men and 16,990 new individual household sanitation facilities serving 150,000 new

beneficiaries – of which 78,000 are women – were completed. The share of the population with access

to clean water increased from 65% in 2010 to 78% in 2013 – 2 percentage points short of the target –

while the share of the population using hygienic sanitation facilities increased from 58% to 74.5%,

above the 64% target. 38. Implementation of the non-lending activities has been satisfactory and outcomes have

continued to reinforce the lending activities and to inform country dialogue and policy. Several

non-lending activities were undertaken by RWFO in partnership with the GoR, Bank departments and

other stakeholders. As indicated in section 4.2, remarkable progress was made in terms of knowledge

generation, with the three studies conducted being used to inform the elaboration of EDPRS-2 and

Bank Group programming. Other activities included a workshop on franchising for SMEs and training

in time series econometrics for Central Bank and Ministry of Finance and Economic Planning staff.

Country dialogue events included dissemination meetings for studies and Bank flagships such as the

African Economic Outlook.

5. COUNTRY PORTFOLIO PERFORMANCE REVIEW 5.1 Portfolio Characteristics and

Performance 39. The Bank’s on-going portfolio in

Rwanda at end-2013 consisted of 24

operations, including 10 public sector

projects, 9 multinational projects and 5

private sector operations. These

operations have a total commitment

value of UA 365.61m. As indicated in

Figure 3, Infrastructure represents the

largest share of the on-going portfolio

(62.4%) with nine projects distributed

across three sectors including energy (23%), transport (31%) and water and sanitation (8.4%). The

sectoral composition of the on-going portfolio has become more closely aligned to the CSP’s pillars

during the period 2012-13. Infrastructure sector accounted for 62.4% of the total commitments at end-

2013 compared to 57% in the 2012 CPPR. Moreover, the share of the multi sector increased from 2%

Figure 3. Sectoral Distribution of the on-going portfolio

Transport; 31%

Energy, 23% Watsan; 8,4%

Agric; 14%

Human devt, 4%

Multisector; 8,6%

Pvt Sector, 11%

13

to 8.6% while the private sector share reduced slightly from 13% to 11% during the same period. This

reflects the Bank’s strong focus on private sector development. 40. Table 2 shows improvement in all indicators compared to the 2012 APPR, with the exception of the disbursement ratios and average project size. The 2013 disbursement ratio decreased compared to 2012 CPPR due to delays in fulfilling first disbursement conditions and subsequent delays in completing procurement processes particularly for the multinational infrastructure projects. However, the affected projects fulfilled all the conditions at end-2013 and procurement is in advanced stages. To improve the disbursement ratios, RWFO is working with GoR on measures to increase the disbursement ratio including: (i) fulfilment of all conditions related to first disbursement 3 months after Board approval; (ii) ensuring that bidding documents for the first year of implementation are ready before Board approval; and (iii) reduction in the time between bid opening and submission of bid evaluation reports to Bank to a maximum of 21 calendar days. 41. The average project size has increased

compared 2012 but still below the Bank-wide average. Average project size is expected to increase further with the recent focus on selectivity and emphasis on fewer but larger operations. The average project age decreased from 3.4 years in 2012 to 2.6 years in 2013 and is also below the Bank-wide average of 4 years (Table 2). The average time taken from approval to effectiveness/ first disbursement increased in 2013 compared to 2012 due to delays in completing compensation payments for Persons affected by the project (PAPs). The centralization of all payments related to PAPs, initially handled by the sector Ministries, to the Ministry of Finance and Economic Planning (MINECOFIN) starting in FY 2012/13 caused some delays in completing these payments which should be overcome as the concerned staffs get more acquainted with their new functions. The centralization of these payments is part of the GoR reform measures aimed at improving efficiency in project management and implementation.

5.2 Status of Implementation of the 2012 Country Portfolio Improvement Plan 42. The review of the 2012 Country Portfolio Improvement Plan (CPIP) indicates strong progress

in implementing the agreed recommendations. The 2012 CPIP (see Annex 6) reveals that 70% of the

proposed actions have been fully implemented, 10% were partially implemented and/or showing strong

implementation progress while 20% are outstanding and have been carried forward to the 2013 CPIP.

Implementation of the 2012 CPIP has yielded several results. For instance, during the period 2012-

2013, the Bank’s portfolio in Rwanda did not have any aged, problematic and projects-at-risk.

Fiduciary compliance has also improved. For instance, 77% of the FY 2012/13 audit reports were

submitted on time and 88% were of acceptable quality (Table 2). Financial reporting and internal

control have also registered marked improvements due to a robust GoR PFM Reform Strategy and the

Bank’s rigorous financial management assessments during project appraisal which inform requisite

remedial measures. Enhanced decentralization and improved collaboration including the holding of

regular meetings with MINECOFIN and Executing Agencies (EAs) have also contributed to these

improvements.

Table 2. Key Portfolio Performance Indicators (KPIs)vii

Indicator 2012 2013 2012

APPR

Problem Projects (%) 0 0 2

Potentially Problematic Projects (%) 0 0 -

Projects-At-Risk 0 0 -

Commitments-At-Risk (%) 0 0 -

Av. time from approval to effectiveness

(months)

4 8 13

Av. time from approval to first

disbursement (months)

12 14 17

Disbursement ratio (%) 30.6 14.7 22

Av. age of active portfolio (Years) 3.4 2.6 4

Av. project size (UA, million) 13.9 15 30

Audit reports submitted on time (%) 69 77 -

Audit reports of acceptable quality (%) 79 88 -

Supervisions led by RWFO (%) 30 50 -

Projects task managed by RWFO (%) 14 17 -

Overall portfolio rating 2.43 2.55 -

Implementation Progress (IP) 2.30 2.40 -

Development Objective (DO) 2.57 2.71 -

14

5.3 Outcome of the 2013 Country Portfolio Performance Review 43. A participatory CPPR workshop was held on 27 November 2013 and attracted over 50 participants

from EAs, MINECOFIN, development partners and representatives from the private sector and Civil

Society Organisations (CSO’s). The discussions focused on identifying time bound and specific

measures to address portfolio implementation challenges. The major outcomes from the workshop

included the adoption of the 2013 CPIP (see Annex 7). The 2013 CPIP identifies actions to improve

project quality at entry, accelerate disbursement ratios, enhance contract management, and strengthen

the capacity of the Single Project Implementation Units (SPIUs). These actions will be closely

monitored by RWFO to ensure effective implementation. 5.4 Portfolio Monitoring and Evaluation 44. The overall ADF portfolio rating has increased steadily and stood at 2.55 on a scale of (0-3) in

2013 compared to 2.43 in 2012. The improved portfolio rating in 2013 is mainly due to RWFO’s

leadership in portfolio management including the pro-active collaboration with the Country Team and

the EAs. Moreover, RWFO’s presence on the ground has facilitated routine follow-up and monitoring

including through the quarterly portfolio review meetings which facilitate the timely identification of

solutions to project implementation challenges. This close interaction with the EAs has also ensured the

timely submission of quality quarterly progress reports which underpin portfolio monitoring and

evaluation. The share of projects task managed and supervisions led by RWFO have also increased

(Table 2). This provides evidence of the impact of decentralization on the ground. 45. While improvements were noted across all sectors, there is still room for improvement.

Continuous adoption of the readiness filter will ensure improvements in project quality at entry and

hence minimize the start-up delays particularly for the multinational operations. In particular, RWFO

will work closely with the GoR to ensure that all conditions related to first disbursement are fulfilled

within three months after Board approval. The quarterly portfolio review meetings with GoR will also

provide a platform to discuss and address portfolio implementation challenges. 6. LESSONS LEARNED 46. Two key lessons on the Bank’s strategic engagement with Rwanda have emerged from the

CSP mid-term review. First, Rwanda’s development needs including the binding infrastructure

constraints will require augmenting the Bank’s concessional resources. The additional UA 47.35m that

was mobilized during the period ADF-12 cycle (para 33) allowed the Bank to increase its support to

key areas such as infrastructure, skills, entrepreneurship and business development. Thus,

complementary resources to the ADF envelope including innovative financing approaches such as

partial credit and partial risk guarantees (PCGs and PRGs) and advisory services through the African

Legal Support Facility (ALSF) will be explored. Second, effective partnerships with the authorities and

other stakeholders are critical for the successful implementation of both lending and non-lending

operations. In this regard, the Bank will utilize its role as co-chair of the transport and PSD and youth

employment sector working groups to rally other stakeholders to provide coordinated support to

Rwanda’s development priorities in these sectors.

47. The CPPR also yields several key lessons for both the Bank and the GoR. Two lessons for the

Bank: (i) enhanced selectivity and focus on bigger and catalytic operations has the potential to generate

more significant development outcomes. Small operations require similar resources to implement as the

bigger operations but the development impact of the former is, by virtue of their size, typically limited;

and (ii) systematic support to EAs including through training on the application of Bank rules and

procedures improves implementation progress. RWFO will therefore continue to provide routine

training particularly in project management, procurement and disbursement. Two lessons for the GoR:

(i) project readiness improves quality at entry and thus measures should be taken to ensure that

15

feasibility studies are available prior to proposing projects for inclusion in the IOP and all activities

related to compensation of PAPs should be completed within 2 months after Board approval; and (ii)

the SPIUs reduce transaction costs, but can contribute to implementation delays when inadequately

staffed. It is therefore necessary to put in place coordinated GoR/ DP capacity enhancement measures. 7 BANK GROUP STRATEGY FOR THE REMAINING CSP PERIOD 2014-16 7.1 Rationale and Strategic Selectivity 48. The CSP’s overarching objective of promoting economic competiveness for inclusive growth

and poverty reduction by supporting infrastructure and private sector development remains

relevant for the remainder of the CSP period. Consultations with the authorities and other

stakeholders and the review of developments in the country context confirmed that the CSP’s strategic

focus remains pertinent. Infrastructure bottlenecks continue to impede economic competitiveness; skills

shortages and deficiencies in core business competencies, particularly for the MSMEs, remain key

constraints to private sector development. Thus, achieving the country’s vision of a private sector-led

middle income economy by 2020 requires sustaining the momentum towards improving infrastructure,

developing relevant skills and increasing employability, and supporting entrepreneurship for job

creation. These strategic objectives are in line with the core priorities of EDPRS-2 and also consistent

with the Bank’s TYS (2013-22), Private Sector Development Policy and Strategy (2013-17) and

Gender Strategy (2014-18). Consequently, the current CSP strategic focus on (i) Infrastructure

Development; and (ii) Enterprise and Institutional Development will be maintained. However,

enterprise and institutional development will be renamed Private Sector Development to enhance

alignment with the 2013 GoR DoL and the TYS (2013-22) core operational priorities. 49. Several key features will be incorporated into the CSP for the remaining strategy period

2014-16. First, the CSP will improve selectivity in supporting infrastructure development, focusing on

energy and transport, in line with the DoL. Second, the TYS twin objectives of inclusive growth and

the gradual transition to green growth will be mainstreamed into the Bank’s operations. The TYS’s

areas of special emphasis including gender will also be mainstreamed into the CSP. Moreover,

financial governance and fiduciary issues will be addressed through country dialogue and the Bank’s

operations. Third, strategic interventions will be pursued in private sector development to promote

inclusive growth through entrepreneurship development and job creation, drawing from the Bank’s

SEEP. Fourth, addressing the country’s infrastructure bottlenecks will require leveraging

supplementary financing. Additional financing instruments including PCGs and PRGs and

complementary advisory services (ALSF) will be pursued. Moreover, the Bank’s recently revised credit

policy for non-concessional borrowing once approved will allow GoR to access sovereign-guaranteed

loans from the ADB window. Leveraging complementary resources, leadership in donor dialogue (para

28) and knowledge generation (para 35) in infrastructure and private sector development will

underscore the Bank’s role as catalyst, connector and honest broker. The Bank’s Assistance Strategy

under each pillar for the remaining CSP period 2014-16 is discussed in section 7.2. 7.2 Bank Assistance Strategy 50. CSP Pillar 1 – Infrastructure Development – will prioritize support to energy and transport.

Interventions in infrastructure will aim to address the country’s energy and transport bottlenecks. Bank

support to the transport sector will contribute to the EDPRS-2 target of expanding national and regional

connectivity. Improved transport infrastructure and the consequent reduction in transportation costs

will contribute to economic competitiveness, spur enterprise development, and catalyze economic

transformation. Given that MSMEs account for majority of all registered businesses and private sector

employment in Rwanda, enterprise growth will directly contribute to inclusive growth. Improved

infrastructure contributes reductions in the cost of doing business which allows businesses to expand

and create economic and job opportunities including for the youth and women and thus supports

16

inclusiveness. In addition, better infrastructure also improves living standards and household welfare,

thereby promoting inclusive growth. The key outputs from the Bank’s support to the transport sector

(Table 3) during the remaining CSP period include the upgrading and rehabilitation of 60km of gravel

roads to bitumen surface standard and the rehabilitation of 25km of feeder roads. This will contribute to

several outcomes including a reduction in vehicle operation costs and an increase in rural accessibility.

Increased accessibility will among other things, improve the connectivity between production centres,

support services such as agriculture extension services and markets thus improving productivity and

farm-gate prices. Since agriculture employs over 70% of the population with women and youth

comprising a large share of this workforce, growth in agriculture will also increase access to productive

economic activities for women and the youth and thus support inclusive growth. Investments in energy

will focus on developing regional energy infrastructure through the Rusizi-III hydropower project.

Since regional power tariffs are lower compared to Rwanda’s tariffs, access to regional electricity will

also contribute to a reduction in the cost of electricity in Rwanda, which is a major bottleneck to

economic competitiveness. Furthermore, the Bank’s new infrastructure projects will be designed to

maximize benefits to communities in the project regions. For example, livelihood opportunities will be

created through by-products of the hydro power dam, e.g., irrigation and potable water supply, thereby

promoting inclusive growth. In transport, new projects will include the construction of infrastructure

along roads, such as market stands. Innovative project designs to maximize benefits to local

communities will be explored in-depth during project appraisal.

51. Measures will be taken to mainstream green growth, climate change and gender in the Bank’s

support under Pillar 1. Energy and transport infrastructure projects will continue to be subjected to

the national environmental clearance and impact certification processes prior to implementation.

Mitigation measures along the road corridors supported by the Bank such as tree planting and slope

reinforcements to reduce the risk of flooding and land/mudslides will be included in the project

designs. To ensure the sustainability of the Bank’s investments, project designs will include

components to strengthen the capacity of relevant sector Ministries and EAs in planning and

management of maintenance contracts and training of local communities on the preservation of

transport and energy infrastructure. Moreover, gender will be systematically integrated into the design

of energy and transport projects: gender assessments will be undertaken during project preparation to

ensure that Bank support promotes gender equality and empowerment. Where feasible, projects will

incorporate components that specifically target women and enhance the capacities of line and sector

ministries to mainstream gender. 52. Energy and transport projects will include Local Area Development Plans (LADPs) with

interventions to support inclusive and green growth and also address gender inequality. Key activities

in the LADPs will include supply of potable water, tree planting, and savings and investment support

programmes for PAPs and women. A share of construction jobs will also be allocated to women (Annex

4). The Bank’s operations will also include components to build institutional capacities in the relevant

sector Ministries and EAs in such areas as financial governance. Specific activities will include

supporting policy, regulatory and institutional reforms including those aimed at reducing fiduciary risks

particularly in financial management and procurement. Relevant indicators will be included in the

project/program RBFs to track progress made in mainstreaming inclusive and green growth, gender

equality, and financial governance.

53. CSP Pillar 2 – Private Sector Development – will continue to selectively focus on supporting

entrepreneurship and business incubation for job creation and economic inclusion. As discussed

in section 2.2 (para 15), MSMEs account for 98% of the private sector businesses and provide 84% of

private sector employment. Consequently, advancing private sector development in Rwanda, among

other things, requires addressing the key constraints that currently affect MSMEs. The SEEP-II, a 3-

year sector budget support operation, will comprise the Bank’s main intervention under Pillar 2. The

design of SEEP-II will be informed by the Bank Group policy and operational guidelines on Policy

17

Based Operations. Building on SEEP-I, SEEP-II will support two areas that are critical to business

growth: (i) entrepreneurship and business development and (ii) increasing employability. These

activities are expected to directly contribute to GoR’s goal of creating an additional 200,000 non-farm

jobs per year. Support under entrepreneurship and business development will prioritize the

development of a Business Development Advisors Certification Programme to ensure that MSMEs are

provided with professional and quality business advisory services. SEEP-II will also support the

equipment, technology upgrade, and operationalization of the integrated craft production centres to

improve the productivity of craftsmen, artisans and producers. The GoR measures aimed at improving

the coordination of the several fragmented private sector development and job creation initiatives will

also be supported. This includes support to the establishment of business development and employment

units at the district level to provide one-stop private sector development and employment services.

Interventions to increase employability will focus on increasing the private sector’s participation in the

development of relevant and in-demand expertise and competencies including in science and

technology through support to the Sector Skills Councils (SSCs). The SSCs provide a framework for

the private sector to contribute to the design, provision and evaluation of employment-focused training.

SEEP-II will also support the development of an apprenticeship programme targeting unskilled and

semi-skilled workers, who will be certified and provided with business start-up tool kits to create own

employment. 54. Inclusive growth and gender equality and empowerment are at the center of the Bank’s

support under Pillar 2. In particular, SEEP-II focuses on supporting the growth of MSMEs, which, as

mentioned above, employ the majority of the population including women and youth. Moreover,

SEEP-II will include targeted activities to ensure gender inclusive entrepreneurship and business

development. For instance, to address the gender inequalities in access to financial services (para 16),

30,000 start-up MSMEs owned by youth and women will be supported under SEEP-II to access

financial services by 2016, up from 2,878 MSMEs in 2013. SEEP-II will provide a platform for the

Bank to engage in dialogue on among other things, the key imperatives and approaches to sustaining

the country’s progress in improving financial governance within the framework of the PFM sector

working group. As mentioned above, Bank Group support will also contribute to policy and regulatory

reforms aimed at ensuring the holistic and coordinated delivery of private sector development services

and job creation interventions at both the national and district levels. 7.3 Bank Indicative Assistance Program 55. The Bank’s indicative assistance program for the remaining CSP period 2014-16 mirrors the

overarching CSP objective of promoting economic competitiveness for inclusive growth and

poverty reduction. The ADF-13 indicative Performance-Based Allocation (PBA) amounts to UA

124.72m, all in loans, with an additional UA 66mviii

expected to be leveraged from the Regional

Operations (RO) window yielding a total envelope of UA 190.72m. The largest share (60.7%) of the

PBA will be allocated to transport and energy (Table 3). The outputs and outcomes envisaged to be

achieved from each operation are presented in the revised RBF (see Annex 4).

18

Table 4: Bank Group Indicative Assistance Program 2014-16 (UA, million)

Proposed project PBA RO Year Sector

National Operations

Skills, Employability and Entrepreneurship Program –

3-year program covering 2014-16

49

2014-16 Private Sector

Development

Base-Nyagatare Road Project 31.72 2014 Transport

Sub-total national (a) 80.72

Multinational Operations

Musanze – Cyanika 10 15 2014 Transport

Kagitumba-Kayonza-Rusumo 27 40.5 2015

Rusizi hydro power project 7 10.5 2016 Energy

Sub-total multinational (PBA) (b) 44

Sub-total multinational (RO) 66

Total indicative PBA (c = a+b) 124.72

Total indicative resource envelope (c + RO) 190.72 56. Complementary support from the Bank’s private sector window will be harnessed. This

includes such instruments as sovereign-guaranteed loans, lines of credit and guarantees to SMEs in

agribusiness and manufacturing from the Trade Finance Program. Support through the Bank’s

Agriculture Fast Track Fund to SMEs engaged in the agribusiness value chains is another option that

will be explored. Embedding domestic firms into global value chains provides scope for expanding

market access, transfer of knowledge, and leap-frogging several of the key bottlenecks that continue to

hold back the private sector and also impede economic transformation. Possible Bank Group support in

this area could include technical assistance and capacity development for the private sector to develop

and/or venture into higher-value chains. 7.4 Non-lending Activities 57. The proposed non-lending program is designed to complement the lending operations. Two

ESW’s are programmed for the remainder of the CSP period (Annex 1) to inform country dialogue and

Bank Group programming: (i) Improving Labor Productivity through TVET for Enterprise

Development and Job Creation (2015); and (ii) Inclusive Growth Analysis (2016) to inform the

strategic thrust of the Bank’s CSP for the period 2017-21. Two studies (Gender and Youth

Employment and Growth Diagnostics) are underway and planned for delivery in 2014. Thus, no new

ESWs are programmed for 2014. The Bank will also undertake just-in-time knowledge work to respond

to emerging needs. All ESWs will be conducted jointly with GoR, DPs, and relevant Bank departments

including ECON and OSHD. 58. Country dialogue will focus on emerging priorities particularly in infrastructure and private

sector development. Particular emphasis will be placed on the advancement of dialogue in such areas

as options for catalysing private sector financing and investment in the transport sector and promoting

inclusive private sector development, given the Bank’s leadership role in these two sectors.

Complementary capacity and institutional development initiatives will also be promoted including such

programs as the GTF funded automated local government revenue management project and the FAPA

funded skills development in the energy sector. The Bank will also continue to exchange ideas with

GoR and other DPs on the requisite reforms and improvements in financial governance. Dialogue on

measures to remedy portfolio implementation challenges will also be sustained. 7.5 Monitoring and Evaluation 59. The revised RBF (Annex 4) will provide the primary monitoring tool for evaluating the

implementation of the CSP. In addition, other tools will also be utilized to evaluate the CSP

implementation progress, diagnose implementation challenges and to inform requisite remedial

measures on a timely basis. These include the quarterly progress reports and review meetings with EAs,

19

bi-annual project supervisions, annual CPPRs, project/ program mid-term review and completion

reports. 7.6 Risks and Mitigation Measures 60. The high dependence on aid and a volatile Great Lakes Region present the major downside

risks to the country. The aid-cut backs experienced in 2012 contributed to several detrimental

macroeconomic effects, some of which remain even after the resumption of the aid disbursements in

March 2013 (Box 1). The GoR has put in place reform measures to expand its domestic resource base

(para 9). In addition to its support to local government revenue mobilization (para 33), the Bank will

sustain dialogue with GoR and other DPs on options for providing additional support in the area of

domestic resources mobilization. Support through the ALSF (para 46) will also allow Rwanda to

prudently harness private sector finance and investment particularly in the infrastructure sector. The

instability in the Great Lakes Region (GLR) is a potential risk to the achievement of Rwanda’s growth

and economic transformation objectives, particularly through disruption of trade and other economic

activities. However, the on-going efforts within the framework of the ICGLR and AU are expected

yield lasting peace and security in the GLR. 8. CONCLUSION AND RECOMMENDATIONS

61. The combined CSP mid-term review and CPPR confirm that the focus of the Bank’s country

strategy 2012-16 for Rwanda remains relevant to both the country’s and the Bank’s development

objectives. The mid-term review recommends maintaining the strategic thrust of the CSP for the

remaining period. However, three key imperatives will be pursued vigorously: (i) enhanced selectivity

of the Bank’s interventions in the infrastructure sector; (ii) strategic interventions to support business

development and job creation; and (iii) expanding the range of financing instruments. The TYS special

areas of emphasis including gender equality and empowerment will be mainstreamed into the Bank’s

operations during the remainder of the CSP period. The Boards of Executive Directors are hereby

invited to consider and approve the CSP mid-term review and CPPR for Rwanda.

I

ANNEXES

Annex 1: CSP 2012-16 Indicative Non-lending Program

Year Activity Status

2013 Energy and Transport Sector Reviews and Action Plans Completed

2013 Leveraging Capital Markets for SME Financing in Rwanda Completed (not

originally

programmed, but

undertaken on

request by GoR)

2013 Growth Diagnostics (GD) study (jointly with GoR and EDRE) Commenced in 2013

and expected to be

delivered in Q3 2014

2014 Gender and Youth Employment in Rwanda (jointly with GoR and ESTA) Commenced in 2013

and planned for

delivery by Q2 2014

2015 Improving Labor Productivity through TVET for Enterprise Development

and Job Creation (jointly with GoR and OSHD)

2016 Inclusive Growth Analysis study (jointly with GoR and EDRE)

II

Annex 2: Bank Lending Programme 2011-2013: Total Resource Envelope

NATIONAL OPERATIONS (UA, million)

ADF-12 (PBA)

Year Project/ Programme

As programmed in

CSP Additional Resources Final RO

NTF

Total Envelope Status

2011 Poverty Reduction Strategy Support Programme 23.19

23.19 23.19 Completed

2011 Livestock Infrastructure Support Programme 21.81

21.81 21.81 Fully disbursed

2013

Skills, Employability, and Entrepreneurship Programme (SEEP) 15 Fully disbursed

Additional ADF-12 resources to be applied to SEEP 10.61

total SEEP 25.6

1 25.61

2013

Scaling Energy Access Programme (SEAP) 19.18 Approved on 26 June 2013

Cancelled resources to be applied to SEAP (from previously completed/ closed projects) 2.12

Additional ADF-12 resources to be applied to SEAP 6.06

total SEAP 27.3

6 27.36

2013

Governance Trust Fund Grant : support to local government revenue mobilization 0.317

Approved October 2013

2013 FAPA grant: support to skills development in energy sector 0.526

Approved September 2013

2013

Support to the Rwanda Integrated Household Living Conditions Survey (EICV-4) 0.82 0.82 0.82

Approved on 18 December 2013

MULTINATIONAL OPERATIONS (UA, million)

2012

Rubavu-Gisiza (Kivu-Belt) Project 18.02 Approved July 2012

RO 27.03

sub-total Rubavu-Gisiza ADF 18.0

2

total Rubavu-Gisiza 45.05

2013

Projet Hydroelectrique Rusumo 7 Approved on 26 November 2013

Additional ADF-12 resources to be applied to Rusumo 1.02

Cancelled resources to be applied to Rusumo (from previously completed/ closed projects) 0.364

RO 10.5

NTF 6.5

sub-total Rusumo ADF 8.38

4

total Rusumo 25.384

Total ADF-12 as programmed in CSP 104.2

Additional ADF resources (30 September 2013 18.51

Cancelled resources (30 September 2013) 2.484

Total ADF-12 incl additional ADF resources (30 September 2013)

122.71

Total ADF-12 (incl additional ADF-12 + cancelled resources)

125.194

Total Envelope (ADF-12 --incl additional ADF-12 +

cancelled resources) + RO + NTF

170.06

III

Annex 3: Original CSP Results-Based Framework and Results Achieved by Mid-Term

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

PILLAR I: INFRASTRUCTURE DEVELOPMENT

TRANSPORT

Ensure

adequate

international and regional

transport links

Limited transport

options to external

markets

High transport costs to sea ports

due to long

distances and poor infrastructure in

transit countries

Vehicle operation

costs reduced from

US$1.0/km in 2010 to US$0.6/km by

2016 for the Rubavu-Gisiza road

185 km of gravel

roads upgraded to

bitumen surface standard by 2016

allowing an increase in the

percentage of

classified national road network as “in

good condition”

from 60% in 2011 to 90% by 2016

250 km of feeder roads rehabilitated

by 2016 leading to

an increase in the percentage of

classified district

road network in as “in good condition”

from 15% in 2011

to 60% by 2016

Completed infrastructure study

and infrastructure

development action plan

124 km of

gravel roads

upgraded to bitumen

surface standard by

2014 allowing

an increase in the percentage

of classified

national road network in

good

condition from 60% in

2011 to 70%

by 2014

[strong

progress]

160 km of feeder roads

rehabilitated

by 2014 allowing an

increase in the

percentage of classified

district road network in

good

condition from 15% in

2010 to 35%

by 2014

[Achieved]

93km upgraded

from gravel to

bitumen surface standard (Gitarama-

Ngororero-48km, Road Infrastructure

Project-5km,

Kicukiro-Kirundo-20km and Ntendezi-

Mwityazo-20km)

and 106km of paved roads rehabilitated

(Crete-Ntendezi-

30km, Rusizi-Ntendezi-30km,

Road Infrastructure

Project-46km)

31Km of upgraded

road were projected to be delivered by

the Rubavu –Gisiza

road project. However, this

project was declared

disbursement effective in October

2013 – 15 months

after approval

The percentage of

classified national road network

(paved) in good

condition increased

from 60% in 2011

to 97.5% in 2013.

For both paved and

Proposed

Multinational: Mugina-Mabanda (Burundi) and

Rubavu-Gisaza (Rwanda) Road Project Base-Nyagatare Road Project

Ongoing

Road Infrastructure Project;

Gitarama-Ngororero-Mukamira Road Project; Butare-Kitabi-Ntendezi;

Multinational:

Kichukiro (Rwanda)-Kirundo (Burundi) Road

Project; Dar-es-Salaam-Isaka-Kigali/ Keza-Musongati

railway study-Phase II;

Rusizi-Ntendezi-Mwityazo Road

IV

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

Completed Dar-es-

Salaam-Isaka-

Kigali/ Keza-Musongati

(DIKKM)

railway study Phase II,

including engineering

design and

PPP regulatory and

institutional

framework.

[Achieved]

unpaved national roads, the

percentage of

classified national road network in

good condition

increased to 63.5% in 2013

264.8 km of feeder

roads rehabilitated

(93.5km under the Kicukiro-Kirundo

road, 90.3km under

the Gitarama-Ngororero main

road project, 51km

under the road infrastructure

project, and 30Km

under the Butare-Crete-Ntedenzi road

project) allowing an

increase in the percentage of

classified district

road network in good condition from

15% in 2010 to 42%

in 2013

Dar-es-Salaam-

Isaka-Kigali/ Keza-Musongati

(DIKKM) railway

study Phase II, including PPP

regulatory and

institutional framework

completed

Infrastructure study

(Energy and

Transport Sector

V

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

Reviews and Action Plans) completed

ENERGY

Electricity and

other energy supply

increased

Inadequate

generation, transmission and

distribution

infrastructure

Reduction in power

tariffs from US$ 0.18/kwh in 2010 to

US$ 0.14/kwh by

2016

Power generation

increased from 84 MW in 2011 to 139

MW in 2016

Reduction in

power tariffs from US$

0.18/kwh in

2010 to US$ 0.16/kwh by

2014

[Not

achieved]

Power tariff

increased to USD 0.22/kwh

from July

2012.

This increase in power tariff is

due to

Government policy of

reducing

energy subsidies to

increase

investments in energy

generation

Power

generation increased

from 84 MW

in 2011 to 109 MW in 2014

[Achieved]

Power generation

increased to 110 .8 MW in 2013;

leading to an

increase in electricity access

from 14% to 17% during this period.

Generation capacity

is expected to increase to 190 MW

by June 2014.

[It is important to

note that energy

generation target was met without

Bank support due to

the delayed completion of the

Kivuwatt project,

initially planned for completion in 2013,

but now expected in

2014.]

Proposed

Energy Access Programme; Multinational: Rusomo falls hydropower plant;

Amenagement hydroelectrique de Ruzizi III ;

Ongoing

Multinational: NELSAP Interconnection-NBI; Kivuwatt energy project;

INTEGRATED RURAL INFRASTRUCTURE

Increase

agriculture

productivity

Limited resources

to meet the

required investment targets

Volume and value of

Livestock/Dairy

products marketed by smallholder

livestock farmers

increased from 45% in 2011 to 70% by

2016

Integrated

management of

25,000 ha of water bodies and

protection of 9,500

35,000 ha of watersheds by

2016;

National fish

production

increased by 5,000

tons per year (up to

2016);

Volume and

value of

Livestock/Dairy products

marketed by

smallholder livestock

farmers

increased from 45% in 2011 to

55% by 2014

[Cannot be

assessed due

to change in

Volume of

milk (average

liters per day) marketed by

smallholder

livestock farmers

through milk

collection centers

(MCCs)

increased from

135,500 liters

in 2011 to

182,050 in

Integrated

management

of 20,000 ha of water

bodies and

protection of 30,000 ha of

watersheds by

2014;

[Not

achieved]

National fish

production

Integrated

management of

7,100ha of water bodies

(PAIGELAC) and

protection of 8,500 ha of water shades

(PADAB 5,500ha

and PAIRB 3,000ha).

[The targets for

water bodies and

watersheds were

overestimated at

Ongoing

PAIGELAC (Inland Lakes Integrated

Development and Management Support Project);

Bugesera Agricultural Development Support

Project (PADAB);

Signed but not yet disbursement effective

Livestock Infrastructure Support Programme

Multinational:

Bugesera Multinational Agriculture

project.(PAIRB)

VI

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

Irrigated perimeter of 5,000 ha

developed by 2016;

the outcome

target]

2013. Target for 2015 is

232,800 liters

[The outcome

target changed

under the Livestock

Infrastructure Support

Program during

the September 2013

Implementation

Progress Report: from

percentage

increase in marketable

diary surplus to

average quantity of

milk – liters

per day – collected

through MCCs]

increased by 5,000 tons per

year (up to

2014);

[Achieved]

Irrigated perimeter of

1,000 ha

developed by 2014;

[Achieved]

project appraisal. The actual

(achieved) targets

are: integrated management of

7,100ha of water

bodies and protection of

8,500ha of watersheds by

2014]

Total fish

production in inland

lakes increased from 5,980 tons in

2006 to 17,158 tons

in 2012

1,000ha of irrigated

perimeter developed

WATER SUPPLY AND SANITATION

Increased access to safe

water

Promote and develop

sanitation

facilities and hygiene

Limited resources to meet the

required

investment targets

Weak capacity for

management of water facilities

Limited access to improved

sanitation facilities

Proportion of the population with

access to clean

drinking water increased from 65%

in 2010 to 95% by

2016

Proportion of the

population using hygienic sanitation

facilities increased

from 58% in 2010 to 70% in 2016

800,000 new water connections by

2016

60,000 new

sanitation facilities

constructed by 2016

Proportion of the population

with access to

clean drinking water increased

from 65% in

2010 to 80% by 2014

[strong

progress]

Proportion of

the population

using hygienic sanitation

78% of the population had

access to clean

water in 2013 with this share

projected to

increase to 80% by end-

2014

Proportion of

the population

using hygienic sanitation

facilities

increased from 58% in 2010 to

642,000 new water

connections

by 2014

[Achieved]

16,000 new

individual household

and 130 multi

door Public sanitation

facilities

serving over 150,000 new

beneficiaries

642,000 new water connections

completed serving

333,840 women and 308,160 men and

17,000 new

individual household and 130

multi door Public

sanitation facilities serving 150,000

new beneficiaries

(78,000 women and 72,000 men)

completed

Ongoing Rural Water Supply and Sanitation Program

(Phase II);

VII

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

facilities increased from

58% in 2010 to

64% in 2014

[Achieved]

74.5% in 2013 by 2014

[Achieved]

PILLAR II: ENTERPRISE AND INSTITUTIONAL DEVELOPMENT

ENTERPRISE AND INSTITUTIONAL DEVELOPMENT

Create an

enabling environment

for private

sector and export

development

Limited economic

diversification

Narrow export

base

Limited resources

to implement

strategic

investment

programmes

High mortality rates for SMEs

(approximately

82% in 2010)

Ratio of private

investment to GDP increased from 10%

in 2010 to 13% by

2016

Number of SMEs

supported through Business

Development

Service Centres increased from

1,200 in June 2011

to 3,700 by 2016,

or 500 new SMEs

served per year

Number of

business incubation centres increased

from one (1) in

2010 to 6 by 2016

Completed Gender,

Employment, and Inequality Study

Completed SME assessment study

Ratio of private

investment to GDP increased

from 10% in

2010 to 11.5% by 2014

[strong

progress]

Ratio of private

investment to GDP increased

from 10% in

2010 to 10.5% in 2013

SMEs

supported through

Business

Development Service

Centres

increased

from 1,200 in

June 2011 to

2,450 by 2014

[Achieved]

Number of

business

incubation centres

increased

from one (1)

in 2010 to 3

by 2014

[Achieved]

SMEs supported

through Business Development

Service Centres

increased from 1,200 in June 2011

to 5,250 in 2013

Number of business incubation centres

increased from one

(1) in 2010 to 3 (Masaka, Kicukiro,

and Kigali Institute

of Technology) in 2013

Proposed

Poverty Reduction Strategy Support Programme Phases V & VI (to support the

provision of Business Development Services

and institutional development for the SME and Investor Promotion Divisions at Rwanda

Development Board, among others);

Approved but not yet signed

CIMERWA (cement);

Line of Credit to Rwanda Development Bank; Line of Credit to Bank of Kigali;

Ongoing

Competitiveness and Enterprise Development

Project; Support for Policy and Strategy Development;

Support to Rwanda Private Sector Federation

(Private Sector program); Poverty Reduction Strategy Support

Programme, Phase IV;

CAPACITY DEVELOPMENT

Develop skills

for productive

employment and to spur

private sector

innovation

Low technical

skills base to meet

labour market demands

Limited resources

to implement

strategic

Median value added

per worker in

industry and manufacturing

increased from US$

2,910 in 2008 (most

recent data available)

to US$ 3,500 by

2016

Access to

specialized

technical and vocational

education and

training (TVET)

increased from

15,354 in 2010 to

135,000 by 2016

Median value

added per

worker in industry and

manufacturing

increased from

US$ 2,910 in

2008 to US$

3,200 by 2014

Labor

productivity as

measured by ratio of MVA

to employment

increased from

USD 2,850 in

2007 to USD

3,750 in 2011

Access to

specialized

technical and vocational

education and

training

(TVET)

increased

from 15,354

Access to TVET

increased from

15,354 in 2010 to 74,320 in 2012/13

and is projected to

increase to 82,122

in 2014

Proportion of

Ongoing

Support to Skills Development in Science and

Technology; Regional ICT Centre of Excellence;

Poverty Reduction Strategy Support

Programme, Phase IV

VIII

Strategic

Objectives

(EDPRS)

Constraints

hindering

achievement of

desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Mid-Term

Outcomes

(by 2014)

Actual

Outcomes at

Mid-term

Mid Term

Outputs

(by 2014)

Actual Outputs

at Mid-term

Bank Group Interventions during CSP

period (ongoing & proposed)

investment programmes

Proportion of

employers who are

satisfied with the performance of

TVET graduates

increased from 67% in 2010 to

75% by 2016

[Achieved]

[Employment

data come from

the 3rd Integrated

Household

Conditions Survey

conducted in 2010/11, next

survey data

expected in 2014/15]

in 2010 to 75,177 by

2014

[strong

progress] Proportion of

employers

who are satisfied with

the

performance of TVET

graduates

increased from 67% in

2010 to 71%

by 2014

[Achieved]

employers who are satisfied with the

performance of

TVET graduates increased from 67%

in 2010 to 71.6% in

2012/13

IX

Annex 4: Revised Results Monitoring Framework for the remainder of the CSP period 2014-16

Strategic Objectives

(EDPRS-2)

Constraints hindering

achievement of desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Bank Group Interventions during CSP

period (on-going & proposed)

PILLAR I: INFRASTRUCTURE DEVELOPMENT

TRANSPORT

Ensure adequate international and regional

transport links

Limited transport options to external markets

High transport costs to sea ports due to long distances and poor

infrastructure in transit countries

Vehicle operation costs reduced from US$1.0/km in 2010 to US$0.6/km by

2016 for the Rubavu-Gisiza road

The rural accessibility index in the

Rubavu-Gisiza road project area (an indicator of all-weather access for the

road) increased from 50% in 2011 to

55% by 2016

4,000 direct jobs created in the construction of the Rubavu-Gisiza

road, 30% of which will go to female

workers

7,500 direct jobs created in the

construction of the Base - Nyagatare road, 40% of which go to female

workers

60 km of gravel roads upgraded and rehabilitated to bitumen surface

standard (Rubavu-Gisiza-40km and

Nyamitanga-Ruhwa-20km) by 2016 allowing an increase in the

percentage of classified national road (paved and unpaved) network

as “in good condition” from 63.5%

in 2013 to 70% by 2016

25km of feeder roads (under

Rubavu-Gisiza) rehabilitated by 2016 leading to an increase in the

percentage of district road class1

classified as “in good condition” from 37% in 2013 to 45% by 2016

PPP options analysis and structuring

for the Dar-es-Salaam-Isaka-Kigali/

Keza-Musongati railway project completed

Proposed Base-Nyagatare Road Project

Multinational: Musanze Cyanika

Kayonza Rusumo

Ongoing

Butare-Kitabi-Ntendezi

Multinational:

Rubavu-Gisaza (Rwanda) Road Project Dar-es-Salaam-Isaka-Kigali/ Keza-Musongati

railway study-Phase II;

Rusizi-Ntendezi-Mwityazo Road

ENERGY

Electricity and other energy

supply increased

Inadequate generation, transmission

and distribution infrastructure

Percentage of total households with

access to electricity increased from

17% in 2013 to 30% by 2016

15,000 households (of which 2,000 are women-headed households) or

82,000 people (of which 43,000 are

women) will be connected to the national electricity grid in the SEAP

project region

25MW of electricity added to the

national grid

Proposed

Amenagement hydroelectrique de Ruzizi III ;

Ongoing

Scaling up Energy Access Programme (SEAP) Kivuwatt energy project

Multinational: NELSAP Interconnection-NBI;

Rusumo falls hydro power project

INTEGRATED RURAL INFRASTRUCTURE

Increase agriculture productivity

Limited resources to meet the required investment targets

Volume of milk (average litres per day) marketed by smallholder

livestock farmers through milk

collection centres (MCCs) increased from 182,050 in 2013 to 232,800 litres

by 2016

Protection of 3,000 ha of watersheds by 2016;

Irrigated perimeter of 600 ha developed by 2016;

Ongoing Livestock Infrastructure Support Programme

Bugesera Agricultural Development Support

Project (PADAB)

Multinational:

X

Strategic Objectives

(EDPRS-2)

Constraints hindering

achievement of desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Bank Group Interventions during CSP

period (on-going & proposed)

49% of all beneficiaries of land from

the irrigated perimeters will be women

Bugesera multinational agriculture project

(PAIRB) Sustainable Woodlands Management and

Natural Forest Restoration

WATER SUPPLY AND SANITATION

Increased access to safe water

Promote and develop

sanitation facilities and hygiene

Limited resources to meet the required investment targets

Weak capacity for management of water facilities

Limited access to improved sanitation facilities

Proportion of the population with access to clean drinking water

increased from 78% in 2013 to 85%

by 2016

Proportion of the population using

hygienic sanitation facilities increased from 74.5% in 2013 to 80% in 2016

158,000 new water connections by 2016—serving 82,160 females

and 75,840 males

8,000 new sanitation facilities

constructed by 2016—benefiting

4,160 females and 3,840 males

Ongoing Rural Water Supply and Sanitation Program

(Phase II)

PILLAR II: PRIVATE SECTOR DEVELOPMENT

Create an enabling

environment for entrepreneurship and

business development

Develop skills for

productive employment and

to spur private sector innovation

Limited private sector participation

in the development of critical skills and attitudes for entrepreneurship

Limited access to financial and non-

financial services to

Inadequate coordination mechanisms in the provisions of

business development and job

creation initiatives

Low technical skills base to meet

labour market demands

Share of off-farm jobs in total

employment increased from 28.4% (18.5% for females) in 2012 to 42%

(24% for females) by 2016

Share of self-employment in total

employment increased from 9.7% (8%

for females) in 2011 to 11.5% (11% for females) by 2016

Share of employers who are satisfied with TVET graduates increased from

71.6% in 2012 to 77% by 2016

Number of sector skills councils

established and operationalized increased from 9 in 2013 to 12 by

2016

Number of unskilled and semi-

skilled people trained, certified, and

receiving toolkits to create own employment increased from 6,100

trained & 2,100 receiving toolkits in

2013 to 15,000 (90% certified & 50% receiving toolkits) by 2016

Number of start-up MSMEs for youth and women accessing finance

increased from 2,878 in 2013 to

30,000 by 2016

Number of Integrated Craft

Production Centers (ICPCs) and Community Processing Centers

(CPCs) equipped and operationalized increased from 2

ICPCs and 1 CPCs in 2013 to 12

ICPCs and 10 CPCs by 2016

Number of Business Development

and Employment units established and operational increased from 0

(zero) to 12 by 2016

Completed Gender and Youth

Employment Study

Proposed

Skills, Employability and Entrepreneurship Programme-II (3-year operation – 2014-16);

Ongoing

Competitiveness and Enterprise Development

Project;

Support to Rwanda Private Sector Federation; Support to Skills Development in Science and

Technology;

Regional ICT Centre of Excellence Line of Credit to Rwanda Development Bank;

Line of Credit to Bank of Kigali;

FAPA support to skills development in the energy sector

Support to the Rwanda Integrated Household

Living Conditions Survey-4 (EICV-4)

XI

Strategic Objectives

(EDPRS-2)

Constraints hindering

achievement of desired

outcomes

Final Outcomes

(by 2016)

Final Outputs

(by 2016)

Bank Group Interventions during CSP

period (on-going & proposed)

Study on Improving Labor

Productivity through TVET for Enterprise Development and Job

Creation completed

Completed Growth Diagnostics

Study

XII

Annex 5: Summary of Bank Group On-going Operations (as at 31/01/2014)

Sector Project Name

Net

Commitments

(UA, million)

Disbursement

Ratio (%)

Overall

Assessment

(Supervision

Rating)

Project

age

(yrs.)

Agriculture

Bugesera Agric Dev Support Project (PADAB) 10

85 2.24 7.5

Livestock Infrastructure Support Project 21.81 100 3 2.6

Sustainable Management of Woodlands and

Restoration of Natural Forests in Rwanda

4.01 14.4 3 2.1

Bugesera Multinational Project 14.98 27.9 2.47 4.3

Sub Total 50.80 95.3 2.7 4.1

Transport

Butare-Kitabi-Ntendezi Road 16 64.3 2.7 4.9

Isaka-Kigali Railway Study (Phase 2) 1.67 42.7 2.6 4.1

Rwanda-(Nyamitanga-Ruhwa-Ntendezi-

Mwityazo Rd)

50.62

61.9 2.7 5.0

Rubavu-Gisiza 45.05 0.00 3 1.6

Sub Total 113.34 64.3 2.7 3.9

Education

Support to Skills Development in Science &

Tech

6

28.8 2.5 5.1

ICT Centre of Excellence 8.6 0.6 2.7 3.0

Sub Total 14.6 12.2 2.6 4.0

Water

Rural Water and Sanitation-Phase II (PNEAR II) 16.12

83.6 2.7 4.5

Lake Victoria Water Supply & Sanitation Project 15.11

0.3 2.1 3.10

Sub Total 31.23 82.2 2.4 3.8

Energy

NELSAP Interconnection 30.47 5.6 2.6 5.1

Scaling Up Energy Access Project 27.36 0.00 N/A 0.6

Regional Rusumo Falls Project 25.38 0.00 N/A 0.1

Sub Total 83.21 5.6 2.6 1.9

Private Sector

Support to Rwanda Private Sector Federation 1 100 N/A N/A

Kivuwatt 15.89 93.8 N/A N/A

BRD (LoC & FAPA) 7.6 100 N/A N/A

BK (LoC & FAPA) 12 50 N/A N/A

Support to Energy Sector (FAPA) 0.8 0 N/A N/A

Payment & Settlement Systems Integration

Project

3.69 0 N/a N/A

Sub Total 40.98 66.4 N/A N/A

Multi-sector

Competitiveness & Enterprise Development 5 84.4 2.2 5.0

Skills, Employability & Entrepreneurship

Program

25.61 100 N/A 0.8

Support to EICV-4 0.82 0 N/A 0

Sub Total 31.43 94.9 2.2 3.1

Grand Total

2013 365.61 14.7 2.55 2.6

Grand Total

2012 256.64 30.6 2.43 3.4

NB: Total average project age excludes private sector operations.

XIII

Annex 6: 2012 Country Portfolio Implementation Plan Recommendations

N

° Main

Issues/Challenges/

Constraints

Recommendation/Remedi

al Action

Responsible Milestones/Timin

g

Status

1. Delays in loan

processing; and delays

in fulfilment of

effectiveness conditions.

The AfDB and GOR must

agree on realistic loan

conditions during appraisal

and negotiation.

- Shorten the time between

appraisal and approval to

four (4) months.

- Reduce the time between

approval and

effectiveness to two (2)

months.

- Extend the readiness filter

to multinational

operations

GoR/AfDB

AfDB

GoR

GoR/AfDB

Continuous,

starting from ADF

12.

The Rubavu

Gisiza project

took 8 months

to be effective

while the

Scaling up

Energy

Access

Project

approved in

June 2013 has

not yet been

effective.

2. Procurement: delays in

bid evaluation.

Reduce the time between

bid opening and submission

of bid evaluation report to

AfDB to a maximum of 15

working days.

Reduce the time between

receipt of complete

documentation and

communicating the Bank’s

decision to a maximum of

15 working days.

Implementin

g Agency

AfDB

Immediate and

continuous.

Immediate and

continuous.

Target not

met, the

average time

taken to

submit bid

evaluation

report is 1

month

Done

3. Financial management

3.1. Delays in

submitting

disbursement

requests

Reduce the time between

receipt of invoices and

submitting disbursement

request to AfDB to a

maximum of 10 working

days

Implementin

g Agencies

Immediate and

continuous.

Not achieved,

It has taken

an average of

between 20 to

30 days to

submit

disbursement

documents to

the Bank

3.2. Delays in

replenishment of

special account

and processing

direct payment

Reduce the time between

receipt of disbursement

requests with complete

documentation and

processing payment to a

maximum of 10 working

days for direct payment; and

a maximum of 20 working

days for replenishment of

special account.

AfDB Immediate and

continuous.

Target has

been achieved

for direct

payments, it

has taken 9

days to

process the

docs

It has taken

between 20-

25 days for

XIV

N

° Main

Issues/Challenges/

Constraints

Recommendation/Remedi

al Action

Responsible Milestones/Timin

g

Status

replenishment

of special

accounts

depending on

the

submission

complete

documentatio

n

3.3 Delays in

submission of

audit reports and

approval

Submit audit reports within

six months after the end of

the financial year.

Send AfDB approval notice

or decision within 45

working days.

AfDB Immediate and

continuous.

Immediate and

continuous.

The

2012/2013

audit reports

were

submitted on

time.

4. Lack of an effective

M&E system

Finalise the set-up of the on-

going project M&E system

within MINECOFIN

MINECOFI

N

By July 2012. Done. PMMU

in place at

MINECOFIN

5. Need for enhancing

capacity at:

Institutional

level

At staff level

Assess capacity needs of the

SPIU and take appropriate

action

Conduct short term and

medium term training

tailored to specific needs

AfDB/

MINECOFI

N

AfDB/

MINECOFI

N

continuous

continuous

On-going

Continuous

disbursement

and

procurement

training

provided by

RWFO staff.

6. Enhanced selectivity

and focus

Continue focus on selected

sectors with larger

operations as per Division

of Labour.

AfDB Immediate and

continuous

ADF XII and

XIII Projects

are selective

focusing in

infrastructure

and sector

budget

support, as

stipulated in

the DoL.

XV

Annex 7: 2013 Country Portfolio Improvement Plan

N° Identified

Issues/Challenge

Recommendation/Remedial Action Expected output indicator Time Frame Responsible Party

1. Delays in the effective

implementation of

projects resulting from

poor project quality at

entry

More robust studies to inform project design. Have

feasibility studies for all projects in the IOP.

All Projects in the IOP have

feasibility Studies

FY 2013/2014 EA’s/ MINECOFIN

Ratification of the Loans within 3 months after

final signature from the Bank

Loans ratified by the GoR

within 90 days after

signature

FY 2013/2014 MINECOFIN

Bank’s response to ensure entry into force and first

disbursement conditions within two weeks

Bank No Objection

provided by GECL within 2

weeks after receipt of a

complete set of supporting

documents from GoR.

FY 2013/2014 GECL

All expropriation conditions to be fulfilled within

2 months after board approval

At least 80% of projects

submit evidence of

completion of expropriation

within 60 days after Board

approval

FY 2013/2014 EAs/ MINECOFIN

Ensure bidding documents for 1st year are ready by

Board

At least 80% of projects

have bidding documents for

the first year of

implementation by Board

approval

FY 2013/2014 EA’s

1.2 Slow Project

Implementation

For newly approved projects, include detailed

work plans for the first 18 months, including key

procurement documents and the steps required for

first disbursement effectiveness

18 months’ work plan

submitted to the Bank

before Board approval

FY 2013/2014

EA’s

XVI

N° Identified

Issues/Challenge

Recommendation/Remedial Action Expected output indicator Time Frame Responsible Party

Accelerate project implementation through

continuous monitoring of the poor performing

projects

Prepare action plans for closing projects

Dashboard/ matrix of key

remedial measures and

implementation of these

measures updated each

quarter for the poor

performing projects

Starting from

FY 2013-2014

RWFO

1.3 Delays in the

submission of

Quarterly Progress

Reports

All QPR’s to be submitted within 15 days after

the end of the quarter

100% submission rate for

QPR’s within 15 days after

the end of the quarter

FY 2013-2014

EA’s

1.3 Provision of regular

trainings to the EA’s Organize at least one major fiduciary training

event every year involving ORPF 1, FFCO3 and

RWFO.

Fiduciary training

conducted

3rd

Quarter 2014 RWFO/ EARC

1.4 Capacity enhancement

of the SPIUs All SPIU’s to be equipped with the requisite staff

in procurement, financial management and M&E.

Each PIU to have an AfDB focal point.

AfDB focal points,

procurement, financial

management and M&E

staff designated by the

SPIU’s and communicated

to the Bank

FY 2013/2014 EAs/ MINECOFIN

2.2 Delays in submission of

disbursement requests

Reduce the time between receipt of invoices and

submitting disbursement request to AfDB to a

maximum of 21 working days

Average time for

submitting disbursement

requests reduced from 30 to

21 working days

FY 2013/2014 EAs

2.3 Delays in

replenishment of

special account and

processing direct

payment

Reduce the time between receipt of disbursement

requests with complete documentation and the

processing payments to a maximum of 9 working

days for direct payment;

Maximum of 21 working days for replenishment

of special account.

Average time for

processing payments with

complete documentation

reduced from 10 to 9

working days for direct

payment and from 25 to 21

days for special account

replenishment

FY 2013/2014 RWFO/ FFCO3

3.1 Poor Contract

Management

Timely completion of all signed contracts through

close monitoring of activities.

The share of contracts

completed within the

stipulated timeframe

increased from 60% to 90%

FY 2013/2014 EAs

XVII

N° Identified

Issues/Challenge

Recommendation/Remedial Action Expected output indicator Time Frame Responsible Party

3.2 Delays in bid

evaluation.

Reduce the time between bid opening and

submission of Bid Evaluation Report (BER) to

AfDB to a maximum of 21 calendar days.

Reduce the time between receipt of complete

documentation and communicating the Bank’s

decision to a maximum of 15 working days.

Average time betweeen bid

opening and the submission

of BER reduced from 30 to

21 working days

Average time between

receipt of complete BER

documentaion and

communication of the

Bank’s decision reduced to

a maximum of 15 working

days

FY 2013/2014

EAs

XVIII

Annex 8: Donor Division of Labor (DoL)

DPs

Ed

uca

tio

n

(In

clu

din

g T

VE

T)

Ag

ricu

ltu

re

(In

clu

din

g f

eeder

Ro

ads

Hea

lth

Tra

nsp

ort

Wat

er a

nd

San

itat

ion

En

erg

y

Pri

vat

e S

ecto

r D

.&

Yo

uth

So

cial

Pro

tect

ion

ICT

Just

ice

Rec

on

cili

atio

n L

aw

& O

rder

En

vir

on

men

t

Urb

an &

Ru

ral

Set

tlem

ent

Dec

entr

aliz

atio

n&

Go

ver

nan

ce

PF

M (

Incl

ud

ing

Eco

no

mic

Go

ver

nan

ce)

Fin

anci

al s

ecto

r

Belgium B X X B X Germany X X X S S

Netherlands S X X X

Sweden

UK X B X S S X

USA X B X X X S

AfDB X S X X S

EC X X B X S EIB X X X

WB X X B X

Switzerland X X S X

Global Fund X

France X S X

Luxembourg X X Japan S X X X Korea X X S X S China S X X X

India S X X

Kuwait Fund X X X S Saudi Fund X X X S

BADEA X X X S OPEC Fund X S X X

ABU Dhabi X X X

FAO X X

ILO X X

UNDP X X X UNEP X UNESCO X X S UNFPA X X UNHCR X X UN-HABITAT X X X UNICEF X X X UNIDO X X UN Women X X

XIX

B→ represents partners providing Sector Budget Support

S→ represents silent partnerships through delegated cooperation

DoL excludes Basket funds, Regional Operations, and support to NGOs.

WFP X X UNAIDS X S IFAD X X WHO S S X X X UNECA X X X

UNCDF X

IOM X X X UNV X S

XX

Annex 9: Definition of Micro, Small and Medium Enterprises (MSMEs)

Size of enterprise Net capital

investments (millions

of RwF)

Annual turnover

(million RwF)

Number of

Employees

Micro-enterprise Less than 0.5 Less than 0.3 1 to 3

Small-enterprise 0.5 to 15 0.3 to 12 4 to 30

Medium-enterprise 15 to 75 12 to 50 31 to 100

Large enterprise More than 75 More than 50 More than 100

Source: Ministry of Trade and Industry, 2010; US$ = RWF 655 as at 30th

October 2013

Note: to be classified as an SME, two of three conditions have to be met: (i) net capital investments, (ii) annual

turnover, or (iii) number of employees.

XXI

Annex 10: Selected Macroeconomic Indicators

XXII

Annex 11: Comparative Socio-Economic Indicators

XXIII

Annex 12: Progress Towards Achievement of MDGs

MDGs/ Vision 2020 Indicators 2000

Baseline

Targets Latest Value

(2010-12)

Goal 1: Eradicate extreme poverty and hunger

Poverty (% below national poverty line) 60.4 23.8 44.9

Child malnutrition (% of under-5s underweight) 24.5 14.5 11.7

Proportion (%) of the population below minimum level of dietary

energy consumption

41.3 17 28.9

Goal 2: Achieve Universal Primary Education

Literacy level (% of 15-24 year olds) 57.2 100.0 77.8

Primary school net enrolment (%) 72.0 100.0 91.7

Primary school completion rate (%) 22.0 100.0 78.6

Gender Gap in primary education (%) 0.0 0.0 0.0

Goal 3: Promote Gender Equality and Empower Women

Gender Gap in Literacy (%) 10.0 0.0 0.1

Share of women in wage employment in the non-agricultural

sector

50.0 18.1

Seats held by females in parliament (% of seats) … 50.0 64%

Goal 4: Reduce child mortality

Children immunized against measles (% of 11-23 month-old) 84 100.0 95

Under 5 mortality rate (per 1,000 births) 196.0 47.0 76

Infant mortality rate (per 1,000 births) 107.0 28.0 50

Goal 5: Improve Maternal Health

Maternal mortality rate (per 100,000 births) 1,071.0 325.0 487

Births attended by skilled health personnel (% of births) 31.3 … 69

Goal 6: Combat HIV/AIDS, Malaria, and other Diseases

HIV prevalence (%) 13.9 … 2.9

Specific mortality associated with malaria (%) 51.0 … 3.4

Specific mortality associated with tuberculosis (%) 6.0

Goal 7: Ensure Environmental Sustainability

Ratio of area protected to maintain biological diversity to surface

area (%)

… 10.0 12.0

Proportion of population with sustainable access to improved

water source (%)

74.0 100.0 78

Proportion of the population with access to improved sanitation 42 50 74.5

Goal 8: Develop A Global Partnership for Development

Proportion of ODA to basic social services (education, primary

health care, nutrition, safe water and sanitation)

55.5 … 44.3

Internet users (per 1000 people) 4.3 … 75

Mobile cellular subscriptions (per 1000 people) 15.6 … 334

Telephone lines (per 1000 people) 2.6 … 3.7

Sources: AfDB Statistics Department and Rwanda Joint Sector Review Summary Reports 2011/12.

On-track Strong

potential

to

achieve

Off-

track

XXIV

Annex 13: Country Policy and Institutional Assessment Ratings 2005-13

A. ECONOMIC

MANAGEMENT

B. STRUCTURAL

POLICIES

C. POLICIES FOR SOCIAL

INCLUSION / EQUITY

Ov

era

ll C

PIA

Ra

tin

g

GOVERNANCE RATING : PUBLIC SECTOR

MANAGEMENT AND INSTITUTIONS

1 2 3

Av

era

ge

4 5 6

Av

era

ge

7 8 9 10 11

Av

era

ge

1 2 3 4 5

Av

era

ge

Mac

ro-E

cono

mic

Man

agem

ent

Fis

cal

Po

licy

Deb

t P

oli

cy

Reg

ion

al I

nte

gra

tio

n a

nd t

rad

e

Fin

anci

al S

ecto

r

Bu

sin

ess

Reg

ula

tory

Env

iron

men

t

Gen

der

E

qu

alit

y

Eq

uit

y o

f P

ub

lic

Res

ou

rce

Use

Bu

ild

ing H

um

an R

esou

rces

So

cial

Pro

tect

ion

and

Lab

or

En

vir

on

men

tal

Po

licy

& R

egu

lati

on

s

Pro

per

ty R

igh

ts &

Ru

le B

ased

Gov

ern

ance

Qu

alit

y o

f B

ud

get

ary

& F

inan

cial

Man

agm

t.

Eff

icie

ncy

of

Rev

enu

e M

ob

iliz

atio

n

Qu

alit

y o

f P

ub

lic

Ad

min

istr

atio

n

Tra

nsp

aren

cy,

Acc

ou

nta

bil

ity

& C

orr

up

tion

in P

ub

. S

ecto

r

2005 4.00 4.00 4.00 4.00 3.00 3.00 3.00 3.00 4.00 4.00 3.00 3.00 4.00 3.60 3.53 3.50 4.00 4.00 3.00 4.00 3.70

2006 4.00 4.00 4.00 4.00 3.50 3.50 3.50 3.50 4.00 4.00 3.50 3.50 4.50 3.90 3.80 3.50 3.50 4.00 3.50 4.00 3.70

2007 4.50 4.50 4.00 4.33 3.50 3.50 3.50 3.50 4.50 4.00 4.00 3.50 4.50 4.10 3.98 3.50 4.00 4.00 4.00 4.00 3.90

2008 4.50 4.50 4.00 4.33 4.00 3.50 4.00 3.83 4.50 4.50 4.50 3.50 4.50 4.30 4.16 4.00 4.00 4.00 3.50 4.00 3.90

2009 4.50 4.50 4.50 4.50 4.00 3.50 4.50 4.00 4.50 4.50 4.50 3.50 4.50 4.30 4.27 4.00 4.00 4.00 3.50 3.50 3.80

2010 4.50 4.50 4.50 4.50 4.00 3.50 4.50 4.00 4.50 4.50 4.50 3.50 4.50 4.30 4.27 4.00 4.00 4.00 3.50 4.00 3.90

2011 4.50 4.50 4.50 4.50 4.00 3.50 4.50 4.00 4.50 4.50 4.50 4.00 4.50 4.40 4.30 4.50 4.00 4.50 3.50 4.00 4.10

2012 5.00 5.00 4.50 4.83 4.00 4.00 4.80 4.27 5.00 4.80 4.80 4.30 5.00 4.78 4.59 4.80 4.50 4.50 4.00 4.30 4.44

2013 4.80 5.00 4.50 4.8 4.00 4.0 4.7 4.2 4.8 4.7 5.0 4.3 5.0 4.8 4.6 4.8 5.0 4.5 4.3 4.5 4.6

XXV

Annex 14: Fiduciary Risk Assessments

A. Procurement

1. Rwanda Public procurement is regulated by Law No. 12/2007 enacted in 2007 and revised in

2013. Rwanda Procurement Law is generally consistent with international standards as it contains most

elements of modern procurement legal and regulatory framework. The revised Law improves the existing

legal framework based on lessons learnt since 2007. It prescribes open competitive bidding as the default

method for procurement of goods, works and consulting or other services by procuring entities using

public funds. The Law establishes a Tender Committee and a Procurement Unit in each Procuring Entity

for effective management of public procurement. The Rwanda Public Procurement Authority (RPPA) is

a regulatory body and plays a key role in procurement oversight, being part of the control systems for

public procurement. Under the revised Law, Public Procurement regulations and the code of ethics in

public procurement are established by a Ministerial Order whereas the RPPA issues standard procurement

documents and guidelines aimed at achieving objectives and any duties prescribed by the Law. The Office

of the Auditor General also examines compliance of procurement procedures in highlighting

mismanagement related to the public procurement. The 2012 Audit Report showed that cases of

noncompliance with procurement laws and regulations have significantly reduced in public entities

audited.

2. The revised procurement law established an Independent Review Panel at the National Level and

Independent Review Panels at the District level for the purpose of conducting independent reviews of

complaints and rebuttal of the procurement process. The appeal mechanisms are well articulated and

generally working well. During the Financial Year 2012/2013, NIRP received 87 dossiers of appeals, an

indication of the confidence of the bidders in the procurement system. Therefore, there are adequate

systems and oversight entities in place which guarantee the integrity and transparency of the procurement

system.

3. Strong anti-corruption laws and institutions are in place in Rwanda especially the organic law no.

61/2008 of 10/09/2008 on the leadership code of conduct published in the official Journal n° 24 of 15th

December 2008 (coupled with other anti-corruption laws) and detail what is forbidden for public officials

to avoid conflict of interest. The Procurement Law specifically makes provisions with respect to Anti-

Corruption Measures and Conflict of Interest. It provides for the debarment of bidders and prescribes

punishment for officials contravening it, while making reference to the Statutes of the Rwanda Public

Service as well as any other existing laws.

4. Overall risk rating in public procurement in Rwanda is moderate. There is tremendous success in

as far as governance is concerned in Rwanda. This success is reflected in the 2013 Transparency

International report showing that in only 3 years, Rwanda advanced from the 66th position (2010) to the

49th position (2013) on the Transparency International’s CPI ranking. The business environment has also

significantly improved ranking Rwanda in the World Bank Doing Business 2014 Report, as the top

performer worldwide jumping 35 places in the ease of doing business ranking, from 67 (2010) to 32

(2014).

5. In conclusion, the Rwanda public procurement system is robust and provides the basic platform

for a sound public procurement system that should enable the country to implement public procurement in

a transparent and efficiency manner to achieve value for money. With the internal control mechanism in

place, overall risk rating in public procurement is moderate. Rwanda has made substantial progress in

procurement reforms and this is evidenced in the good progress mentioned by the Ecorys report on

XXVI

Independent Evaluation of the PFM Reform Strategy 2008 – 2012 under Pillar 3 – Public Procurement.

However, following the decentralization of procurement to the entities, there are currently capacity and

workload issues for staff. So, there remains scope for some further improvement with respect to staffing

and qualifications at local level. In this regard it is recommended that the Government continues

implementing the procurement reforms in particular capacity building program as a key component of the

next phase of PFM reforms strategy.

B. Financial Management

1. The Rwanda Fiduciary Risk Assessment was undertaken in accordance with Bank Group’s Policy

on Program-Based Operations released by the Operational Resources and Policies Department in

February 2012. Various diagnostic reviews, such as the 2007 and 2010 PEFA Assessments, the 2012

Donor Fiduciary Risk Assessment for Rwanda, the May 2011 mid-term review of the PFM Reform

Strategy (PFMRS), the 2007 IMF Safeguards Assessment of the Central Bank of Rwanda and the PFMRS

Evaluation Report by ECORYS as at November 2012 and also by Andrew Kettlewell towards the end of

2013 have been used in assessing the fiduciary risk. The Rwanda 2013 CPIA shows further positive

strides in the Rwanda PFM. Rwanda scored an overall average 4.53 with the score on the Budgetary and

PFM section rising to 5.0. The PEFA 2014 is currently under preparation with the Terms of Reference

already agreed. The PFMRS had gone into the second phase in order to consolidate the gains made under

the first PFMRS.

2. The overall conclusion of the Public Financial Management (PFM) Assessment is that the

country’s PFM system is satisfactory. Assessment of the PFM system is largely based on results from the

2007 and 2010 PEFA Assessments; and the 2012 Donor Fiduciary Risk Assessment of General Budget

Support in Rwanda. The 2010 PEFA assessment indicates that the PFM systems have been improving

steadily in line with Government’s commitment to PFM reforms and the 2012 Fiduciary Risk Assessment

concluded that the overall level of fiduciary risk is moderate and the overall trajectory of change since the

2008 Fiduciary Risk Assessment (FRA) is positive. Many of the required safeguards to mitigate the key

risks are addressed in the second phase of the Public Financial Management Reform Strategy (PFMRS)

2014-2018. The second phase of the PFMRS concentrates on making further progress in four key priority

areas including (i) Credibility of Budget, Comprehensiveness and Transparency and Policy Based

Budgeting; (ii) Predictability and Control in Budget Execution; (iii) Accounting, Recording and

Reporting; and (iv) Audit and External Scrutiny.

3. The 2007 IMF safeguards update assessment noted that the National Bank of Rwanda (NBR) had

strengthened its own safeguards since 2003. External audits were completed on-time, the Committee of

Auditors became operational, and the Internal Audit Department of the central bank helped in the

strengthening of controls over monetary program data. The audit opinion on the accounts of NBR for the

year ended 31 December 2012 is unqualified (clean) and in compliance with international financial

reporting standards. The next safeguards assessment report for the BNR is expected in 2014.

4. PEFA Summaries of the 2007 and 2010 PEFA assessments; and the 2012 Fiduciary Risk

Assessment are shown below.

Summary of 2010 PEFA Assessment Indicator Scores

I. The areas of PFM performance that were already at a very satisfactory level of performance (A)

in 2006 and have remained such are:

PI-3 Aggregate revenue out-turn compared to original approved budget (A)

PI-5 Classification of the budget (A)

PI-13 Transparency of taxpayer obligations and liabilities (A)

XXVII

II. The areas of PFM performance that have improved and/or achieved a very satisfactory (A) or

acceptable (B) level of performance are:

PI-1 Aggregate expenditure out-turn compared to original approved budget (A)

PI-4 Stock and monitoring of expenditure payment arrears (B)

PI-6 Comprehensiveness of information included in budget documentation (A)

PI-8 Transparency of inter-governmental fiscal relations (A)

PI-10 Public access to key fiscal information (A)

PI-11 Orderliness and participation in the annual budget process (B+)

PI-14 Effectiveness of measures for taxpayer registration and tax assessment (A)

PI-16 Predictability in the availability of funds for commitment of expenditures (B+)

PI-17 Recording and management of cash balances, debt and guarantees (B)

PI-18 Effectiveness of payroll controls (B+)

PI-19 Competition, value for money and controls in procurement (A)

PI-20 Effectiveness of internal controls for non-salary expenditure (B+)

PI-22 Timeliness and regularity of accounts reconciliation (B+)

PI-26 Scope, nature and follow-up of external audit (B+)

PI-28 Legislative scrutiny of external audit reports (B)

D-1 Predictability of Direct Budget Support (A)

III. The areas of PFM performance that are showing some improvement, yet remain weak, are:

PI-2 Composition of expenditure out-turn compared to original approved budget (D)

PI-7 Extent of unreported government operations (D+)

PI-9 Oversight of aggregate fiscal risk from other public sector entities (C)

PI-21 Effectiveness of internal audit (C)

PI-25 Quality and timeliness of annual financial statements (D+)

D-2 Financial information provided by donors for budgeting and reporting on project and

program aid (D+)

IV.The areas of PFM performance that are not showing much improvement and remain weak are:

PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting (C+)

PI-15 Effectiveness in collection of tax payments (D+)

PI-23 Availability of information on resources received by service delivery units (D)

PI-24 Quality and timeliness of in-year budget reports (D+)

PI-27 Legislative scrutiny of the annual budget law (C+)

D-3 Proportion of aid that is managed by use of national procedures (D)

V. Ratings that have remained unchanged since the 2007 PEFA, and are difficult to justify are:

PI-7 (ii), PI-23, and D-3 at D;

PI-15 and PI-24 at D+;

PI-12 and PI-27 at C+.

Summary of 2012 Donor Fiduciary Risk Assessment for Rwanda

XXVIII

VI. The FRA Team assessed the overall level of fiduciary risk as moderate. Moreover, there had

been a general strengthening of PFM performance across five of the six major components of the PFM

systems, with some remarkable improvements in performance in a number of specific PFM components.

The overall trajectory of change since the 2008 Fiduciary Risk Assessment (FRA) is positive.

General improvements in PFM performance, coupled with ongoing implementation of the PFM Reform

Strategy, demonstrate a successful and credible commitment to reform from the GoR. Overall, there

are two broad areas of PFM weakness – legislative scrutiny and accounting, recording and reporting.

Summary of Overall Risk

PEFA dimension Risk level 2008 Risk level 2011 Trajectory of change

Credibility of the

Budget

(Indicators 1- 4)

Moderate Moderate ↔

Comprehensiveness

and transparency

(Indicators 5-10)

Moderate Moderate ↑

Policy based budgeting

(Indicators 11-12) Moderate Low ↑

Predictability and

control in budget

execution

(Indicators 13-21)

Moderate Low ↑

Accounting recording

and reporting

(Indicators 22-25)

Substantial Substantial ↑

External scrutiny and

audit

(Indicators 26-28)

Substantial Substantial ↑

CPIA 2014 Overall score on PFM = 5.0 ↑

XXIX

ENDNOTES

i Several of the recommendations from the Bank’s 2010/11 Domestic Resources Mobilization Study have been

implemented. These include: introduction of electronic billing machines to increase efficiency of VAT collections;

VAT payment on invoice as opposed to the previous VAT refund system; rolling out of the e-filing and payment

system; introduction of a risk-based tax compliance assessment system; and improvements in customs management

electronic single window, and cargo tracking.

ii These include: starting a business, dealing with construction permits, registering property, getting credit, paying

taxes, trading across the borders, protecting investors and resolving insolvency. More progress is required in getting

electricity and enforcing contracts.

iii

The 2012 Rwanda Skills survey covering 8 priority sectors including tourism, energy, manufacturing, financial

sector, mining, ICT, agriculture and construction reported an average skills gap as a share of total employment of

40%, with artisans and technicians accounting for an average of 89% of the total skills gap.

iv The five MDGs for which progress is on track include: achieving universal primary education, promoting gender

equality and women empowerment, reducing child mortality, combating HIV/AIDs, malaria and other diseases, and

ensuring environmental sustainability.

v The Vision 2020 Umurenge Programme (VUP), comprising both a cash transfer scheme and public works

programme, is a key social protection programme targeting households in the lowest two ubudehe or

poverty/consumption quintiles.

vi These ODA figures only include development cooperation and exclude humanitarian assistance provided by UN

agencies such as UNHCR, and WFP. Only 16 development partners that participated in the Donor Performance

Assessment Framework assessment in 2010/11 and 2011/12 are covered and these include (listed here from largest

to least contributor to ODA): World Bank, US, Global Fund, UK, African Development Bank, European

Commission, One-UN (9 UN agencies), Belgium, Netherlands, Germany, Japan, Sweden, Canada, South Korea,

Luxemburg, and Switzerland.

vii

Data for audit reports are on fiscal year basis. For instance, 2012 refers to 2011/12 and 2013 refers to 2012/13.

viii

A leverage factor of 1.5 is applied to the PBA for multinational operations.