The Rwandan economy has fallen into its first recession due to the COVID-19 (coronavirus) pandemic and could potentially compromise years of gains in poverty reduction.
Released today, the 16th edition of the World Bank Rwanda Economic Update, Protect and Promote Human Capital in a post-COVID-19 World, says the country’s gross domestic product (GDP) is estimated to have dropped by 0.2 percent in 2020, compared to a projected expansion of 8 percent before the COVID-19 outbreak.
This dire economic effect has severely adverse implications for households, as thousands are facing unemployment, revenue losses and increased consumption prices are pushed into poverty. The Economic Update estimates that, because of the lockdown, social distancing, and increased costs associated with the pandemic, the poverty headcount is likely to rise by 5.1 percentage points (more than 550,000 people) in 2021, with more than 80 percent of the new poor in rural areas.
“The severity of the effect is due at least in part to the fact that the crisis hit where it hurt the most, travel and hospitality services, which are the sectors for which the country has invested massively in recent years through its the MICE (Meetings, International Conferences, and Events) strategy. The crisis calls for the rebalancing of the growth strategy, with more emphasis on rural related activities and greater emphasis on regional integration to reduce vulnerability to international shocks,” said Calvin Djiofack, the World Bank Senior Economist.
The report notes that the Government of Rwanda initiated a swift and robust response to the pandemic, with the adoption of the Economic Recovery Plan (ERP) estimated at US$900M over the two fiscal years 2019/20 and 2020/21. The recovery plan aims to scale up social safety net programs for the most vulnerable, build key infrastructures, and support strategic enterprises, including small and medium-sized enterprises.
Social safety nets programs have already reduced poverty by 1.2 percentage point in 2020, the report says, and could reduce poverty by 1.7 percentage points in 2021 if the government undertakes the expansion planned in the ERP.
The report points out that, in the absence of decisive actions, the adverse effects on education and health, have the potential to reduce long-term productivity and slow down the country’s long-term growth potential. The long closure of schools and lower household income are likely to reduce school enrollment, as many students seek employment. An estimated 3.5 million students have been out of school, and statistics indicate that the share of students in total employment increased from 3.4 percent in February 2020 to 8.8 percent in August 2020.
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The report acknowledges that the government’s swift and efficient response to the pandemic has largely mitigated the potentially significant negative impact on essential health and nutrition services. Rwanda has experienced some disruptions in the delivery of health services, but, the report notes, these appear to be largely transitory. However, continued efforts to ensure coverage of nutrition and health services to vulnerable households are essential to avoid a deterioration in the productivity of future workers.
The 16th edition of the Rwanda Economic Update also recognizes that the impact of the pandemic disproportionately affects women, in part because (according to the recent labor market survey) women are more likely to be seasonal workers (44 percent versus 31 percent of men) and are more likely to be taking care of a sick relative (4 percent versus 1 percent).
“The unprecedented impact of the crisis heightens the urgency of ensuring the availability of strong and adaptable programs and policies to mitigate poverty, and to safeguard the health, schooling, and employment of the population,” said Rolande Pryce, the World Bank Country Manager for Rwanda. “By further expanding the coverage of well targeted safety net interventions and prioritizing investments in human capital, Rwanda can quickly and effectively mitigate the effects of the shock and lay the groundwork for future resilience.”
Some of the actions proposed by the Rwanda Economic Update to protect and improve human capital in Rwanda include accelerating deployment of COVID-19 vaccines to contain the pandemic, combating the poverty impact of the pandemic by expanding coverage of social safety nets, improving targeting accuracy to make social safety nets more cost-effective, and expanding social insurance to the informal sector, and reducing learning losses through optimization of remote education due to the COVID19 disruptions, improving skills and strengthening accountability in education.
