SDG Financing Options in Rwanda: A Post-Pandemic Assessment

WP/21/115 SDG Financing Options in Rwanda: A Post-Pandemic Assessment by Victor Duarte Lledo and Roberto A. Perrelli IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. 2© 2021 International Monetary Fund WP/21/115 IMF Working Paper Fiscal Affairs Department SDG Financing Options in Rwanda: A Post-Pandemic Assessment Prepared by Victor Duarte Lledo and Roberto A. Perrelli1 under the guidance of Dora Benedek and Alexander F. Tieman Authorized for distribution by Abdelhak Senhadji April 2021 Abstract This paper uses a novel macroeconomic framework to identify policy and financing options to help Rwanda achieve its sustainable development goals (SDGs). Under current policies, Rwanda would meet its SDGs right after 2050. Active policies that combine fiscal reforms and higher private sector participation could fulfill more than one third of Rwanda’s post-pandemic SDG financing gap, enabling the country to meet its SDG targets by 2040. For Rwanda to meet its SDGs by 2030, active policies would need to be complemented with about 13¾ percentage points of GDP in additional resources annually until then. JEL Classification Numbers: Q01, H11, H20, H87, O23, I15, I25, F35 Keywords: Sustainable Development Goals, Development, Fiscal Policy, Structural Reform Author’s E-Mail Address: VLledo@imf.org and RPerrelli@imf.org 1 This paper was written as technical background to the IMF Staff Discussion Note “A Post-Pandemic Assessment of Sustainable Development Goals”. We are grateful for comments from Olusegun Akanbi, David Baar, David Bartolini, Svetlana Cerovic, Hua Chai, Il Jung, Yujin Kim, Narine Nersesyan, Baoping Shang, and Mauricio Soto. IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. 3 Content Abstract ......................................................................................................................................2 I. Introduction ............................................................................................................................4 II. A Dynamic Financing Framework for Sustainable Development Goals ..............................5 III. Rwanda’s SDG Financing: Pre-Pandemic Situation ............................................................7 A. Pre-Pandemic Development Progress and Challenges .............................................7 B. Pre-Pandemic Financing Gaps ..................................................................................8 IV. The COVID-19 Impact on Rwanda ...................................................................................11 V. Rwanda's SDG Financing: Post-Pandemic Gap and Policy Options ..................................13 VI. SDG Financing: The Perils of Scarring .............................................................................16 VII. Concluding Remarks ........................................................................................................18 References ................................................................................................................................20 Box Box 1. Rwanda’s COVID-19 Crisis Response ........................................................................12 Figures Figure 1. Rwanda: Performance across Selected SDGs ............................................................8 Figure 2. Rwanda: SDG Needs according to IMF Costing Mission..........................................8 Figure 3: Rwanda: Pandemic-Related Real Output Losses, 2018–25 .....................................13 Figure 4: Rwanda: Gross Nominal Public Debt Paths, 2018–30 .............................................13 Figure 5. Rwanda: Changes in Available Fiscal Space to Invest in SDGs, 2020–30 ..............14 Figure 6. Rwanda: Impact of MTRS on Tax Revenues, 2018–30 ...........................................14 Figure 7. Rwanda: Impact of Scarring on Human Capital Per Worker, 2018–50 ...................17 Figure 8. Rwanda: Impact of Scarring on Real GDP Growth Rates, 2018–50 .......................17 Figure 9. Rwanda: Impact of Active Policies on Per Capita Income, 2018–50 ......................17 Figure 10. Rwanda: Impact of Active Policies on Human Capital Per Worker, 2018–50 ......17 Tables Table 1. Rwanda: Selected Economic Indicators ......................................................................9 Table 2. Rwanda: Dynamic Financing Framework Scenarios, 2020–50 (Pre-COVID) ..........10 Table 3. Rwanda: Additional Grants Needed to Meet 2030 SDGs .........................................14 Tabl