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Rwanda’s Private Sector Potential Can be Unlocked through an Increase in Domestic Savings

To maintain Rwanda’s development trajectory and achieve the goals outlined in Vision 2050, increased efforts are needed to shift economic growth towards a private investment-led model, given the country’s depleting fiscal space. This analysis is according to the 22nd edition of the Rwanda Economic Update (REU): Mobilizing Domestic Savings to Boost the Private Sector in Rwanda, which emphasizes the critical link between private sector investment growth and domestic savings capacity.

Rwanda is challenged in mobilizing domestic savings, which are essential for private sector investment and reducing the country’s vulnerability to depleting external finance. Domestic savings allow households and firms to smooth consumption, accumulate assets, and prepare for emergencies.

Although financial inclusion has increased in Rwanda, with a rise in bank account usage for saving and the introduction of long-term savings programs, many Rwandans still prefer informal saving methods. The country’s savings rates remain low compared to regional peers, impacting financial resources for businesses, especially small and medium-sized enterprises.

Data shows that private investment growth in Rwanda has not kept pace with public investment, with private investment growing modestly from 12.7% of GDP in 2007 to 15.8% in 2022. The main drivers of national savings have been households and remittances, but the government’s fiscal deficit has negatively contributed to national savings, potentially crowding out private sector investments and hindering future growth.

Given the current challenges, there is a need for Rwanda to bolster private investment to complement public spending for sustained economic growth. The REU presents specific recommendations to enhance savings, such as implementing subsidies to improve savings rates, providing digital financial literacy, and fostering remittances and diaspora engagement for savings mobilization.

The REU also analyzes recent economic developments in Rwanda, reporting that despite global challenges, the country’s economy showed resilience, growing at about 7.6% in the first three quarters of 2023, supported by the services sector. GDP growth is expected to regain momentum in 2024–26, with a projected average growth of 7.2%.

Distributed by APO Group on behalf of The World Bank Group.

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