June 2018 | Edition No. 12 Tackling Stunting: An Un nished Agenda Rwanda Economic Update Tackling Stunting: An Unfinished Agenda June 2018 TABLE OF CONTENTS Acronyms ............................................................................................................................................................................................................................ i Foreword ............................................................................................................................................................................................................................. ii Executive Summary ................................................................................................................................................................................................ iii Part I: Recent Economic Developments .............................................................................................................................................................. 1 1.1 Globally and Regionally, Economies are Recovering ......................................................................................................... 2 1.2 Rwanda’s Economic Performance in 2017.............................................................................................................................. 3 1.3 Macroeconomic Outlook and Risks.......................................................................................................................................... 12 Part II: Tackling Stunting: An Unfinished Agenda .......................................................................................................................................... 15 2.1 Setting the Scene............................................................................................................................................................................ 16 2.2 Stunting in Rwanda........................................................................................................................................................................ 16 2.3 Rwanda’s Renewed Commitment............................................................................................................................................. 22 2.4 Conclusions....................................................................................................................................................................................... 30 References ........................................................................................................................................................................................................................... 31 LIST OF Figures Figure 1.1: Global and regional economic growth.................................................................................................................................... 2 Figure 1.2: Real GDP growth, Rwanda, 2012-17......................................................................................................................................... 3 Figure 1.3: Real GDP growth by sector, 2016-17........................................................................................................................................ 3 Figure 1.4: Demand-side contribution to GDP growth, 2017................................................................................................................ 4 Figure 1.5: Headline and core inflation, 2014–18...................................................................................................................................... 5 Figure 1.6: Rural and food prices inflation, 2014–18................................................................................................................................ 5 Figure 1.7: Central Bank policy rate, 2005–17............................................................................................................................................. 5 Figure 1.8: Monetary and credit conditions, 2012–17............................................................................................................................. 6 Figure 1.9: Bank lending and deposit rate dynamics, 2015–18 ........................................................................................................... 6 Figure 1.10: Gross international reserves, 2010–17..................................................................................................................................... 9 Figure 1.11: Value of the Rwanda Franc against the US Dollar, 2013–17 ........................................................................................... 9 Figure 1.12: Indices of real and nominal effective exchange rates........................................................................................................ 10 Figure 1.13: Rwanda’s public debt, 2010–17.................................................................................................................................................. 12 Figure 2.1: Prevalence of stunting and GDP per capita, Rwanda and selected low-income African countries.................. 17 Figure 2.2: Trends in stunting prevalence by wealth quintile, 2000–15 ........................................................................................... 17 Figure 2.3: Stunting prevalence and poverty rates by district.............................................................................................................. 18 Figure 2.4: UNICEF framework for malnutrition......................................................................................................................................... 19 Figure 2.5: Trends in care practices................................................................................................................................................................. 19 Figure 2.6: Trends in environmental health and access to health services ..................................................................................... 19 Figure 2.7: Trends in feeding practices.......................................................................................................................................................... 20 Figure 2.8: Trends in coverage of underlying causes of malnutrition ............................................................................................... 21 Figure 2.9: Investments in the early years......................................................................................................................................................... 22 Figure 2.10: What would be the expected impact on stunting?................................................................................................................. 23 Figure 2.11: Ten-year financing needs for scaling up a package of nutrition-specific interventions in Rwanda, by percent per Intervention ............................................................................................................................................................ 24 Figure 2.12: Kirehe, trends in coverage of key indicators, 2010-2015 ....................................................................................................... 27 LIST OF TABLes Table 1.1: Rwanda’s balance of payments, 2013-2017................................................................................................................................ 8 Table 1.2: Rwanda’s central government finances, FY 2015/16–2017/18............................................................................................ 11 Table 1.3: Rwanda’s medium-term macroeconomic projections............................................................................................................ 13 Table 2.1: Estimated 10-year financing needs and cost-effectiveness of scaling up nutrition-specific interventions in Rwanda ............................................................................................................................................................................................... 24 Table 2.2: Benefits and cost-effectiveness by investment package ...................................................................................................... 25 LIST OF BOXes Box 1.1: Strengthening Rwanda’s financial sector..................................................................................................................................... 7 Box 2.1: Income growth and stunting........................................................................................................................................................... 22 Box 2.2: Main lessons........................................................................................................................................................................................... 26 Box 2.3: Kirehe district-- A model of success............................................................................................................................................... 28 Acronyms BNR National Bank of Rwanda CAD Current Account Deficit DHS Demographic Health Survey DPEM District Plans to Eliminate Malnutrition EAC East Africa Community ECD Early Childhood Development EMDEs Emerging Markets and Developing Economies FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GEP Global Economic Prospects ICT Information and Communication Technology IMF International Monetary Fund MINECOFIN Ministry of Finance and Economic Planning MPFSS Monetary Policy and Financial Stability Statement NECDP National Early Childhood Development Coordination Program NEER Nominal Effective Exchange Rate NISR National Institute of Statistics of Rwanda NPL Nonperforming Loans PIH Partners in Health REER Real Effective Exchange Rate REU Rwanda Economic Update Rwf Rwandan Franc SSA Sub-Saharan Africa UNCTAD United Nations Conference on Trade and Development UNECA United Nations Economic Commission for Africa UNICEF United Nations Children's Fund US$ United States Dollar USA United States of America VAT Value-added Tax WDI World Development Indicators WFP World Food Program Rwanda Economic Update • Edition No. 12 i FOREWORD W elcome to the 12th edition of the Rwanda Economic Update (REU). The REU, a semiannual publication, reports on and synthesizes recent economic developments; considers them in a medium-term, regional, and global context; and analyzes how these developments and current policies may affect the outlook for the economy. The Update attempts to make an analytical contribution to how Rwanda’s national development strategy is carried forward. Each edition also has a special feature spotlighting a particular topic. It is intended for a wide audience of policymakers, business leaders, other market participants, analysts engaged in Rwanda’s economy, and civil society. The 12th edition of REU was jointly prepared by World Bank Group teams Rwanda Macroeconomics, Trade and Investment Global Practice, and Health, Nutrition and Population Global Practice. The teams were led by Aghassi Mkrtchyan (Senior Economist) and Miriam Schneidman (Lead Health Specialist). Peace Aimee Niyibizi (Economist) contributed to the analysis of recent macroeconomic developments. Jonathan Kweku Akuoku (Consultant) and Meera Shekar (Lead Health Specialist) contributed to the selected topic. The REU- 12 was prepared under the general guidance of Diarietou Gaye (Country Director), Abebe Adugna (Practice Manager), Magnus Lindelow (Practice Manager) and Yasser El-Gammal (Country Manager). Rogers Kayihura (Communications Officer), Nancy Umwiza (Team Assistant) and Karima Ladjo (Program Assistant) supported the team. Naoko Kojo (Senior Economist), Tihomir Stucka (Senior Economist), and Paul Jacob Robyn (Senior Health Specialist) were peer reviewers. Although this Economic Update does not represent the official views of the Rwandan authorities, the macroeconomic division of the Ministry of Finance and Economic Planning (MINECOFIN) was engaged in its formulation and provided valuable comments; the World Bank teams appreciate their contributions. ii Rwanda Economic Update • Edition No. 12 EXECUTIVE SUMMARY Recent Economic Developments stable. With food production higher and food prices R wanda’s economy rebounded in the second half of 2017. The rebound, driven by improved export performance and revitalized agriculture, pushed lower, headline inflation was reduced to just 0.7 percent by December 2017 after peaking at 8 percent in February. The relative stability of the nominal annual growth to 6.1 percent and led to upward exchange rate has helped to slow inflation. Thus, the revisions of the growth projections for 2018 and 2019. National Bank of Rwanda (BNR) was able to pursue an However, although growth is currently recovering accommodative monetary policy with a third rate cut and is more balanced, it will most likely continue to of the policy rate in December 2017. Credit growth, be below the high rates achieved during the 2013–15 which had already bottomed out, is showing signs of investment push. opening up. Agriculture and services drove growth as The fiscal stance expanded slightly in the first half construction remained subdued. In 2017 favorable of FY 2017/18. Domestic revenues did quite well, weather brought a substantial pick-up in agriculture, though taxes on international trade fell short of and growth in services accelerated to 8 percent. projections because of weak imports. The increase in Industrial growth is slow because construction public outlays was driven by net lending and capital has continued to contract. On the demand side, spending. The government accumulated some mirroring positive developments in agriculture, domestic arrears, but they add up to no more than an private consumption went up, modestly (after falling estimated 0.8 percent of GDP. In 2017, public external in 2016). For the second year in a row, in 2017 net debt hit 48 percent of GDP. Rwanda’s risk of debt exports contributed to growth, suggesting that distress remains low. recent growth has become more balanced. The World Bank Group projects the GDP growth to Rwanda experienced a major external adjustment accelerate to 7.2 percent in 2018, to 7.5 percent in in 2017. A mix of factors, among them prudent 2019 and 7.8 percent in 2020. These projections are demand management, a more competitive exchange higher than those in the REU released in December rate, higher prices for commodity exports, and 2017 because of the growth momentum evident in continued expansion of nontraditional exports, exports and agriculture and the notable narrowing of helped to reduce the current account deficit (CAD) external imbalances. A more competitive exchange from more than 15 percent in 2016 to about 7 percent rate is already a solid support for nontraditional in 2017, a level in line with historical data before the exports, an important source of future growth. The investment push worsened external imbalances. This government's renewed commitments to scaling up allowed the National Bank of Rwanda (BNR) to build investments in agriculture will enhance that sector’s up official foreign exchange reserves. medium-term outlook. Monetary policy is expected to continue to support growth in credit. The fiscal Inflationary pressures subsided in the second half deficit for 2018–20 is expected to be around4 percent of last year and the exchange rate was relatively of GDP, with the CAD holding at about 8 percent. Rwanda Economic Update • Edition No. 12 iii Executive Summary Yet, risks remain. The possibility that poor weather among the poorest households and those living in will affect agriculture, which is mainly rain-fed, is a rural areas (nearly 50 percent), but even about 25 major concern considering the growth slowdown percent of children from the top two wealth quintiles in the second half of 2016 and the first half of 2017. suffer, which suggests that poverty is not the only In the second agricultural season of 2017, only 4.6 predictor of stunting; stunting rates also vary by percent of the intensively cropped land was irrigated. mother’s education level, nutritional status, and Externally, a reversal in the global recovery could parity: children of mothers with no education or only depress prices of Rwanda’s main exports. In addition, primary schooling have double the rates (40 percent) the private sector’s unenthusiastic response to the of children whose mothers have secondary or higher improved investment climate is a major threat to education (19 percent). As for parity, stunting rates growth sustainability. The recent growth slowdown among poor households are over 40 percent for the has exposed the limitations of the public-investment- first two birth orders and 50 percent for fourth-order led model and heightened the importance of the births, because younger children are weaned earlier private sector. and families struggle to meet the nutritional needs of a growing number of children. Tackling Stunting: An Unfinished Agenda Rwanda has met or exceeded most Millennium Over the past 15 years, there have been encouraging Development Goal targets. However, chronic trends in many of the underlying causes of although malnutrition or stunting (Kugwingira), which malnutrition—care practices, environmental signals that children are growing too slowly, has health, food adequacy—but gaps persist. The declined from about 50 percent (2005) to 38 percent most significant improvements occurred in care (2014/2015) of children under 5, is still a major outlier. practices, such as coverage of antenatal, facility Stunting tends to be an invisible problem in Rwanda, delivery, and postnatal practices with gaps narrowing depriving children of their right to grow, thrive, and for all wealth quintiles. While access to water and reach their full potential. Stunting delays cognitive sanitation facilities has generally improved, about development and lowers educational attainment 91 percent of poor households still do not have a and lifetime earnings. Children who are stunted are handwashing station and about 60 percent do not trapped early in a vicious cycle of poverty, because treat water before drinking. Exclusive breastfeeding their brain development had been compromised by for infants under six months is well over 80 percent. the time they reached the age of two and the damage Suboptimal complementary feeding practices for is largely irreversible. Childhood stunting increases 6–24-month-old infants (e.g., only 18 percent have the potential for intergenerational transmission: a minimum acceptable diet; less than 50 percent mothers who were malnourished are more likely to benefit from minimum meal frequency; and 29 have stunted children. Stunting also deprives the percent have minimum dietary diversity) increase economy of quality human capital that is critical to the risk of micronutrient deficiencies and exposure attaining Rwanda’s aspiration to become a middle- to infections and coincide with a higher prevalence income country. of stunting. Only 24 percent of children under 2 receive adequate care; 37 percent have adequate Chronic malnutrition is pervasive, with stunting environmental health, and 34 percent have a levels of high (> 30 percent) or very high (>40 minimally acceptable diet. Less than 4 percent have percent) public health significance in most access to all three critical dimensions. districts. Not surprisingly, stunting rates are highest iv Rwanda Economic Update • Edition No. 12 Executive Summary The government has renewed its political US$27.3 million a year for 10 years is needed to scale commitment to eliminate stunting. Authorities up a comprehensive package of evidence-based have set a bold target for all districts to reach a 19 nutrition-specific interventions. Over the 10 years this percent stunting rate by 2024, in line with the 2018– package would avert nearly 200,000 cases of stunting 24 Health Sector Strategic Plan. A National Childhood and 1.5 million cases of anemia in women. To attain Development Coordination Program was recently these goals, the government needs to: (1) adopt a established under the leadership of the Prime Minister pro-poor approach, targeting the poorest children to ensure high-level coordination. The government under 2 years of age during the critical 1,000-day plans to leverage results-based approaches, bolster development window; (2) mobilize parents, mayors, accountability, and draw on successful community- and policymakers to buy into the stunting reduction led initiatives, such as that of Kirehe district. Kirehe agenda; (3) expand domestic financing, better align stands out in terms of the strong bottom-up planning, resources to results, and improve tracking of all effective use of imihigo contracts, and performance- spending on stunting by all sectors; and (4) generate based incentives for health facilities. The district’s scale- evidence about what works and how it can be scaled up of best-buy interventions led to a dramatic decline up. Rwanda can create a positive virtuous cycle of in the stunting rate in five years, from 50 to 29 percent. producing a generation of well-nourished children who grow, thrive, and reach their full potential, Rwanda has an opportunity to bend the arc of contribute to human capital development, and history on stunting. The World Bank estimates that contribute to future economic growth. Rwanda Economic Update • Edition No. 12 v PART ONE RECENT ECONOMIC DEVELOPMENTS Rwanda Economic Update • Edition No. 12 1 Recent Economic Developments 1.1 Globally and Regionally, Economies are Recovering Global economic activity firmed up in 2017 as investment and trade strengthened. The global upturn was broad- based. Growth in Sub-Saharan Africa accelerated in 2017 but remains low overall. In 2018, global growth is expected to sustain momentum, but risks of financial market disorders, mounting protectionist sentiment, and geopolitical tensions are rising. Global economic activity firmed up in 2017. The capital spending and drawing down of inventories. global economy entered a broad-based cyclical Their economic recovery has stimulated demand recovery supported by both a rebound in investment from AEs, which has boosted global trade and the and trade and greater confidence as the effects of activity of commodity exporters. Real GDP growth the collapse of commodity prices gradually dissipate. for the latter is estimated to have been 1.7 percent Global output is estimated to have expanded by 3 in 2017, having grown on average at above 1 percent percent in 2017—a significant acceleration in growth since 2014. For emerging markets and developing from the 2.4 percent in 2016, and the highest global economies (EMDEs) as a group, output growth growth recorded since 2011 (Figure 1.1). The World accelerated to 4.3 percent in 2017, above the 3.6–3.7 Bank’s Global Economic Prospects report (January percent in 2015–16. 2018) projects the global growth to edge up to 3.1 percent in 2018 but is clouded by concerns about Growth also picked up in Sub-Saharan Africa possible financial market disorders, mounting (SSA) generally. Reflecting a modest recovery in protectionist sentiment, and geopolitical tensions. Angola, Nigeria, and South Africa, the region’s largest economies, SSA’s output is estimated to have grown Figure 1.1: Global and regional economic growth (Percent) from 1.3 percent in 2016 to 2.4 percent in 2017. Per capita income, however, continued to contract in 6 2017 as the population grew faster than domestic 5 output. Growth in SSA is projected to gradually rise to 4 3.2 percent in 2018 and average 3.6 percent for 2019– 3 20. Per capita income growth is thus expected to turn positive, though not enough to reduce poverty. 2 1 Despite the improved growth outlook, within SSA 0 4.4 3.2 2.4 2.6 2.8 2.8 2.4 3.0 3.1 3.0 2.9 economic performance varied. Oil producers in the 2010 2011 2012 2013 2014 2015 2016 2017e 2018f 2019f 2020f World AEs CEs EMDEs SSA Central African Economic and Monetary Community Source: World Bank 2018, continued to struggle with the effects of the earlier Notes: AEs: Advanced economies; EMDEs: Emerging markets and developing economies; CEs: Commodity exporters; SSA: Sub-Saharan Africa. oil price collapse. For some oil exporters (e.g., Chad, Republic of Congo, and Equatorial Guinea), real The 2017 global upturn was broad-based, with GDP had contracted for at least two consecutive growth picking up in both advanced and emerging years through 2017. For metals-exporting countries, economies. In advanced economies (AEs) output growth recovered as mining output and investment is estimated to have expanded by 2.3 percent—0.7 responded to a rise in the prices of metals and percentage points higher than the year before—with agricultural products but was held back by the poor improvements across the board bolstered by higher business environment for nonmetals. Growth in non- 2 Rwanda Economic Update • Edition No. 12 Recent Economic Developments resource-intensive countries—mostly agricultural in some countries, as in Côte d’Ivoire due to lower exporters like Rwanda—was quite stable and cocoa prices and Kenya and Uganda because of supported crop production. However, activity slowed drought. 1.2 rwanda’s Economic Performance in 2017 1.2.1. Real GDP growth strengthened in the second half of 2017 After a 12 month-slowdown, growth in Rwanda accelerated in the second half of 2017. The recovery was driven by agriculture and services growth, with construction as the only major sector where growth was subdued. On the demand side, the rebound was driven by solid performance in exports and recovery of growth in private consumption. In the second half of 2017, economic growth in agriculture from 3.9 to 6.6 percent. Both domestic accelerated dramatically. After sliding to a year-on- and external demand contributed to the recovery year 2.9 percent in the first half, growth rebounded in growth momentum. However, industrial growth to 9.3 percent in the second half, for annual growth fell from 6.7 percent in 2016 to 4.2 percent because of 6.1 percent (Figure 1.2). The rebound was driven of subdued construction activity, due in part to the by a strong recovery in agriculture, robust growth completion of large-scale infrastructure investment in exports, and resumption of growth in private in 2016. consumption, which had fallen in 2016. The 6.1 percent growth in 2017, slightly up from 6 percent in The recovery in agriculture was led by food crops for 2016, outperformed the 5.2 percent projection. domestic consumption; production of export crops trailed. Favorable weather supported a substantial In 2017, growth was healthy in agriculture and pick-up in the production of food crops, which account services, while construction continued to drag for about 60 percent of Rwanda’s agricultural output. down industrial growth (Figure 1.3). Growth sped up According to Seasonal Agricultural Surveys 2017,1 in services from 7.2 percent in 2016 to 8 percent and production went up by 10.5 percent in Season B2 Figure 1.2: real GDP growth, rwanda, 2012-17 Figure 1.3: real GDP growth by sector, 2016-17 (Percent) (Percent) 12 12 10.8 10.2 10.4 10 10 9.0 8.8 8.8 8.6 8.8 8.6 8.1 8.0 7.6 8 7.2 8 6.7 6.5 6.7 5.8 6.0 6.1 6 5.6 5.2 6 5.0 4.2 4.4 4.5 4 3.5 3.8 4 3.4 2.2 2 0.2 2 0 H1 of 2016 H2 of 2016 H1 of 2017 H2 of 2017 H1 of 2016 H2 of 2016 H1 of 2017 H2 of 2017 H1 of 2016 H2 of 2016 H1 of 2017 H2 of 2017 2016 2017 2016 2017 2016 2017 10.0 7.7 5.7 3.3 6.6 8.6 8.6 9.0 8.2 3.9 2.9 9.3 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2012 2013 2014 2015 2016 2017 Agriculture Industry Services Agriculture Industry Services Year-on-year Annualized rate Year-on-year Changes Annual rates Source: National Institute of Statistics of Rwanda (NISR). Source: NISR data. 1 Available at http://statistics.gov.rw/datasource/seasonal-agricultural-survey-2017. 2 Rwanda has three agricultural seasons, mostly conditioned on rainfall: Season A is September through February; Season B March through June; and Season C July through September. Rwanda Economic Update • Edition No. 12 3 Recent Economic Developments of 2017 after falling by 14.5 percent the year before. airport. Growth in information and technology was This followed the 3.5 percent increase in Season A also significant at 12.7 percent, up from 8.5 percent after falling by 8.7 percent the year before. Overall, a year before. Other sectors that performed well after dropping by 11.5 percent in 2016, production of were transport, financial, and hospitality (hotel food crops went up by 6.5 percent. Meanwhile, yields and restaurant) services. However, a drop in private of export crops rose only 2.4 percent, slightly lower consumption suppressed retail and wholesale than the 2.5 percent registered in 2016. trade. Overall, services expanded by 8 percent and accounted for more than 60 percent of Rwanda’s 6.1 Manufacturing output rose by 6.7 percent in 2017, percent GDP growth in 2017. slightly up from 6.6 percent a year ago. Food and textiles, which account for about 40 percent of On the expenditure side, net exports grew at manufacturing output, expanded by 14.5 percent the fastest rate in ten years and made a healthy and 21.7 percent, respectively, making them the contribution to growth (Figure 1.4). Exports grew by largest contributors to manufacturing growth. 33.5 percent in 2017 in real terms—the highest rate in Their robust growth, stronger than in 2016, reflects more than 10 years—outperforming imports growth. recent government efforts to boost these sectors This positive contribution for the second consecutive through incentives incorporated into the Made in year illustrated the more balanced nature of recent Rwanda program and a concerted focus on these slower growth in contrast with the strong domestic strategic sub-sectors by the Rwanda Development demand-led-growth of 2012–15. After falling by Board. In contrast, in 2017 the beverage and 0.5 percent in 2016, private consumption rose by tobacco subsectors, which account for 25 percent of 1.7 percent because of higher food production manufacturing output, contracted 7.7 percent. and consumption in rural areas. Government consumption again grew at a high rate, 10.7 percent Since completion of large-scale projects in 2016, in 2017. Meanwhile, investment growth continued construction has been restrained, but mining and to decelerate after the high investment push in quarrying have rebounded. In the second year of construction in 2013–15. In 2017, investment grew adjustment, in 2017 construction contracted 3.2 by 6.5 percent, compared to average growth of 13.3 percent, after averaging 15 percent annual growth for percent in 2013–15. 2011–15. In contrast, in 2017 mining and quarrying Figure 1.4: Demand-side contribution to GDP growth, 2017 grew by 20.8 percent, becoming the single largest (Percent) source of industrial growth by contributing 2.9 20 percentage points to industry’s 4.2 percent growth. 15 Key factors were rising international prices for 10 7.6 8.9 traditional minerals (coltan, cassiterite, and wolfram) 7.3 7.8 8.8 4.7 6.0 6.1 5 and recent investments in the mining sector. 0 Services expanded by 8 percent but subsector -5 performance was uneven. Contributing most was -10 professional and administrative services, which grew -15 2010 2011 2012 2013 2014 2015 2016 2017 by 22.4 percent. These services have been supported Private consumption Gov't consumption Investment Net exports GDP by the launch of investment projects for the new Source: NISR data. 4 Rwanda Economic Update • Edition No. 12 Recent Economic Developments 1.2.2. Monetary Policy: The Central Bank has gradually eased its policy stance Inflationary pressures eased in 2017, leaving room for further easing of monetary policy. The Central Bank of Rwanda, BNR, cut the policy rate to its lowest levels since its introduction in August 2005. However, monetary and credit conditions stayed relatively tight. Inflationary pressures dissipated in the second half in rural areas, where food items constitute the bulk of 2017 (Figure 1.5). In December 2017, inflation was of the consumption basket. Notably, rural food just 0.7 percent after peaking at 8.1 percent in February inflation was negative at –7.6 percent in December (year-on-year). Core inflation, which excludes food and 2017 from its recent peak of 26.4 percent in February. energy, also declined, from 5.6 percent (year-on-year) Overall rural inflation was negative at –1.0 percent in in February to 2.0 percent in December. December 2017, down from the peak of 16.2 percent in February. In the first quarter of 2018, both rural Figure 1.5: Headline and core inflation, 2014–18 (Percent) and food inflation rates remained negative. 9 8.1 8 In 2017, subdued inflationary and currency 7 pressures made it possible for BNr to gradually 6 ease monetary policy (Figure 1.7). Effective 5 4 December 2016, the BNR reduced its policy rate, the 3 key repo rate, by 25 basis points to 6.25 percent after 2 keeping it unchanged at 6.5 percent for 30 months 1 (June 2014–November 2016). As inflation eased 0.7 0 further, in June 2017 BNR cut the policy rate by Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Apr 2014 2015 Consumer in ation 2016 Core in ation 2017 2018 another 25 basis points. In the second half of 2017 the Source: NISR data. environment continued to be conducive as inflation continued its downward path and a large external Food inflation declined to –0.7 percent in adjustment moderated pressures on the exchange December 2017 from 17.6 percent in February as rate. In December 2017, the policy rate was further rwanda recovered from the 2016 drought (Figure reduced by 50 basis points to 5.5 percent, the lowest 1.6). The fall in food prices has been more noticeable level since it was introduced in August 2005. Figure 1.6: rural and food prices inflation, 2014–18 Figure 1.7: Central Bank policy rate, 2005–17 (Percent) (Percent) 30 10 25 9 9.00 9.00 20 15 8 8.00 10 7.50 7.50 7 7.00 7.00 7… 5 6.50 6.50 6 6.25 0 6.00 6.00 -5 5.50 5 -10 4 -15 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Apr 2014 2015 2016 2017 2018 Aug - 05 Dec - 05 Apr - 06 Aug - 06 Dec - 06 Apr - 07 Aug - 07 Dec - 07 Apr - 08 Aug - 08 Dec - 08 Apr - 09 Aug - 09 Dec - 09 Apr - 10 Aug - 10 Dec - 10 Apr - 11 Aug - 11 Dec - 11 Apr - 12 Aug - 12 Dec - 12 Apr - 13 Aug - 13 Dec - 13 Apr - 14 Aug - 14 Dec - 14 Apr - 15 Aug - 15 Dec - 15 Apr - 16 Aug - 16 Dec - 16 Apr - 17 Aug - 17 Dec - 17 Apr - 18 Urban food in ation Overall rural In ation Rural food in ation Source: NISR data. Source: BNR data. Rwanda Economic Update • Edition No. 12 5 Recent Economic Developments Despite the gradual monetary easing, monetary Bank lending and deposit rate changes were more and credit conditions have stayed relatively tight muted in 2017 (Figure 1.9). Lending rates averaged (Figure 1.8). Monetization of the economy declined 17.2 percent, almost unchanged from 2016, but as the ratio of the money supply, M3, to GDP, fell from the average deposit rate declined from 7.9 percent 23.9 percent at the end of 2016 to 23.6 percent at in 2016 to 7.6 percent in 2017, slightly increasing the end of 2017. Though depressed in the first half interest rate spreads (lending rates minus deposit of 2017, growth of credit to the private sector began rates) to 9.5 percent by December. In the first quarter to respond to improved conditions and reached 13.2 of 2018, however, the spread has narrowed. percent by year end, up from less than 8 percent at midyear. Meanwhile, in 2017 credit available to the private sector held at about 19 percent of GDP. Figure 1.8: Monetary and credit conditions, 2012–17 Figure 1.9: Bank lending and deposit rate dynamics, 2015–18 (Percent) (Percent) Percent of GDP Annual changes, Percent 20 40 40 18 35 35 16 30 30 14 25 25 12 20 20 10 15 15 8 10 10 6 4 5 5 2 0 0 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 0 Private sector credit (% of GDP) Money supply (%of GDP) Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 Credit Growth (right axis) Money supply growth (right axis) Interest rate spread Deposit rate Lending rate Source: BNR data. Source: BNR data. 1.2.4. Financial Sector: Banking indicators are sound despite rising vulnerabilities Rwanda’s financial sector is still healthy though some risks have arisen. Thanks in part to continued expansion of mobile-based financial services, Rwanda ranks second in SSA after Mauritius in terms of financial inclusion. Rwanda’s banking sector indicators are sound. In to 10 percent. However, manufacturing, trade, and 2017 the sector continued to be well- capitalized; hotel NPLs went up. In 2017, the BNR adopted more since September 2016 it has had a Tier 1 capital prudential regulations to ensure the soundness and adequacy ratio of about 20 percent against a efficiency of Rwanda’s financial sector (Box 1.1) minimum prudential requirement of 10 percent. At year-end, the ratio of liquid assets to total deposits Mobile based-financial services continued to was 43.7 percent against the 20 percent requirement. boom. As in other EAC countries, mobile money However, bank nonperforming loans (NPLs) were 7.6 is now a regular feature of Rwandan life. Active percent in December 2017, unchanged from 2016, mobile money holders rose from 3,333,349 in 2016 though the patterns varied. The mortgage sector, to 3,774,438—more than 40 percent of total mobile the main recipient of bank credit, saw its NPL ratio phone subscribers and nearly 33 percent of Rwanda slip from 5 percent in 2016 to 4.5 percent by year- residents. Ten banks and one microfinance institution end 2017, and agriculture NPLs dropped from 22.7 offer mobile banking services. By December 2017, 6 Rwanda Economic Update • Edition No. 12 Recent Economic Developments 1,158,944 mobile banking users were registered— using mobile money has helped to reduce the share nearly 15 percent of mobile phone subscribers of adults who do not use any financial products and nearly 10 percent of residents. Among mobile or services, formal or informal—the “financially financial services currently available are cross- excluded” group—from 28 percent in 2012 to 11 border transactions, payments for government percent in 2016. The shift was driven by access to services, and micro savings. formal nonbank financial products, mainly those offered by mobile money services. In 2016, in SSA Mobile-based-financial services are spearheading Rwanda ranked second only to Mauritius in terms of financial inclusion. According to Finscope for 2016,3 financial inclusion. Box 1.1: Strengthening Rwanda’s financial sector In 2017, major prudential initiatives were launched to make Rwanda’s financial sector both stronger and more efficient. Among them were: • A new banking law that brings Rwanda into full compliance with Basel core principles, enhances licensing procedures, and harmonizes laws affecting the financial sector within the EAC • Regulation to enable banks to promptly identify and monitor nonperforming loans and better manage credit risks • Reforms to enable banks to prudently manage credit concentration risk • Regulation updating requirements for and the responsibilities of external auditors of financial institutions • A regulation to ensure effective oversight of the insurance business based on the nature, scale, and complexity of the insurer being regulated • An antifraud directive to ensure the confidence of shareholders, policyholders, and beneficiaries in the insurance sector. 1.2.3. The Balance of Payments: Robust performance in exports has improved Rwanda’s external position Rwanda’s external position has improved substantially, halving the current account deficit. In 2017 the current account deficit reached single digits (as a percent of GDP). The combination of subdued domestic investment demand, a more competitive exchange rate, and strong external demand for nontraditional exports resulted in sizable growth in exports. Imports were more subdued because investment demand was low. After three consecutive years of growing trade deficit, from US$1,310 million (15.5 percent of imbalances, the external position improved GDP) in 2016 to US$872 million (9.6 percent of GDP) substantially in 2017. The current account deficit contributed the most to reduce the CAD in 2017. (CAD) has more than halved, from 15.9 percent Deficits in the services and income accounts also of GDP in 2016 to 6.8 percent in 2017, due to the dropped, from 6.6 percent of GDP to 3.8 percent. combination of a more competitive exchange With these developments, the CAD is now in line rate, subdued domestic investment demand, with historical trends before the investment push of improvements in international prices and growth 2013–15 (Table 1.1). in non-traditional exports. The narrowing of the See http://statistics.gov.rw/publication/finscope-rwanda-2016. 3 Rwanda Economic Update • Edition No. 12 7 Recent Economic Developments Table 1.1: Rwanda’s balance of payments, 2013-2017 2010 2011 2012 2013 2014 2015 2016 2017 Current account -427 -469 -747 -556 -943 -1,201 -1,342 -622 (-7.4) (-7.1) (-10.2) (-7.3) (-11.8) (-14.5) (-15.9) (-6.8) Goods Trade -787 -1,105 -1,274 -1,151 -1,269 -1,237 -1,310 -872 (% GDP) (-13.6) (-16.8) (-17.4) (-15.1) (-15.9) (-15.0) (-15.5) (-9.6) Exports 297 464 591 703 723 682 727 1,050 Imports 1,084 1,569 1,864 1,854 1,992 1,919 2,036 1,922 Services & income (net) -221 -162 -106 -146 -252 -501 -557 -346 (% GDP) (-3.8) (-2.5) (-1.4) (-1.9) (-3.2) (-6.1) (-6.6) (-3.8) Travel, net 125 163 203 215 220 115 124 140 Transport, net -321 -355 -265 -309 -331 -310 -308 -206 Current transfers 581 798 632 741 578 536 524 596 Remittances (inflows) 98 166 175 162 175 153 167 208 Government (inflows) 503 675 463 582 420 392 366 402 Capital account 286 197 171 235 337 300 190 190 (% GDP) (4.9) (3.0) (2.3) (3.1) (4.2) (3.6) (2.2) (2.1) Financial account 279 533 397 661 649 690 967 554 (% GDP) (4.8) (8.1) (5.4) (8.7) (8.1) (8.3) (11.4) (6.1) Direct investment 251 119 255 258 311 220 219 245 Portfolio investment 8 88 6 2 1 8 4 -72 Other investment 21 327 136 402 337 462 744 -382 General government 52 207 93 523 287 350 359 341 Other sectors -8 71 15 -115 49 39 393 -6 Net errors and omissions -66 -27 -34 -111 -133 183 169 -31 Overall balance 72 234 -212 228 -90 -29 -10 93 (% GDP) (1.2) (3.6) (-2.9) (3.0) (-1.1) (-0.3) (-0.1) (1.0) Source: BNR and NISR data. Goods exports rose in 2017 by about 45 percent, volumes. Other nontraditional exports including surpassing US$1 billion for the first time. Mineral horticulture improved their performance. The value exports, encouraged by favorable international of the two main crops exported, coffee and tea, rose prices and markets for nontraditional minerals, by about 22 percent due to higher international were the main contributors to export growth. They prices; their export volumes did not change. more than doubled, generating about 36 percent of Rwanda’s earnings from goods exports. The value of Imports were subdued in 2017, as domestic nontraditional minerals exported, such as beryllium, investment demand lessened. Overall, Rwanda’s unwrought lead, and gemstones, more than tripled, import bills contracted by 5.6 percent in 2017, from US$80 million in 2016 to US$248 million, and mainly due to a drop in imports of capital goods, accounted for almost 25 percent of total goods which accounted for about 29 percent of goods exports. The export value of traditional minerals import values and declined by 12.4 percent in 2017. like tin, coltan, and wolfram went up by 44 percent, The decline was mainly the result of a 20 percent driven by both higher prices and higher export drop in imports of machines, devices, and tools 8 Rwanda Economic Update • Edition No. 12 Recent Economic Developments linked to completion of major investment projects external and government-guaranteed borrowing in 2016. Consumer goods other than food, which amounted to US$381 million (4.2 percent of accounts for 18 percent of goods imports (CIF), GDP), down from US$744 million (8.8 percent) the declined by 9.5 percent. Leading the slide was a 16.1 year before as major construction projects were percent decline in imports of clothing after tariffs completed. Long-term borrowing in 2017 was mainly were increased on imports of second-hand clothes budget- and project-related (US$369 million). and shoes in a bid to promote locally produced apparel. In contrast, food imports shot up by 23.1 After falling for two consecutive years BNR percent and energy imports rose 11.4 percent. international reserves increased in 2017 (Figure 1.10), rising to about US$1.2 billion and illustrating Both services and income balances improved the success of Rwanda’s efforts under the two-year in 2017 (Table 1.1). Exports of services, driven adjustment program, which was supported by the by transport and travel, grew at a vigorous 20.5 IMF. The import cover of reserves moved up from 4 percent. Exports of transport services more than months in 2016 to 4.2 months. doubled, from US$92 million in 2016 to US$194 million. This partly reflects a better methodology The Rwandan franc was relatively stable in 2017. for capturing service transactions with nonresidents. After dropping almost 10 percent in 2016, the franc As in previous years, travel services continued to depreciated only 3.1 percent against the US dollar grow at healthy rates, this time by 12.4 percent. (Figure 1.11). Moreover, monthly movements have There was a steep decline in imports of services also stabilized. This reflected improved external related to construction; the services deficit dropped balances that allowed the BNR to accumulate official from US$557 million (6.6 percent of GDP) in 2016 to foreign exchange reserves. As a result, Rwanda’s US$346 million (3.8 percent). official foreign exchange reserves as of 2017 surpassed the level they had reached before the aid In 2017, capital and financial flows exceeded the crisis of 2012. CAD, allowing for some accumulation of foreign exchange reserves. Net foreign direct investment Although its fall against the US dollar was (FDI) rose to US$245 million (about 2.7 percent of modest, the Rwandan franc depreciated in real GDP) but remained well below the 2014 peak. Net effective terms by about 8 percent (Figure 1.12). portfolio flows turned negative after a Rwanda Social The real effective exchange rate (REER) rose by 8.2 Security Board investment abroad. Net government percent in 2017, mostly due to depreciation against Figure 1.10: Gross international reserves, 2010–17 Figure 1.11: Value of the Rwanda Franc against the US Dollar, 2013–17 (US$ million) (Percent) 1,300 1.6 12 1.4 1,163 9.6 10 1.2 1,100 1,070 1,050 8 7.2 1,001 1.0 951 922 0.8 6 900 850 813.3 0.6 3.7 4 3.1 0.4 700 2 0.2 0.0 0 Dec. Mar Jun Sep Dec. Mar Jun Sep Dec. Mar Jun Sep Dec. Mar Jun Sep Dec. 500 2013 2014 2015 2016 2017 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Month-on-month change Annual depreciation (right axis) Source: BNR data. Source: BNR data. Rwanda Economic Update • Edition No. 12 9 Recent Economic Developments currencies of trading partners other than the USA4 Figure 1.12: Indices of real and nominal effective exchange rates (for example, 15.7 percent against the euro, 12.3 Dec. 13 Jun Dec. 14 Jun Dec. 15 Jun Dec. 16 Jun Dec. 17 percent against the British pound, and 6.3 percent 90 Dec. 2013=100 against the South African rand). The franc also depreciated slightly against other currencies in 95 the region. Moreover, the inflation differential with Rwanda’s trading partners was 2.7 percent 100 on average in trading partners versus 0.7 percent in Rwanda. These two factors contributed to the 105 depreciation of the real effective value of the franc. 110 NEER REER Source: BNR data. 1.2.5. Fiscal Policy Developments in FY2017/18 In the first half of the FY2017/18, Rwanda’s fiscal position slightly expanded. Revenue performance was strong. Higher spending was driven mostly by net lending. In 2017, Rwanda’s public debt continued to rise. The risk of external debt distress remains low. Recent Fiscal Developments and the Outlook for year contributed to the increase. Both indirect and FY2018/19-2020/21 direct taxes fared better than expected. Taxes on international trade, however, were 10.2 percent In the first half of FY2017/18 (July-December 2017), lower because of fewer imports. Nontax revenue the fiscal deficit increased slightly.5 Although total exceeded the target by 12.6 percent, mainly because revenues were 0.5 percentage points of GDP higher of higher collections of local government fees. than in the same period the year before, government spending and net lending grew faster (Table 1.2). The increase in public outlays was driven by net By yearend-2017, the FY2017/18 budget execution lending and capital spending (Table 1.2). Net report showed Rwf35 billion in arrears (on a budget lending more than doubled in nominal terms in mid-way through execution). Total budget arrears as July-December 2017, reaching 2.4 percent of GDP— of March 2018 are estimated at less than 0.8 percent 1.1 percentage points higher than in the same of GDP. period a year earlier. Domestically financed capital expenditures6 increased over the previous year by Revenue collection improved in the first half of 0.5 percentage points of GDP. In the current fiscal FY2017/18 (Table 1.2). Total collections went up year, actual spending exceeded budget due to from 17.4 percent of GDP in the same period a year excess spending on Global Fund projects and front- earlier to 17.7 percent. An improving economy loading of spending on the strategic petroleum and continuing administrative measures, such as reserve facilities. The latter drew on accrued deposits VAT audits, carried out in the first half of the fiscal from the strategic petroleum reserve levy that BNR 4 The BNR uses the currencies of 10 trading partners in computing REER and NEER: Uganda, Kenya, Tanzania, Burundi, the United States, the Euro Area, South Africa, Sweden, Switzerland, and the United Kingdom. 5 Rwanda’s fiscal year runs from July 1 to June 30. 6 The government of Rwanda identifies two components of capital spending, financed domestically and financed from foreign sources, based on whether they go through the government’s financial management system. The government is still finding it difficult to compile accurate disbursement figures for the foreign-financed component, so as actual data it usually reports original projections. 10 Rwanda Economic Update • Edition No. 12 Recent Economic Developments Table 1.2: Rwanda’s central government finances, FY 2015/16–2017/18 FY2016/17 FY2017/18 FY2015/16 FY2016/17 (July-Dec.) (July-Dec.) Revenue and grants 24.4 22.7 22.2 22.6 Total revenue 18.4 18.0 17.4 17.7 Tax revenue 15.8 15.5 14.8 14.9 Non-tax revenue 2.6 2.5 2.6 2.7 Grants 5.9 4.6 4.8 5.0 Expenditure 27.5 27.3 26.2 26.9 Current expenditure 14.7 15.0 16.0 15.2 Capital expenditure 11.4 10.7 9.0 9.3 Net lending 1.4 1.6 1.3 2.4 Budget Balance Primary deficit -2.2 -3.6 -2.9 -3.1 Fiscal deficit (cash basis) -3.5 -4.9 -4.4 -3.4 Financing 3.5 4.9 4.4 3.4 Foreign (net) 3.6 4.5 7.1 5.3 Domestic (Net, -: deposit build-up) 0.0 0.3 -2.8 -2.0 Source: MINECOFIN data. introduced in FY 2015/16. Recurrent spending fell by Public Debt 0.7 percentage points of GDP due to underspending Public debt continued to rise in 2017 (Figure 1.13). on transfers and subsidies to some public agencies. For the last four years, with external grants declining, Total spending reached 27 percent of GDP in the the authorities relied more on borrowing to finance first half of FY2017/18, 0.8 percentage points higher its 2014–16 investment push. While at the end of than in the same period the year before. 2012, external public and publicly guaranteed debt was 16.1 percent of GDP, by year-end 2017, it had The budget was revised in February 2018. Building shot up to 38.4 percent of GDP. Meanwhile, domestic on the progress with revenue collections, total debt rose from 5.4 percent of GDP to 9.7 percent. spending went up by 1 percent: Capital spending As of December 2017, total government debt had is projected to increase by 1.4 percent, accounting reached 48 percent. for 52 percent of the total budget increase. Current expenditures will increase 0.7 percent over the The risk of external debt distress remains low, original budget. The 2017/18 revised finance according to the 2017 Joint IMF-World Bank law indicates that the revised budget projects a Debt Sustainability Analysis (DSA) (IMF 2017). shortfall of 3.7 percent in the foreign-financed External debt distress indicators remain below risk component of capital spending while the thresholds through the projection period. The DSA domestically financed component is expected to 2017 showed, however, that the debt service-to- go up by 4.8 percent. As a result, the overall cash exports and debt service-to-revenue ratios breach deficit (including grants) is projected to rise in the thresholds in 2023 with projected repayments nominal terms from Rwf322.2 billion to Rwf362.9 of Eurobonds. Although the breach appears to billion. This new deficit will be financed with net be temporary and manageable, it illustrates risks external borrowing of Rwf324.6 billion and net that might confront Rwanda in refinancing its domestic borrowing of Rwf38.3 billion. commercial debt if conditions in international markets are not favorable. Rwanda Economic Update • Edition No. 12 11 Recent Economic Developments Figure 1.13: Rwanda’s public debt, 2010–17 paper (BFP) for 2018/19–2020/21, released in April (Percent of GDP) 2018, stipulates that the government will borrow 60 prudently to keep debt and external balances 48.0 sustainable while carrying out the National Strategy 50 44.5 for Transformation’s investment priorities. It is 36.4 40 envisioned that this can be achieved by accelerating 30.4 30 27.5 domestic revenue mobilization and rationalizing 22.1 21.5 20.5 expenditures. The BPF projects an average annual 20 increase of 0.3 percent of GDP in tax revenues over 10 the next three years based on current tax policy 0 and administrative measures. Total spending is 2010 2011 2012 2013 2014 2015 2016 2017 External central government debt External public-guaranteed debt expected to decline from 26.9 percent of GDP in Domestic debt Public sector debt FY2018/19 to 26.3 percent of GDP in FY2020/21, Source: MINECOFIN and DSA data. with the prioritization affecting mostly recurrent For the medium term, the government envisages expenditure. Capital spending is expected to be a fiscal consolidation. The budget framework robust over the medium term. 1.3 Macroeconomic Outlook and Risks In the medium-term Rwanda’s economic growth is expected to accelerate. Key downside risks to growth are associated with agriculture’s heavy reliance on weather conditions, the possibility of reversal in the global economic recovery, and the private sector’s subdued response to improvements in the investment climate. GDP growth is projected to accelerate to 7.2 Agriculture’s heavy reliance on weather conditions percent in 2018 and to 7.5 percent in 2019 and 7.8 poses a risk to the growth outlook, as was made percent in 2020 (Table 1.3).7 These projections are clear when a drought slowed growth in 2016 and around 0.5 percentage points higher than projected the first half of 2017. Rwanda still depends heavily in the 11th REU released in December 2017 because of on rain-fed agriculture. In the second agricultural export growth momentum, an improved outlook in season of 2017, only 4.6 percent of intensive agriculture, and larger than expected adjustments in croplands was irrigated. Unfavorable weather external imbalances. A more competitive exchange conditions would not only undermine Rwanda’s rate is already supporting nontraditional exports, growth prospects, it would also induce inflationary an area that has emerged as a potential source of pressures due to food shortages. Moreover, any growth. The government’s renewed commitments food shock would negatively impact early childhood to investing more in agriculture, especially irrigation, nutrition, one of the causes of childhood stunting. enhances that sector’s medium-term outlook. In 2018 and 2019, construction of the new airport Externally, a reversal in the global economic will boost both industry and domestic demand. recovery could depress prices for Rwanda’s main With inflation low, monetary policy will remain exports and jeopardize Rwanda’s growth. Financial accommodative and credit growth is expected to market uncertainty, mounting protectionist accelerate. The CAD is expected to hold at about 8 sentiment, and geopolitical tensions could affect percent of GDP. global demand and thus mute the recovery of These projections are slightly different from the Government numbers, which project growth at 7.2 percent in 2018, 7.8 percent in 2019 and 8 7 percent in 2020. 12 Rwanda Economic Update • Edition No. 12 Recent Economic Developments Table 1.3: Rwanda’s medium-term macroeconomic projections 2015 2016 2017 2018f 2019f 2020f Real GDP growth 8.9 6.0 6.1 7.2 7.5 7.8 Production side Agriculture 5.0 3.9 6.6 5.1 5.0 5.0 Industry 8.9 6.7 4.2 6.0 7.2 7.5 Services 10.4 7.2 8.0 8.0 8.3 8.7 Demand side Private Consumption 18.2 -0.5 1.7 4.8 5.5 6.0 Government Consumption 5.1 9.2 10.7 8.8 8.6 9.3 Gross capital formation 17.6 10.1 6.5 7.4 11.2 10.4 Exports, Goods and Services 6.3 12.9 33.7 15.0 10.0 10.0 Imports, Goods and Services 34.7 -1.1 10.1 8.0 9.0 9.0 Inflation (Consumer Price Index, annual average) 2.5 5.7 4.8 5.0 5.0 5.0 Current Account Balance (% of GDP) (14.5) (15.9) (6.8) (8.7) (8.6) (8.4) Fiscal Balance (% of GDP)a (2.8) (4.5) (3.9) (3.9) (3.9) (3.8) Debt (% of GDP) 33.5 44.5 48.4 49.2 49.8 50.4 Sources: World Bank, Macroeconomics and Fiscal Management Global Practice, and Poverty Global Practice. Notes: f = forecast. Forecasts are based on data available in April 2018. prices for commodities and Rwanda’s main exports. and the importance of the private sector. A lack of Moreover, a sharper than expected increases in oil private sector responsiveness and failing to increase prices would burden Rwanda’s import bill. the private investment rate over time would make it very difficult to sustain a high growth rate in the long The private sector’s lower-than-expected run —as is envisioned in the National Strategy for response to the improved investment climate Transformation and Vision 2050. Sustained growth is also a concern for long-term growth. The rates will require considerable efforts in boosting recent growth slowdown, after several years of a private and public investment financed by domestic public investment-led boom, has illuminated the savings and capital inflows in the medium- as well limitations of the public-investment-led model as long-term. Rwanda Economic Update • Edition No. 12 13 PART TWO TACKLING STUNTING: AN UNFINISHED AGENDA Rwanda Economic Update • Edition No. 12 15 Tackling Stunting: An Unfinished Agenda 2.1 Setting the Scene a bold target for all districts to reach a 19 percent Rwanda has outperformed other countries in the stunting rate by 2024, and aims to bend the curve region on many fronts. It has met or exceeded on stunting, setting the country on a successful most Millennium Development Goal targets. It has trajectory to tackle this key development issue. been at the forefront of critical health reforms, such Rwandese authorities recognize that to attain this as its flagship community-based health insurance target they must empower families, deliver high- scheme, the innovative performance-based impact interventions to prevent stunting, and financing program in the health sector, and its make local authorities accountable for progress distinguished community health worker program, on stunting. which all serve as models for other countries. However, although chronic malnutrition or 2.2 Stunting in Rwanda stunting (Kugwingira), which signals that children 2.2.1. What is the situation? are growing too slowly, has declined from about 50 Over the past 15 years, Rwanda has made dramatic percent (2005) to 38 percent (2014/15) of children progress in improving child and maternal health. under 5, it remains a major outlier. The pace of With the rapid scale-up of basic health services decline in stunting is out of line with the country’s and improvements in socioeconomic conditions, potential and political will. under-5 mortality plunged, from 196 per 1,000 live births in 2000 to 50 in 2015 and maternal mortality Stunting is an invisible problem in Rwanda which also dropped steeply, from 1,071 per 100,000 live deprives children of their right to grow, thrive, and reach their full potential. Stunting impedes births 2000 to 210 in 2014. Similarly, in the past 10 cognitive development, educational attainment, years, expansion in family planning services and and lifetime earnings. It also deprives the economy delayed childbearing have cut the fertility rate by of quality human capital that is critical to attaining a third, from about 6.0 to slightly above 4.0. The Rwanda’s aspiration to become a middle-income historical priority on acute malnutrition (wasting) country and sustain its economic gains. Children has paid off: Rwanda has already surpassed the 2030 who are stunted are trapped early in a vicious Sustainable Development Goal target for wasting.8 cycle of poverty: by the time they are 2, their brain development has been compromised and the Since 2010 stunting has started to decline damage is essentially irreversible. faster but is still stubbornly high, placing Rwanda among the SSA countries that need to The government has made a strong commitment accelerate progress on undernutrition. Stunting to eliminate stunting, and aims to strengthen is more prevalent in Rwanda at 38 percent than in involvement of parents, mobilize all key neighboring countries (Figure 2.1), such as Tanzania stakeholders and bolster accountability. (34.4 percent) and Uganda: (33.4 percent), and in Authorities want to bring about a paradigm shift in countries at a similar socio-economic level, such the way people think of stunting to ensure that it is no as Zimbabwe (26.8 percent), and double the level longer a silent killer. They recognize that improving of countries that have introduced major programs awareness of stunting and ensuring broad-based to tackle child undernutrition, such as Senegal involvement of all stakeholders from the village to (18.7 percent). the national level is critical. The government has set The prevalence of children under 5 who are wasted (too thin for height) fell from 8.3 to 2.2 percent, and underweight (too thin for age) children fell 8 from 19.5 to 9.3 percent between 2000 and 2015. Both wasting and underweight are below the WHO severity thresholds. 16 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda Figure 2.1: Prevalence of stunting and GDP per capita, Rwanda Figure 2.2: Trends in stunting prevalence by wealth quintile, and selected low-income African countries 2000–15 60 60 57.8 Burundi 55 54.1 Madagascar 52.6 50 52.5 Stunting prevalence (%) Niger 50 51.4 DRC Mozambique 47.0 40 Ethiopia 45 45.7 Rwanda Chad Malawi Sierra Leone Tanzania 42.8 40 41.5 Uganda 30 Guinea 35 37.7 Zimbabwe 30 32.5 20 Senegal 25 24.7 10 500 1,000 1,500 2,000 2,500 3,000 20 2000 2005 2010 2014-2015 GDP per capita (International $ PPP) Bottom 2 wealth quintiles Q3 Top 2 wealth quintiles Source: World Development Indicators. Source: Rwanda DHS (2000, 2005, 2010, 2014-15). 2.2.2. Who is most affected by stunting? districts in the west and northeast of the country, Stunting affects the poor disproportionately. most districts have stunting levels of high (>30 Rwandese children from the poorest wealth quintile percent) or very high (>40 percent) public health have stunting rates (49 percent) that are more significance, which illustrates the widespread than double those from the top wealth quintile nature of the problem (Figure 2.3). Only in one (21 percent). As in other countries, stunting rates area, the urban district of Kicukiro, is stunting are much higher in rural (over 40 percent) than prevalence considered to be of low significance, in urban (24 percent) areas. Boys under 5 have a with three surrounding districts (Nyarugenge, higher rate of stunting (41 percent) than girls (33 Gasabo, and Rwamagana) and Kirehe (Box 2.2) with percent). The poorest children and those living in levels of medium significance. rural areas have seen only modest improvements in stunting since 2005 (Figure 2.2). The average Children under 6 months of age are protected annual rate of reduction for 2005–15 was only 2 from stunting through the widespread practice of percent among the poorest in contrast to 5 percent exclusive breastfeeding in Rwanda. The situation in the richest quintile. changes rapidly during the weaning period (6–24 months), when stunting rises progressively (from Children from the lowest wealth quintiles are 11 percent in children younger than 6 months disadvantaged by to 21 percent in children aged 9–11 months and • High poverty and inequality over 49 percent in those aged 18–24 months), as • Mother’s modest education levels, poor complementary foods are introduced and children nutritional status, and high parity face growing micronutrient deficiencies and are • Geographic location exposed to infections and diseases. Households with more children, especially those from the lower Even among the top two wealth quintiles, nearly wealth quintiles, have higher stunting rates, which 25 percent of children suffer from stunting, are over 40 percent for the first two birth orders, suggesting that poverty rates are not the only 47 percent for third order births, and nearly 50 predictor of child undernutrition. The geographic percent for fourth order births. A higher number of distribution of stunting is also only partially related births is typically accompanied by earlier weaning to poverty. While poverty is most prominent in of younger children and shorter birth intervals, Rwanda Economic Update • Edition No. 12 17 Tackling Stunting: An Unfinished Agenda Figure 2.3: Stunting prevalence and poverty rates by district Source: World Bank 2011 Rwanda DHS 2014-2015 & EICV 4. both of which are associated with an increased 2.2.3. What are underlying causes of stunting? likelihood of stunting, as families struggle to The UNICEF conceptual framework of the meet the nutritional needs of a growing number determinants of malnutrition is used to illustrate of children. the underlying causes of the high stunting rate in Rwanda. According to UNICEF (2015), child Children of mothers with little education and undernutrition is caused not only by a lack of inadequate health and nutrition status are more adequate quantity and quality of food but also by likely to be stunted. At 40 percent, stunting levels frequent illnesses, poor maternal and child care of children of Rwandese women who have no practices, substandard access to health services. education or only primary schooling are double and unhealthy environments. The framework cites those of children whose mothers have secondary inadequate dietary intake and frequent diseases or higher education (roughly 19 percent). There is as the immediate causes of malnutrition, with a generally positive association between mother’s the underlying causes being household food years of education and lower stunting, and insecurity (in terms of quantity, diversity, and mother’s education is more likely than father’s to be frequency of food intake); inadequate care for associated with greater height relative to the child’s children and women; and insufficient, inaccessible, age. Children of poorly nourished mothers (those and inadequate health services; and an unhealthy with lower body mass index, BMI) have higher household and surrounding environment (Figure stunting rates than children of well-nourished 2.4). The framework illustrates the complex mothers. These patterns suggest the importance of underlying causes of stunting; and the importance targeted action to address both the nutritional and of coordinated scale-up of both nutrition-specific health status of the most vulnerable women and interventions to address the immediate causes their children. and nutrition-sensitive interventions to tackle the underlying determinants. 18 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda Figure 2.4: UNICEF framework for malnutrition community health insurance and reasonably good geographic access to health services, nearly 60 Malnutrition Manifestation percent of women still report having problems Inadequate dietary intake Disease Immediate accessing care (2014/2015 Demographic and Causes Health Survey), which limits their utilization of Insu cient health Inadequate access to food Inadequate care for children and women services and hunhealthy environment Underlying Causes critical services. Inadequate Eucation Resources and Control Human, Economic and Organizational Resources Although there have been major improvements Basic Causes in environmental health, significant gaps and Political and Ideological Factors Economic Structure geographic variations persist. Since 2005, access Potential Resources to improved water and sanitation facilities has Source: Adopted from UNICEF, 1990 more than doubled (Figure 2.6). Nevertheless, infants and children from vulnerable and poor In the past 15 years, there have been encouraging households in rural areas have serious deficits in trends in many of the underlying causes of environmental health: (i) 32 percent must still rely malnutrition among Rwandese children (e.g., on non-improved sanitation facilities; (ii) about care practices, environmental health, and food 60 percent of rural households do not treat water adequacy). The most significant improvements before drinking; and (iii) over 91 percent do not occurred in care practices, especially coverage of have a handwashing station. Collectively, these antenatal, birth, and postnatal practices (Figure deficits constitute a major challenge to the health 2.5). Delivery in health facilities is now almost of infants and children, placing them at greater risk universal, having soared from 25 percent in 2000 to of stunting. Because of poor sanitation and hygiene 92 percent in 2015, with high levels of coverage in practices, children are regularly exposed to parasitic all wealth quintiles. Yet some indicators are still low worms and are at greater risk of chronic diarrhea (e.g., 20 percent for child postnatal care; 42 percent and enteric pathogens—conditions which may four or more antenatal care visits; only 3 percent of interfere with absorption of nutrients from food. It women taking iron folic acid tables for at least 90 days is estimated that Rwandese children in households during pregnancy; and only 50 percent of children that do not have access to treated drinking water with fever and 55 percent with an acute respiratory are three times more likely to be stunted than those infection being taken for advice or treatment to a in households with access to treated piped water health facility). Despite the availability of a national (Rwanda Agriculture Board, 2015). Figure 2.5: Trends in care practices Figure 2.6: Trends in environmental health and access to health (Percent) services (Percent) 100 100 95.7 91.9 93.6 90 90 82.7 81.9 80.0 80.3 80 80 72.0 74.5 72.4 72.7 68.0 70.1 70 70 60 60 56.5 51.8 50 45.8 50 42.2 40.3 40 38.5 36.7 40 34.7 33.1 29.5 30 25.1 30 24.0 22.7 20 17.9 15.9 20 14.0 9.8 10 10 6.5 4.2 5.8 7 0.7 1.3 0 0 Adequate At least Born in Early initiation Slept under Adequate Improved Improved Fully care 4 antenatal health facility of breastfeeding bednet environmental water source sanitation facility Immunized consultations health 2000 2005 2010 2014-2015 2000 2005 2010 2014-2015 Source: Rwanda DHS (2000, 2005, 2010, 2014-15). Source: Rwanda DHS (2000, 2005, 2010, 2014-15). Rwanda Economic Update • Edition No. 12 19 Tackling Stunting: An Unfinished Agenda Trends in food adequacy have stagnated. The crops are bred to increase their nutritional value) proportion of infants under 6 months who are which is an important strategy for addressing exclusively breastfed has remained consistently micronutrient deficiencies. above 80 percent. In contrast, in 2010–15 for children aged 6–24 months, there was little improvement Most household food items are market-sourced, in food intake, with only 18 percent considered and although food is generally available in to have had a minimum acceptable diet; less the markets, 50 percent of households have than 50 percent had minimum meal frequency, difficulties in accessing food. The most common and only 29 percent had the minimum dietary access issues are seasonal difficulties. Households diversity (Figure 2.7). The pattern of decreased dependent on markets for food and those with food adequacy after the first six months, with low purchasing power are particularly vulnerable suboptimal complementary feeding practices, to higher food prices. In addition to seasonal and heightens the risk of micronutrient deficiencies chronic obstacles in accessing food, 27 percent of and exposure to infections, and coincides with all households regularly experience one or more higher prevalence of stunting. climatic shocks (e.g., drought, irregular rains, prolonged dry spells) that affects their ability to Household food security remains highly variable.9 access food. Food-insecure rural households depend on low- income agriculture, reinforcing the centrality When access to all three critical determinants of agricultural production for household food of malnutrition—care practices, environmental security. These households have less livestock, less health and food adequacy—is analyzed, Rwanda agricultural land, grow fewer crops, are less likely has significant gaps. In total, only 24 percent to have a vegetable garden, have lower stocks of of children under 2 receive adequate care; 37 food and consume more of their own production. percent have adequate environmental health; and They have less diversified diets, contributing to 34 percent of children under 2 have a minimally micronutrient deficiencies. Inadequate dietary acceptable diet (World Bank 2017, based on analysis intake of iron is among the most common causes of 2014/2015 Rwanda Demographic and Health of anemia in the country. Rwanda has had Survey). Less than 4 percent have access to all success with biofortification (a process by which three critical dimensions, illustrating that there are Figure 2.7: Trends in feeding practices serious gaps in the convergence of interventions (Percent) that need to be addressed to dramatically affect 100 stunting (Figure 2.8). 90 80 70 When care practices, environmental health, 60 and food adequacy were analyzed to find out 50 why there was a drop in stunting between 2000 40 30 and 2015, improved child care practices were 20 highly significant. Four or more antenatal care 10 visits, higher deliveries in health facilities, and 0 Exclusively breastfed 4 or more Minimum meal Minimum 2 milk lower fertility rates explained a significant portion (0-6 months) food groups frequency feedings (non-breastfed 2000 DHS 2005 DHS 2010 DHS 2014-2015 DHS 6-24 month olds) of the difference, underscoring the importance Source: Rwanda DHS (2000, 2005, 2010, 2014-15). of expanding coverage of these high-impact The 2015 Comprehensive Food Security and Vulnerability Analysis found that only 40 percent of all households are food secure (i.e., able to meet 9 essential food and non-food needs without engaging in coping strategies, have an acceptable diet, and use a low share of their budget to cover food needs); 40 percent are marginally food secure; and 17 percent and 3 percent are moderately or severely food insecure. 20 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda Figure 2.8: Trends in coverage of underlying causes of repetitions are associated with undernutrition, and malnutrition (Percent) stunted children average 1.1 fewer years in school 50 (The Cost of Hunger in Rwanda: The Economic and 43.1 Social Impact of Child Undernutrition). Because 40 38.5 36.7 cognitive and physical damage in early childhood 32.4 33.6 30 is at this point largely irreversible, it is critical to 24.2 24 ensure optimum nutrition during the 1,000-day 20 17.9 period from pregnancy to a child’s second birthday. Adults who were stunted in childhood have lower 10 3.3 3.7 4.2 5.8 cognitive ability and fewer socioemotional skills; 0.7 1.3 0 0.06 0.14 they are also at higher risk of noncommunicable Adequate in Adequate food Adequate Adequate Care everything 2000 2005 environmental health 2010 2014-2015 diseases like cardiovascular problems, obesity, and Source: Rwanda DHS (2000, 2005, 2010, 2014-15). diabetes, which are on the rise in Rwanda. These problems translate into both lower productivity and interventions. Interactions between the three lower wages, which ultimately affects economic interventions were associated with a significantly growth. There is global evidence that adults who reduced probability of stunting, which underscores were not stunted as children had 21 percent higher the importance of ensuring that children benefit household consumption and 10 percent lower risk from a fully coordinated package of interventions. of living in poverty (Hoddinot et al. 2013). Small birth size, usually attributable to inadequate maternal health before and during pregnancy, Moreover, mothers who were themselves was also found to contribute to the likelihood of malnourished are more likely to have stunted being stunted. children (Galasso, Wagstaff, Naudeau, & Shekar, 2016). Rwandese women who are less than 145 2.2.4. What are the consequences of stunting? cm. tall, a likely result of childhood stunting, Childhood stunting has negative impacts on are more likely to have children with restricted human capital and economic growth. Stunting growth in pregnancy. Deficiencies in maternal delays cognitive development among children, nutrition are reflected in the high proportion of making it harder for them to learn; children who smaller than average newborns10 and high levels do not reach their full development potential at of anemia (25 percent of pregnant women are an early age are likely to do poorly in school, and anemic). Ensuring that women of reproductive age ultimately attain lower lifetime earnings. A recent are well-nourished is not only important for the study estimated that, in Rwanda, 22 percent of all well-being of the women but also for reducing the child mortality and 13 percent of primary school risk of intergenerational transmission and giving their children a good start in life. The total annual How will countries compete in an increasingly costs associated with undernutrition in Rwanda are complex and digitized economy when one out estimated at 11.5 percent of GDP, mainly because of four of their children literally have fewer adults are less productive in performing manual neuronal connections, which are the foundation activities (Government of Rwanda, UNECA, WFP, of human capital? 2013). These figures are comparable to global estimates of up to 11 percent losses in GDP in Africa ~ Jim Yong Kim, World Bank President and Asia attributable to undernutrition. The proportion of mothers who reported their impressions of their child’s birth size as ‘small or very small’ rose from about 12 percent in 2000 to 16 10 percent in 2015. Rwanda Economic Update • Edition No. 12 21 Tackling Stunting: An Unfinished Agenda 2.2.5. What needs to be done? of the highest GDP growth rates in the region to support investments in these critical interventions, High-impact nutrition interventions are among economic growth will not be sufficient to eliminate the most cost-effective best buys to enhance stunting (Box 2.1). welfare and reduce poverty. The Copenhagen Consensus 2008 ranked 5 nutrition interventions 2.3 Rwanda’s Renewed Commitment in the top 10 of 30 proposals for advancing global welfare.11 Investments in nutrition yield high The Government of Rwanda has renewed its economic returns.12 They also facilitate the success political commitment to make elimination of investments in other sectors. Investments in of stunting a national priority. Food security, early life nutrition, early learning and stimulation, nutrition, and early childhood development are and the provision of nurturing care and protection prioritized as foundational issues in the National from stress ensure that all children reach their Strategy for Transformation and Prosperity (2017– human potential and contribute to the economic 2024). Rwanda has been a member of the Scaling Up growth of their nation (Figure 2.9). Finally, it is Nutrition Movement since 2011 and established a worth noting that while Rwanda has historically Joint Action Plan to Eliminate Malnutrition (JAPEM had strong economic performance, with some 2016–2020), covering all sectors. In recognition of the importance of the first 1,000 days of life, Figure 2.9: Investments in the early years in 2013 the government launched the “1,000 days campaign in the land of 1,000 hills” initiative. The government has set a bold target for all districts to reach a 19 percent stunting rate by 2024, in line with the 2018–2024 Health Sector Strategic Plan. A National Early Childhood Development Coordination Program (NECDP) was established within the Ministry of Gender and Family Protection to ensure high-level coordination of all nutrition programs, working under the leadership Box 2.1: Income growth and stunting A recent World Bank study found that the income elasticity of stunting reduction (the extent to which higher incomes lead to lower rates of stunting) is dramatically lower in Sub-Saharan Africa (−0.20), including Rwanda, than in the rest of the world (−0.44). In countries outside of Sub-Saharan Africa, a 10 percent increase in income is associated with a 5.5 percent reduction in the stunting rate. In Sub- Saharan Africa, a similar increase in income is associated with only a 2 percent reduction in stunting rate. These results suggest that income growth in Rwanda alone will not be sufficient to address stunting. The results also underscore the importance of scaling-up targeted evidence-based, high-impact nutrition- specific interventions. Source: Shekar et al. 2017. 11 It ranked micronutrient supplements for children including vitamin A and zinc supplementation first, micronutrient fortification including iron and iodine fortification third, bio-fortification fifth, de-worming and other nutrition programs at school sixth and community-based nutrition programs ninth (Lomberg 2004). 12 An Investment Framework for Nutrition, developed by the World Bank in partnership with R4D, 1000 Days, and the Bill & Melinda Gates Foundation, estimated high returns on every dollar invested in nutrition, e.g. US$4 in returns for treating acute malnutrition (wasting), US$11 for preventing stunting, US$12 for the treatment and prevention of anemia, and US$35 for increasing the prevalence of exclusive breastfeeding. Shekar et al. 2017. 22 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda of the Prime Minister. The NECDP is preparing a is needed for national scale up of the package of key detailed multisectoral strategy for accelerating the interventions.14 As shown in Figure 2.10, with this reduction in childhood stunting and investing in the level of investments, Rwanda would bend the arc early years. District Plans to Eliminate Malnutrition of history on stunting, attaining rates of reduction (DPEMs) are expected to guide delivery of a comparable to the best performing countries. comprehensive package of nutrition interventions, The detailed health and nutrition impacts of this enhancing local capacity, improving multisectoral investment are shown Table 2.1. coordination, and bolstering accountability. Plans Figure 2.10: What would be the expected impact on stunting? are underway for broad-based social mobilization, (Percent) using umuganda community volunteer days and 60 other community events, to disseminate strong 48% 50 and consistent messages about Kugwingira—the 38% silent killer that prevents Rwandese children from 40 30% reaching their full potential. A greater focus is 30 expected to be placed on tracking and monitoring 20 beneficiaries and results through a strengthened 10 Civil Registration and Vital Statistics system and improved interoperability of all key information 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 systems. A number of innovative initiatives are Historic trend With investment underway, such as: (i) nutrition support grants for Source: World Bank (2017), Rwanda DHS (2000, 2005, 2010, 2014-15). vulnerable households (ubudehe 1) with pregnant women and children under 2; (ii) community- Among the set of proposed interventions, based parenting education; (iii) nutrition support complementary feeding education, prophylactic to targeted households (ubudehe 1) with pregnant zinc supplementation, and the public provision women, lactating mothers and children under of complementary foods would be the most two years of age through the provision of highly effective in preventing stunting, with each nutritious fortified blended food; (iv) community- averting 44,000, 65,000, and 72,000 cases of based early childhood development programs. stunting, respectively. Although the intermittent presumptive treatment of malaria in pregnancy 2.3.1. Financing Needs, Impacts and Cost would be the most cost-effective for preventing Effectiveness13 stunting, it would prevent fewer than 8,000 cases. Using the methodology detailed in An Investment Breastfeeding promotion by counseling mothers Framework for Nutrition (Shekar et al. 2017), the would be projected to increase the number of World Bank produced estimates of the resources infants exclusively breastfed by 28,000, at a cost needed to scale up a package of high-impact US$88 per child exclusively breastfed, with a total nutrition-specific interventions in Rwanda to additional financing need of US$2.5 million over meet the global nutrition targets for stunting, 10 years. For preventing anemia in women, staple anemia, breastfeeding, and wasting. The package food fortification would be the most cost-effective would avert nearly 200,000 cases of stunting and for non-pregnant women, at a cost of US$10 for 1.5 million cases of anemia in women over ten each case-year of anemia prevented. Over 10 years, years. Roughly US$27.3 million per year over 10 years staple food fortification and iron and folic acid This section is drawn from the Rwanda: An Investment Framework for Nutrition, Stunting Reduction in sub-Saharan Africa, World Bank, June 12, 2017. 13 These estimates represent a low case scenario, as they do not include nutrition-sensitive interventions such as cash-transfers targeted to nutritionally 14 vulnerable households, or food-security or WASH infrastructure investments. Rwanda Economic Update • Edition No. 12 23 Tackling Stunting: An Unfinished Agenda Table 2.1: Estimated 10-year financing needs and cost-effectiveness of scaling up nutrition-specific interventions in rwanda Total 10-year Cost per Cost per case financing death of stunting Intervention (nutrition target) needs (US$, averted averted millions) (US$) (US$) For pregnant women and mothers of infants Antenatal micronutrient supplementation (stunting, anemia) 9.9 18,452 6,788 Infant and young child nutrition counseling (complementary feeding education 14.7 22,770 327 and breastfeeding promotion combined) Complementary feeding education (stunting) 12.2 25,978 277 Breastfeeding promotion (stunting, breastfeeding) 2.5 14,154 2,918 Balanced energy protein supplementation for pregnant women (stunting) 47.5 70,024 52,172 Intermittent presumptive treatment of malaria in pregnancy in malaria-endemic 1.9 12,399 260 regions (stunting, anemia) For infants and young children Prophylactic zinc supplementation (stunting) 54.4 28,336 833 Public provision of complementary food (stunting) 96.0 107,055 1,332 Treatment of severe acute malnutrition (wasting) 3.8 5,370 n.a. For non-pregnant women and general population Iron and folic acid supplementation for non-pregnant women (anemia) 16.3 n.a. 30,331 Staple food fortification (anemia) 3.9 n.a. Pro-breastfeeding social policies (breastfeeding) 5 n.a. n.a. National breastfeeding promotion campaigns (breastfeeding) 20 n.a. n.a. TOTAL: 273.3 44,059 1,168 Source: World Bank (2017). supplementation for non-pregnant women would Figure 2.11: Ten-year financing needs for scaling up a package prevent about 391,000 and 859,000 case-years of of nutrition-specific interventions in rwanda, by percent per intervention15 anemia in women, respectively, and require US$3.9 Total scale-up cost over 10 years: US$273 million million and US$16.3 million. Among pregnant Wasting, 1% women, antenatal micronutrient supplementation Anemia, 12% Breastfeeding, 13% would prevent 264,000 case-years of anemia, at a cost of US$37 per case-year prevented, or US$9.9 million over 10 years. Interventions to reduce stunting would require the most resources, accounting for over 80 percent of the total amount required for scale-up. However, some of Stunting, 82% the stunting interventions would also affect the breastfeeding and anemia targets. Figure 2.11 Source: World Bank (2017). represents the distribution of total financing needs across interventions to address the four targets. 15 Some costs for anemia, breastfeeding, and stunting are shared across interventions. Costs for breastfeeding promotion (US$2.5 million) have been included in both the total cost for the breastfeeding target and the total cost for the stunting target; the costs of intermittent presumptive treatment of malaria in pregnancy in malaria-endemic regions (US$1.9 million) and antenatal micronutrient supplementation (US$9.9 million) have been included in both the total cost for the anemia target and the total cost for the stunting target. 24 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda 2.3.2. Two Alternative Investment Packages in children under five years of age. It would also In an environment of constrained resources in prevent more than 754,000 case-years of anemia which Rwanda may not be able to raise US$273 in women and result in 28,000 children under six million over the next 10 years, two alternative months of age being exclusively breastfed. investment packages are laid out for consideration. The Catalyzing Progress Package: The second The Priority Package: The first—the “priority alternative—the “catalyzing progress package”— package”—includes interventions that are the includes scale-up of all interventions in the priority most cost-effective; that is, have the lowest package, plus a phased approach to scaling up cost per health outcome (e.g., case of stunting public provision of complementary foods, balanced averted), and that have well-established global energy protein supplementation, prophylactic zinc policy guidelines and delivery platforms. Based on supplementation, and weekly iron and folic acid those two criteria, the priority package includes supplementation for women outside of schools. It antenatal micronutrient supplementation, infant is assumed that, for the latter set of interventions, and young child nutrition counseling, intermittent during the first five years emphasis will be presumptive treatment of malaria in pregnancy placed on establishing global guidelines and on in malaria-endemic regions, the treatment of operational research to develop effective delivery severe acute malnutrition, weekly iron and folic platforms, or to develop less expensive products or acid supplementation for girls 15–19 years of age more cost-effective technologies. Financing needs attending school, and fortification of wheat and are approximated as the cost of scaling up this set maize flour. These interventions would be scaled of interventions from 0 to 10 percent coverage only up to full program coverage in the first five years in the first five years. In the subsequent five years, and maintained at full coverage levels for the last it is assumed that the coverage expansion of those five years. This priority package would require an interventions will accelerate and reach 60 percent estimated US$57 million over 10 years, or US$5.7 by 2025. This package would require US$12.2 million annually (Table 2.2). During the 10 years million per year, a total of US$122 million over 10 of scale up, this package would prevent more than years (Table 2.2). It would prevent 3,600 deaths and 39,000 cases of stunting and avert 2,400 deaths more than 75,000 cases of stunting among children Table 2.2: Benefits and cost-effectiveness by investment package Priority Catalyzing Full package: package progress All interventions package needed to Global target Benefit meet target US$5.7 US$12.2 US$27.3 million/year in million/year million/year in financing need financing need financing need Stunting Cases of stunting reduced by 2025 (vs 2015)a 39,000 75,000 183,000 Anemia Case-years of anemia in women prevented by 2025 754,000 955,000 1.5 million Breastfeeding Babies breastfed over 10 years 28,000 28,000 28,000 All Targets Child deaths averted over 10 years 2,400 3,600 6,200 Cost per death averted 23,034 33,409 44,059 Cost per case of stunting averted 686 1,171 1,225 a. Total impacts of proposed intervention package combined with other health and poverty reduction efforts. Source: World Bank (2017) Rwanda Economic Update • Edition No. 12 25 Tackling Stunting: An Unfinished Agenda under age five, increase the number of exclusively 2.3.3. The Main Lessons breastfed children under six months of age by Many lessons for reducing stunting, from 28,000, and prevent more than 955,000 case-years domestic experiences and from countries that of anemia in women. have mounted successful programs are reflected in the government’s plans. Some may need further In comparing the relative cost-effectiveness reflection and course correction. The lessons and of the three investment packages, the two their implications are summarized in Box 2.2. alternative packages are more cost-effective in preventing deaths and stunting. However, Appropriate policies: Countries that have mounted neither is as effective as the full package in making successful programs have introduced evidence- progress toward achieving the stunting, wasting, based interventions; adopted a pro-poor approach and anemia targets. The priority and catalyzing by targeting the poorest communities and the progress packages would prevent 2,400 and most vulnerable groups with a combined package 3,600 deaths respectively, compared with 6,200 of demand and supply side interventions; and deaths prevented with the full package over 10 expanded results-based financing, linking financial years. Under the full package scenario, 183,000 incentives to the delivery of services by local cases of childhood stunting would be prevented, governments and providers. Rwanda, Indonesia, and compared with 75,000 cases under the catalyzing Madagascar are among many countries prioritizing progress scenario and 39,000 cases under the the geographic areas with the highest rates of priority package scenario. Furthermore, there stunting for convergent programs that support would be nearly 750,000 and 545,000 more case- the delivery and uptake of high-impact nutrition years of anemia prevented in women under the interventions. Some countries have successfully priority package and catalyzing progress package, taken bold steps to replace ineffective policies respectively. with evidence-based policies. Peru cancelled, Box 2.2: Main lessons - Mobilize high-level political support and ensure broad-based ownership, from the highest administrative levels down to communities and households. - Target geographic areas with the highest stunting rates and focus on the poorest and most vulnerable children under 2 years of age, since stunting is largely irreversible after this age. - Conduct state-of-the-art mass media campaigns and expand high-quality interpersonal counselling to make stunting a visible problem that is everyone’s business. - Focus funding on a selective package of evidence-based interventions that are proven to reduce stunting. - Establish effective institutional arrangements that: (i) clearly delineate coordination functions from implementation responsibilities; (ii) incorporate accountability mechanisms to facilitate multisectoral action; and (iii) promote the use of interoperable information systems that allow for efficient tracking of beneficiaries starting at birth. - Expand domestic spending on nutrition, align sector financing with the stunting reduction goals, and provide incentives to providers and local authorities to deliver results. - Ensure timely monitoring and evaluation to learn what works, take corrective action on what does not, and scale up to reach national coverage. 26 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda consolidated, and revamped costly feeding about the severity and long-term consequences of programs to ensure more targeted spending on stunting. Rwanda has made outstanding progress pregnant women and children in the first 2 years in treating acute malnutrition; now it is necessary to of life (Marini, Rokx, & Gallagher, 2017). Countries shift attention to preventing chronic malnutrition. like Senegal (World Bank 2016) and Ghana16 have In Peru, communication was critical in persuading demonstrated the benefits of community-based parents, public officials, and policymakers to approaches that empower local communities to unite in turning the tide against stunting. Modern address stunting. In Bangladesh and Nepal, a focus mass media campaigns and behavior change on behavior change and delivery of high-impact communications with appropriate cultural interventions have yielded good results. Rwanda messages can ensure that stunting is no longer a also has its own success stories with community- silent killer in Rwanda. As was done for other public led initiatives, such as that of Kirehe district, which health problems, such as HIV/AIDS in the previous has made unprecedented progress and serves as decade, a state-of-the-art mass media campaign is a model for other districts. The district stands out now a national priority. A special effort is required because of its bottom-up planning and monitoring to change the behavior of the poor through of activities, clear lines of accountability at all high-quality interpersonal counselling and use of levels, effective use of the imihigo performance communication channels that work well in Rwanda contracts to hold the mayor accountable, and (e.g., radio, umuganda days). Two interventions performance-based incentives for health facilities that demonstrate positive results are the provision (Box 2.3). Rwanda needs to direct more attention of key messages to mothers and other household and public resources to children under 2 from the members through peer support groups and the two lowest wealth quintiles who face multiple positive deviance approach to behavior change.17 impediments. To do this, Rwanda is strengthening Use of simple methods to explain chronic the delivery of high impact interventions in the malnutrition to illiterate parents, and help them health sector, complemented with demand-side visualize faulty growth proved useful in Peru. conditional cash transfers delivered through the Figure 2.12: Kirehe, trends in coverage of key indicators, national social safety net program, the Vision 2020 2010-2015 Umurenge Program, to enhance the uptake of the Percent 0 10 20 30 40 50 60 70 80 90 100 nutrition services. Women taking iron during pregnancy Women informed of pregnancy danger signs Blood pressure measured during pregnancy Behavior change: Kugwingira remains a largely Urine sample taken during pregnancy Delivery in health facility invisible problem in Rwanda, as it was initially in Maternal postnatal checkup Newborn postnatal checkup other countries with a high burden of stunting. No problems accessing care Diarrhea incidence in two weeks preceding survey There is a general lack of awareness and even Early initiation of breastfeeding Anemia prevalence the best-off households have children who are Children consuming vitamin A rich foods Children consuming diverse diet chronically malnourished. Given these information Children living in households with improved toilets asymmetries, the government has a key role to play Children living in households with improved water 2010 2015 in disseminating clear and consistent messages Source: Rwanda DHS (2010, 2014-15). 16 The Ghana program involved scale up of Community Health Planning and investing in a cadre of nutritionists in all 10 regions, who are specifically charged with supporting subdistrict planning and delivery of nutrition-specific interventions, and increasing utilization of health and nutrition services. 17 The PD approach aims to understand what ‘positive deviant families’ are doing differently from the parents of malnourished children in the same community and identify behaviors and practices from within that community that have a positive effect and trying to amplify their use to rehabilitate malnourished children; as well as provides community-based rehabilitation for moderate and severely malnourished children Rwanda Economic Update • Edition No. 12 27 Tackling Stunting: An Unfinished Agenda Box 2.3: Kirehe district -- A model of success Kirehe district is a model of how other districts in Rwanda can make rapid progress in reducing stunting. Stunting among children under 5 dropped steeply, from about 50 percent in 2010 to 29 percent in 2015, a 42 percent decline. Trends in coverage of underlying indicators improved dramatically, including a rise in facility deliveries (from 58 to 85 percent); early initiation of breastfeeding (from 68 to 88 percent); and postnatal visits for women (from 20 to 58 percent) and newborns (from 2 to 50 percent). The quality of antenatal care improved (women reporting taking iron during pregnancy rose from 66 to 86 percent), as did dietary diversity (from 19 to 43 percent) and environmental health (clean water source rose from 47 to 87 percent and sanitation from 64 to 78 percent). In discussions with representatives of the district mayor’s office, district hospital personnel, and development partners (UNICEF, Partners in Health) several factors were noted as significant in helping Kirehe achieve such improvements in child malnutrition. • Leadership and accountability. President Kagame’s visit to the district in 2009 helped galvanize political support and re-energized local authorities. The district commitment to significantly reduce malnutrition was codified in the imihigo performance contract between the district mayor and the President. Political commitment was broad-based, from the district mayor to leaders at the sector, cell, and village levels, with each expected to set goals and carry out activities to meet district malnutrition targets. • Improved coordination and monitoring. District leadership channeled resources into strong implementation and monitoring of the District Plan to Eliminate Malnutrition (DPEM). Oversight of the DPEM was through a multisectoral committee that plans, coordinates, and monitors progress of activities across different sectors that were considered crucial for promoting convergence. These committees and plans are mirrored at the sector, cell, and village levels, and heavily emphasize regular reporting and rapid course correction. The continual process of planning, coordinating, and monitoring results through the DPEM was viewed as an example of good practice to be emulated by other districts. • Engagement with community health workers. Community health workers were trained, and regularly supervised, to deliver a comprehensive set of community-based nutrition interventions, including monthly screening of all children for malnutrition and a communications campaign on infant and young child feeding and hygiene practices. The district hospital provided close follow- up, with emphasis on both identifying cases and addressing potential causes. • Development partner support. Since 2013, funding for the planning, coordination and monitoring of the DPEM in Kirehe has been provided by UNICEF, with resources channeled to the district hospital, which then allocates these resources to activities across sectors. Partners in Health (PIH) has a strong presence in Kirehe and has provided significant support to and implementation of several programs there. The “Race to the Top”—Inkera y’imihigo, a performance-based program funded by PIH that incentivized health centers to improve child and maternal nutrition health indicators, was instrumental in expanding service coverage and improving outcomes. The International Fund for Agricultural Development supported agriculture and irrigation program that contributed to significant improvements in agricultural production and food security in the district. Heifer International provided small livestock to households. 28 Rwanda Economic Update • Edition No. 12 Tackling Stunting: An Unfinished Agenda Best-buy interventions: Intervening in the first interventions are provided to scale, and coverage 1,000 days of life (including the period before of beneficiaries varies widely.18 The government the child is born) is vital to preventing stunting of Rwanda has adopted a multi-sectoral strategy and promoting early child development. While for involving all relevant sectors at the national, the current focus on children under 5 in Rwanda community, and household levels. It now needs to is important for their general well-being, to put in place effective decentralized coordination prevent stunting there needs to be a razor-sharp structures, mechanisms, and incentives to focus on children under 2, because stunting is align financing across sectors with the stunting largely irreversible after this age. High-quality reduction goals. antenatal care and facility deliveries improve birth outcomes and reduce the risks of stunting. Early childhood development (ECD): International For children under 2, regular height measurement research on successful approaches to combatting and monitoring needs to be added to weight child malnutrition has found that holistic ECD measurement and monitoring of acute malnutrition; interventions19 can support children to reach and promotion of high-quality complementary their full developmental potential (Engle et al., feeding practices during the 6–24-month period 2007; Maalouf-Manasseh et al., 2015). While some needs to be scaled up. Improving dietary diversity countries have set up center-based ECD services, and meal frequency, drawing on locally produced like the less than successful experience in India, and fortified food, are preferable to costly feeding global experience shows that ECD services programs that are difficult to sustain. A review of delivered through home-based approaches, complementary feeding interventions in Rwanda as in Jamaica, can be much more effective in and other countries shows that education programs providing early stimulation, and promoting that focus on feeding children a diverse diet seem positive parenting skills, including education on promising (Dewey & Abu-Afarwuah, 2008). complementary feeding and hygiene practices. In Peru, ECD centers for disadvantaged children Convergence and coordination: While global complemented the high-impact interventions evidence of the importance of well-coordinated delivered through the health system and the investments is strong, much remains to be broader poverty alleviation strategy targeting the learned about what combination and sequence of same beneficiaries. Rwanda has many community interventions has the greatest impact in different ECD programs and now plans a standardized contexts. It is recognized that convergence of model with age-specific interventions for interventions in the same geographic areas will national scale-up and needs to determine how be important for reaching children with a full these community centers will be funded. package of services to support child care, feeding, and hygiene practices. In Peru, convergence was Domestic financing: Successful programs have facilitated by focusing on seven high-impact raised public funding, improved efficiency, and interventions that all local governments were lowered dependence on external financing. incentivized to deliver. In Rwanda, all 30 districts In Peru, the government doubled spending to have nutrition programs and benefit from some implement its ambitious strategy, shifted funding financing. Nevertheless, there are persistent gaps: to the poorest areas, and allocated public funds to not all sectors are covered, few of the required municipalities only for high-impact interventions. 18 The Rwanda Stakeholder and Action Mapping exercise found that coverage of core nutrition actions, as defined by the percentage of actions covering at least 30 percent of the target population, ranges from 32 percent in Kicukiro to 81 percent in Nyamagabe, with most districts falling in the 40-60 percent range. The three actions that had the most gaps in coverage were (1) complementary feeding, (2) provision of micronutrient supplements, and (3) support for improved water sources. 19 ECD interventions comprise several stages of mental and physical growth in a variety of contexts such as homes, schools, and the community, and activities range from childcare to nutrition for pregnant mothers and young children to parent education. Rwanda Economic Update • Edition No. 12 29 Tackling Stunting: An Unfinished Agenda In Rwanda, domestic financing for nutrition-specific to reach national coverage. Peru invested heavily interventions through the Ministry of Health, in regular national surveys to track progress in though improving, remains relatively modest,20 reducing stunting with yearly reporting on targets with development partners (e.g. USAID, UNICEF/ and outstanding actions. These frequent household Dutch cooperation) continuing to fund some of the and demographic surveys were accompanied largest programs.21 In line with the decentralization by effective monitoring systems and regular policy, funding to districts represents 82 percent consultations with local governments to take of total health spending. Investments in districts, stock of progress in improving primary health and which are at the frontline of the battle against nutrition services. Rwanda has a long track record of stunting, are often fragmented; different sectors generating evidence and bolstering accountability work in silos, and the DPEMs suffer from inadequate through the imihigo contracts. Efforts are underway financing. National allocations to sectoral ministries to develop a comprehensive learning agenda to tend to follow historical trends. In Peru, the shift to monitor and measure the results and impact of national results-based budgeting was considered the program. The goal is to mobilize and empower a watershed for investing in nutrition because it local stakeholders to assess the stunting situation created a rigorous approach for allocating resources in their districts; pilot innovations and share good based on stunting outcomes. Rwanda also has practices; take regular stock of progress and adopt extensive experience with performance-based corrective measures; and scale up good practices. financing (PBF) in the health sector that it plans to bring to bear in tackling stunting (Rusa et al., 2.4 Conclusions 2009; Basinga et al., 2011). The proposed inclusion Rwanda is poised to join other countries that of a comprehensive set of nutrition indicators in have made rapid progress in reducing stunting. the national PBF program—for both clinical care With its renewed political commitment to tackle and community health workers—is expected to stunting, it has a historic opportunity to mobilize better align resources with the delivery of high all stakeholders—parents, local leaders, and quality nutrition and health services. It will require policymakers—around the stunting reduction rigorous monitoring and evaluation to determine targets. Rwanda can create a positive virtuous what works and how it should be scaled up. The cycle of producing a generation of well-nourished proposed introduction of conditional nutrition support grants for the most vulnerable households children who grow, thrive and reach their (ubudehe 1) that have pregnant women and full potential, contributing to human capital children under 2 is in line with international good development and to future economic growth. practice, offering financial incentives to mothers Well-targeted, adequately funded, and effectively who avail themselves of key nutrition services. implemented smart policies to prevent stunting If successful, the pilot program will need to be can reduce poverty and boost shared prosperity expanded to benefit all children in the bottom two in Rwanda. wealth quintiles. We cannot afford to see a big part of our Continual measurement: Timely monitoring and population stunted when we have the means to evaluation are critical to learning what works, take prevent it. corrective action on what does not, and scale up ~President Paul Kagame 20 Domestic spending on health has increased since 2010/2011 but still accounts for only 40 percent of overall health spending (2013/2014). In the 2014/2015 Budget spending on nutrition was prioritized to more than double to about Rwf 7 billion (equivalent to about US$8 million) but it is only about 5 percent of the total health budget (Ministry of Health, September 2016). 21 These figures do not fully capture public spending on nutrition by other ministries that support multi-sectoral interventions, underscoring a need to better quantify, track, and align all spending related to stunting reduction targets. 30 Rwanda Economic Update • Edition No. 12 REFERENCES Basinga, P., P. Gertler, A. Binagwaho, A. Soucat, J. 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