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What Effects Could Climate Shocks Have On Rwanda’s Sustained Growth?

5 Min Read

Climate change could be consequential for Rwanda’s growth given the reliance of the economy on climate sensitive sectors.

The Rwanda Country Climate and Development Report (CCDR) launched last week highlights key policies and interventions that are needed in Rwanda to strengthen climate resilience in the context of country’s commitments under the Paris Agreement and its development priorities.

The CCDR offers granular recommendations on sector specific interventions and projects, including: Investing in nature-smart resource development projects, focused on water infrastructure development and management, soil conscious conservation agriculture and sustainable forestry; Investing in low-carbon energy and transport solutions; Enhancing climate compatible urbanization, and Developing a climate-smart, private sector friendly environment that balances investment projects with policy reforms and helps to develop a green finance market.

“The CCDR reinforces Rwanda’s ambitious and innovative response measures to chart a green, inclusive, responsive and growth-oriented development pathway.” says Rolande Pryce, the World Bank’s Country Manager for Rwanda. “As Rwanda’s 2020 NDC identifies a large investment requirement, the CCDR explores tradeoffs in financing climate actions and suggests ways to overcome implementation challenges.”

While Rwanda contributes just 0.003 percent to global greenhouse gas emissions, it is vulnerable to the consequences of hotter weather and changing rainfall, including damages from flooding, worsening human health, and lowering crop yields.

These factors could reduce Rwanda’s GDP from expected levels by as much as 5–7% in some years and push the economy away from reaching goals set in Vision 2050, the National Strategies for Transformation and the Green Growth and Climate Resilience Strategy.

“Implementing Rwanda’s adaptation and mitigation commitments would substantially dampen the GDP volatility resulting from increased weather variability,” says Pablo Cesar Benitez, the Bank’s Senior Environment Economist for Rwanda. “It would also reduce the impact of climate change on annual GDP growth and boost industrial output and employment.”

The CCDR finds that Rwanda is well ahead of many other countries in responding to challenges from climate change.

The climate mitigation and adaptation measures outlined in Rwanda’s 2020 revised Nationally Determined Contribution (NDC) are carefully designed to mutually reinforce adaptation and mitigation objectives, and to support Rwanda’s low carbon and resilient national development ambitions.

However, the government’s estimated cost of new investments, as reported in the 2020 NDC, is US$11 billion, of which US$6.9 billion is conditional on new financing. It amounts to spending 8.8% of the country’s GDP each year through 2030, a bold ambition considering that it exceeds the recorded and projected annual inflows of either official development assistance (ODA) or foreign direct investment (FDI) between 2015 and 2030.

It also represents a large share of domestic revenue collection or public investment spending during the same period.

The report urges Rwanda’s government to diversify external and domestic financing sources and reallocate government spending, enabling it to manage spillover costs of mobilizing funds.

Furthermore, it suggests that the government increases its fiscal space through efficiency gains to avoid cutting critical programs or the need to raise taxes. The report also highlights that sustaining growth in Rwanda will require greater private sector engagement and investment.

“Rwanda has ambitious green development goals that will support the country to counter the effects of climate change on people and the economy,” says Amena Arif, IFC Country Manager for Rwanda. “The private sector will be a key partner in helping to finance Rwanda’s green transition. By attracting more private sector investment into sustainable agriculture and infrastructure projects, it will support Rwanda in strengthening its resilience to climate change.”

Rwanda’s CCDR received input from key stakeholders including various government agencies. It was funded by the Climate Support Facility, a World Bank multi-donor trust fund.

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