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

Rwanda faces a challenge in mobilizing domestic savings that are critical for private sector investment and to reduce the country’s vulnerability to depleting external finance. Domestic savings enable households or firms to smooth consumption in the face of uneven income flows, to accumulate assets for the future, and to better prepare for emergencies.

Financial inclusion has risen sharply in Rwanda, with a notable increase in the use of bank accounts for saving from 13 to 21%, significant transitions from informal to formal savings methods, and the introduction of the innovative long-term savings programs. However, many Rwandans continue to prefer informal and traditional saving methods over banks, mobile money, and Umurenge SACCOs and the proportion of the population not saving at all has held steady at 14%, signaling a need to focus on bolstering this area. What’s more, the country’s savings rates remain low compared to regional and aspirational peers.

Data shows that Rwanda’s private investment growth has not kept pace with public investment as it grew modestly from 12.7% of GDP in 2007 to 15.8% in 2022, while public investment witnessed a more substantial rise, from 5.0% of GDP to 13.8% during the same period. When compared to regional counterparts in 2022, Rwanda’s private investment was lower, with Uganda at 16.9% and Tanzania at 24.3% of their respective GDPs. This impacts financial resources for businesses, especially small and medium-sized enterprises.

The main drivers of national savings have been household and remittances. The accumulation of the fiscal deficit in recent years means the government contributed negatively to national savings, with the potential to crowd out private sector investments and hamper future growth. This underlines the importance of the ongoing fiscal consolidation plan as a key strategy to boost future savings in Rwanda.

Given the backdrop of sluggish productivity and limited fiscal resources, there is therefore a need for Rwanda to bolster private investment to adequately complement public spending and sustain economic growth. Rwanda’s financial sector, industry leaders and policymakers need to address certain challenges to maximize the country’s savings potential.

The REU suggests a list of specific recommendations on how to build on already impressive government reform and investment agenda to further enhance savings. These include:

1. Implementing subsidies and incentives to improve domestic savings rates.
2. Providing digital financial literacy to promote the benefits of saving.
3. Ensuring an enabling environment for digital financial services
4. Adapting a comprehensive policy approach to boost innovation in financial inclusion and savings growth.
5. Encouraging customer centricity in savings product development among financial service providers.
6. Ramping up the EJO HEZA, the government’s long-term savings scheme.
7. Fostering remittances and diaspora engagement for savings mobilization. 
8. Promote gender-focused savings products, addressing the widespread but informal savings habits among women. 

The REU analyzes recent economic developments and prospects, as well as Rwanda’s policy priorities. This edition reports that despite a challenging global environment, Rwanda’s economy showed some resilience, growing at about 7.6% in the first three quarter of 2023, supported mainly by the services sectors. GDP growth is expected to regain momentum in 2024–26, with a projected average growth of 7.2%.