Selected Macro Economic variables of Rwanda and loan conditionality of Western Financial Institutions (Study of International Monetary Fund) from 1986-2016

Abstract

This study examined both the long-run and short-run effect of Western Financial Institutions loan conditions on Rwanda economy via International Monetary Fund (IMF) from 1986 to 2016. Many scholars have questioned the benefits of those conditions to the beneficial economies. The objectives of this study were to analyse the effect of IMF conditionality of currency devaluation, reduction of government expenditure and trade liberalization on Goss Domestic Product (GDP), Gross Fixed Capital Formation (GFCF) and National Savings (NS) of Rwanda. The researcher made use of secondary data sourced from the data bank of World Bank. The formulated hypotheses were tested using Ordinary Least Square method and Granger causality test. The result revealed all the indices of IMF conditionality have significant effect on selected macro-economic variables of Rwanda. These effects are Negative with GDP GFCF but positive with NS. The researcher advocates for domestically friendly economic policies such as the use of protectionism and fiscal policy that will serve better than externally imposed economic policies that may create other economic problems to the nations that adopted them.