IMF cuts Rwanda 2013 economic growth forecast to 6.6 pct

KIGALI (Reuters) - Rwanda's economy is likely to expand 6.6 percent this year, the International Monetary Fund said on Tuesday, cutting its previous projection of 7.5 percent in a sign the suspension of aid flows last year had hurt growth. Growth may be picking up in the second half of the year on the resumption of some aid flows that had been withheld last year, the IMF said. International donors suspended aid over Rwanda's alleged backing of rebels in the neighbouring Democratic Republic of Congo. Kigali denies supporting the rebels. Paulo Drummond, head of an IMF mission to the central African country, said in a statement that growth slowed in the first half "as the government adjusted to a shortfall in donor budget support." The expansion in the services sector slowed and so did the pace of construction, he said, adding that these two areas would help buoy growth by 7.5 percent in 2014. Despite the aid cuts, the central African government has forecast growth of 7.5 percent in both 2013 and 2014, after the economy grew by an average of 8.2 percent from 2006 to 2012. Two decades after the 1994 genocide, the east African nation has become a favourite with international investors. But in its budget plan in June, Rwanda's government increased spending and said it expected to raise about 40 percent of the $2.6 billion budget through external financing. Its first Eurobond of $400 million was heavily subscribed in April, opening new funding doors to the country and replacing traditional concessional lenders. Drummond said better terms of trade, greater exchange rate flexibility, and a drawdown of foreign reserves also helped cushion the economic impact of lower aid inflows. Further help came from a sharp rise in exports, especially of minerals, while imports slowed, he said. On inflation, Drummond said the rate is expected to rise to 6.5 percent at year-end because of rising food prices. Rwanda's urban inflation was 4.04 percent in the year to August, falling from 5.67 percent in January. In the medium-term, inflation would be at around the country's 5 percent target, he said, while growth would be driven by net exports, the private sector, and the government's own resources in the land-locked country of 10 million that produces coffee, tin and the metals tantalum and tungsten.