PROJECT DESCRIPTION:  

General objective: contribute to a reinforced integration of environmental objectives in the management of Public Finance; Support Rwanda in its climate trajectory by increasing the scale and impact of climate financial flows.

Main subjects:

-          Climate-sensitive public finances that better inform investment, spending and procurement decisions;

-          Stakeholders in the financial system that take into account climate financial risks, in terms of regulation, supervision and investment choices and that contribute to the low-carbon path.

Key themes:

1.      Climate change mitigation and adaptation sensitive budgeting

2.      Climate-sensitive public investment

3.      Sustainable public procurement

4.      Monitoring, reporting, evaluation (MRV)

5.      Sustainable financial systems

Background:

Rwanda, a small, densely populated East African country with low GDP and GDP per capita, reports a low carbon energy mix. The country is particularly vulnerable to the effects of climate change. In addition to the increased risk of food insecurity in a country dependent on rainfed agriculture for both rural livelihoods (62% of the population lives from agriculture) and tea and coffee exports (among the country’s main sources of currency), climate change could lead to health risks and damage to infrastructure. Rwanda is a climate voluntarist: the first developing country to submit a revised national contribution (NDC) in 2021, it aims for carbon neutrality by 2050. The cost of the NDC is estimated at USD 11 billion by 2030 (more than the country’s current GDP).

In December 2022, Rwanda became the first African country to access the IMF’s Resilience and Sutainability Fund (RSF). With an amount of USD 319 million, this RSF financing is backed by a matrix of reforms that will sequence the disbursements. The funding of the RSF also aims to play a catalytic role, by draining more funding towards Rwanda’s climate goals.

 This €3 million technical assistance project aims to contribute to Rwanda’s ambitious climate goals alongside the IMF and other donors.

In parallel with this technical assistance, AFD also granted a €50 million program budget financing, with a matrix of indicators, the monitoring of which will be integrated into this technical assistance (budgetary financing of the Climate finance and Investment program budget support program).

This project supports the dynamics of low-carbon development and resilient to the effects of climate change and country policies in this area.

 Specific background:

The National bank of Rwanda (BNR) is an integrated regulator and supervisor of banks, microfinance institutions, insurance companies, social security institutions, collective placement companies and pension funds institutions, and payment service providers. Its core mandate consists in ensuring price stability and a sound financial system. Following the publication of the Rwanda’s Sustainable Finance Roadmap (SFR, annexed), the National Bank of Rwanda (BNR) started to frame its action plan to support the development of sustainable finance in Rwanda and to promote Kigali as a sustainable finance hub. To that aim, BNR conducted in 2023 a diagnostic of its own and the regulated financial institutions’ capacity to implement the Roadmap.

Its first action following the diagnosis will be to set up a dedicated Sustainable Finance Centre in 2023, with human resources from banking, insurance and microfinance supervision, research, and market development (core team), and risk management and strategic planning (support team).  The role of the Centre should be to trigger climate change-related work in all executive directorates of the BNR, to implement communication channels between governors, executive directors, and operational units, to monitor progress towards sustainable finance in the central bank and to coordinate BNR’s actions with all financial stakeholders.

 Expected results:

R1: Climate-sensitive budget. The production of a green budget makes it possible to assess and communicate the impact of public spending on the climate.

R2: Sustainable public investment (feasibility and selection): Feasibility studies lead to greater climate sensitivity of public investment projects and public investment projects are evaluated, selected and prioritised taking into account their climate impact.

R3: Sustainable public procurement. The deployment of sustainable public procurement (SPP) helps align public procurement decisions by limiting environmental impacts.

R4: Monitoring, Reporting and Verification (MRV). A MRV system that promotes climate trajectory control.

R5: Financial systems. Implementation of certain flagship measures of the Sustainable Finance Roadmap (SFR) that Rwanda adopted at COP27 through the deployment of climate finance guidelines and/or regulations by the Rwandan Central Bank (BNR – National Bank of Rwanda) to enable the financial sector (i) to better take climate risks into account and (ii) to improve reporting and transparency on this issue. 

 Specific results and objectives:

The resident advisor aims at enabling BNR's Sustainable Finance Centre to facilitate capacity-building, monitor progress in the implementation of plans, and establish research capacity and capability. It should build upon a close relationship to be established between the Sustainable Finance Centre and market participants to organize sectoral discussions on sustainable lending and sustainable insurance, and to organize and deliver capacity-building.

This mission should also support BNR in drafting its next strategic plan, integrating sustainable finance objectives.

 Beneficiaries:

Ministry of Finance (MINECOFIN): Budget Directorate, National Investment Directorate;

RPPA (Rwanda public procurement agency);

Ministry of the Environment;

REMA (Rwanda environment management agency);

National Bank of Rwanda (BNR)

 Expertise France will work closely with several french partners to ensure the project’s successful implementation:

-          The Budget Department of the Ministry of Economy and Finance on subject 1 to share experience on the green budget in France;

-          I4CE on subjects 1 and 2 to improve the management of public investments and analyze their impact;

-          CITEPA on subject 4 to set up a monitoring system for C02 emissions;

-          Banque de France on subject 5 to mobilize climate finance experts and share experiences about sustainable finance center.

The Banque de France will be mobilized to lead several main activities, especially: Clarify strategy, organizational framework and capacity building; Set supervisory expectations; Ensure adequate management; Understand risk transmission channels; Adapting the monetary policy framework.