A MAMS country database is a synthesis of information from a variety of sources, structured to meet the requirements of the model. The model parameters are defined using this data. The main components of the database are a social accounting matrix (SAM) and other data that reflect the functioning of the economy with some emphasis on human development and infrastructure. More specifically, the information is primarily related to stock data (for labor and other production factors, students, and population) and elasticities (related to substitutability in production, consumption, and trade as well as to responses in MDG indicators various determinants). For the simulations, it is also necessary to provide assumptions about the evolution of policies and other factors that are exogenous to the model.

For the Rwanda MAMS database, several sources were used, including an existing SAM (with an agricultural focus), various International Monetary Fund publications (for macro and government data), the EDPRS, and household surveys. We also relied on several studies undertaken by the World Bank including a recent Country Economic Memorandum (World Bank 2007) and sectoral analyses such as the Public Expenditure Review for the education sector (Republic of Rwanda 2007c). Data for other countries that were considered similar in terms of relevant structural features was used when the required information was not available for Rwanda. This should not be seen as drawback of the analysis. Parameters that have been established in the literature<sup>6</sup> have been used that fall within the range of those for similar countries. Nevertheless, given data weaknesses and the simplifications that are inherent in any model, the results should be taken as approximate indicators of the effects of alternative policy options, to be considered in conjunction with other inputs to economic policymaking in Rwanda.

# **3. Overview of Rwanda’s economy and development policy**

Rwanda’s economy has recorded macroeconomic stability in the last years with robust growth, moderate inflation rates and a relatively stable exchange rate (Table 2). Food and fuel price increases, however, have led to significantly higher consumer prices and import bill in 2008. Rwanda has a very narrow export base, consisting mainly of coffee, tea and minerals. Imports exceed imports by a wide margin. The financing gap is primarily covered by foreign aid, although private remittances and small amounts of FDI also contribute to some extent. Despite the government’s success in expanding domestic revenue collection, foreign aid represents close to half of its receipts, mainly in the form of grants. After a continuous improvement in the terms-oftrade over the past years, Rwanda experienced deterioration in the terms-of-trade in 2008 due to the surge in import prices.

The impressive growth performance in the past years has not yet translated into a substantial decrease in the poverty headcount, which has only been reduced by a small margin between 2000/01 and 2005/06. Inequality, measured by the Gini coefficient, even increased from 0.47 to 0.51 nationwide with larger increases in some of the districts. Bigsten and Isaksson (2008) show that the consumption growth pattern in Rwanda was not neutral, but rather skewed in favor of the higher consumption decile. This coincides with an increase in rural inequality as the main driving force of higher overall inequality. It also underlines the importance of the agricultural sector, which is the largest sector both in terms of its contribution to GDP and employment.

> 6 For suggestions of elasticities used for other countries, see Lofgren (2008).

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