Poverty — practice question

Rwanda is a small African country without a coastline. Its economic performance has improved a lot in recent years. For example, in 2012 it recorded GDP growth of 7.5%, inflation stayed stable and unemployment fell. Most strikingly, poverty is being cut. From 2006 to 2012, more than 1 million people were lifted out of poverty and, by 2012, 58% of the 12 million population were not poor. The government is using several policies to reduce poverty. One measure is to increase government spending on education and healthcare. More than 90% of children now go to primary school and the proportion progressing to secondary school is rising. Child mortality has dropped and the overall health of the population has improved. Half of the population is under 25 years of age. The country is very densely populated, with 430 people per square kilometre. In 2013 it had net immigration, so the migration rate was positive, with more people arriving than leaving. Migration is one factor affecting a country’s economic growth rate (see Table 1). Productivity is another factor affecting the economic growth rate. The Rwandan Government wants to increase productivity in agriculture, which provides 80% of employment. Investment in this sector has been limited. Many farms do not have equipment such as ploughs and tractors. Domestic agricultural output does not always equal domestic demand. As a result, the country often has to bring in food from abroad. The government is trying to persuade farmers to use sustainable methods and to focus on products with price-inelastic demand. Rwanda is dealing with a range of difficulties. The Rwandan Government has removed import tariffs on some products, including certain food items. Energy costs are fairly high and the banking sector is not well developed. In 2012 only one fifth of Rwandan adults had a bank account, but falling poverty and growth in banking are likely to alter saving and borrowing in Rwanda in the future.