Rwanda’s economy staged a strong recovery in 2021. Real gross domestic product (GDP) rebounded by 10.9 percent in 2021 from its 3.4 percent contraction in 2020. Gradually easing mobility restrictions have supported a broad-based rebound since the second quarter, stimulating domestic demand amid a gradual reopening of economic activities and falling inflation. Although output has recovered to its pre-pandemic levels by the end of 2019, it remains below its long-term potential. However, unemployment continued to be higher relative to the pre-crisis levels as firms were not yet confident about the recovery sustainability and did not hire permanent employees. Inflationary pressures are mounting, leading the National Bank of Rwanda to tighten monetary policy. After remaining muted in 2021 (averaging 0.8 percent), inflation has accelerated in the first months of 2022, driven mainly by domestic food and utility prices, especially prices of cooking gas. Inflation has reached 13.7 percent in June 2022, a level not seen in the last five years. Underlying price pressures remained strong as core inflation accelerated to 11.2 percent in June 2022. The passthrough of the global oil and fertilizer prices to domestic inflation has partially muted through fiscal subsidies. To curb these inflationary pressures, the National Bank of Rwanda increased its central bank rate (CBR) by 50 percentage points in February 2022, after keeping it at historic low of 4.5 percent—for 22 consecutive months—first to mitigate the impact of COVID-19 on the economy and then to support the economic recovery. Looking ahead, economic growth is expected to moderate in 2022–24, weighed down by the war in Ukraine. Real GDP growth is projected at 6.0 percent in 2022 and 6.9 percent on average in 2023–2024. The baseline projections assume that the country will receive normal rains that will support agricultural performance and also accounts for the downside effects of the ongoing war in Ukraine through increased global commodity prices. They also assume industrial activities to continue benefiting from government support of the manufacturing and construction sectors and a recovery in tourism activities boosted by the Commonwealth Heads of Government Meeting (CHOGM) meeting as well as other leisure and meeting events planned in 2022. However, softening global growth momentum will negatively affect Rwanda’s current account deficit in the near term given higher oil prices and resultant elevated import costs. Risks to this outlook are tilted on the downside, due to the potential for a resurgence of the pandemic, Rwanda’s high vulnerability to weather and climate shocks, and the potential for the increasing fiscal deficit to limit the government’s fiscal consolidation.