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ESTEEM Rwanda: Understanding climate risks better to protect the economy
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Project start date
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2025Status
Ongoing
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Project end date
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2026
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AFD financing amount
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480 000
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Country and region
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Partners
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Research program
Carried out in partnership between the National Bank of Rwanda (BNR) and AFD Group as part of the 2050 Facility, the ESTEEM Rwanda project aims to build a better understanding of how climate change is affecting Rwanda's economy, in particular the agricultural sector, and to equip Rwandan decision-makers with tools to anticipate and manage these impacts.
Context
Rwanda, a landlocked and densely populated country in the Great Lakes region, has sustained strong growth for more than two decades, accompanied by significant improvements in living conditions for its population. Committed to climate action, the country has set ambitious measures to support a development path that is sustainable, inclusive, and growth-oriented. In 2025, Rwanda updated its climate commitments under the Paris Agreement, with a strengthened target to reduce greenhouse gas emissions by 53% by 2035.
Although its contribution to global emissions is very low, Rwanda is highly vulnerable to the impacts of climate change. The Rwandan economy relies heavily on climate-sensitive sectors, particularly rainfed agriculture. This type of non-irrigated farming is especially vulnerable to variations in temperature and rainfall, as well as to the growing frequency of extreme weather events (floods, droughts, landslides, etc.). Rainfed agriculture accounted for 20% of GDP in 2025 and supports roughly 55% of the working-age population, whether through formal employment or as a secondary or subsistence activity. If harvests are affected, agricultural productivity, prices, and ultimately households could all suffer. For policymakers, the challenge is therefore to better understand and measure interactions between the economy and climate in order to anticipate and manage their consequences.
Objectives
Using economic modeling, the ESTEEM Rwanda project aims to deepen understanding of the macroeconomic impacts (inflation, fiscal, external, and socioeconomic vulnerability, as well as inequality) that different climate shocks can have on the agricultural sector, as well as the levers that public authorities can use to mitigate these shocks.
Developed together with partner teams from BNR – who contribute to building the model through their expertise on agricultural and macroeconomic issues, as well as by providing data – the ESTEEM model will strengthen BNR's capacity to analyze the interactions between economy and climate dynamics.
Based on the ESTEEM model, the first phase of the project analyzes the impact of agricultural damage caused by extreme weather events on various economic sectors, with particular attention paid to inflation and its consequences for macroeconomic vulnerabilities and inequalities.
Understanding and measuring the distributive consequences of these shocks is an important part of the analysis, since not all households are affected in the same way by a shock to agricultural production, depending on their characteristics (type of activity, income level, geographic location). For example, a rural household may experience a direct loss of agricultural production, while an urban household may primarily face a decline in purchasing power due to rising food prices. This analysis can thus reveal the need for targeted support measures.
It is also essential to understand these shocks in interaction with external and fiscal channels. For example, the loss of export crops combined with higher import demand could unbalance the trade balance and affect the exchange rate. By making it possible to analyze such impacts, the model fits squarely within BNR's mandate, which sets its monetary policy based on inflationary pressures, exchange rates, and the domestic economic situation.
The second phase of the project will improve the model based on lessons learned from the first phase.
It will focus in particular on better accounting for the effects of extreme weather events on different agricultural crops, more accurately representing how the agricultural sector functions through exchanges with local experts, and incorporating the consequences of climate change on poverty.
The model could also be enhanced to better analyze certain economic and financial mechanisms, such as the effects of rising interest rates on the productive, fiscal, and external spheres of the Rwandan economy.
Finally, this second phase will allow research to continue on other technical issues, such as the empirical validation of the model.
Method
Depending on the structure of their economy, their fiscal room for maneuver, and the strength of their social protection system, countries are more or less exposed to the risks and vulnerabilities generated by a transition to a low-carbon economy: these are known as "transition risks." Developed by AFD, the ESTEEM model helps identify these risks and thus supports anticipating them in order to foster a successful transition. It is tailored to the specific situation of each partner country to serve as a decision-support tool.
In previous projects, ESTEEM was mainly used to assess transition risks linked to climate change at a given point in time. As part of the ESTEEM Rwanda project, the models have been expanded to allow for detailed economic analysis of short-term physical risks (a five-year horizon).
Multisectoral and incorporating the constraint of limited resource availability, the ESTEEM Rwanda model is based on the input-output method and the theoretical model developed by the team. It is built by a team of AFD modelers working closely with BNR's research team, who will be able to use the model to refine their decision-making tools for monetary policy and to model various shock or adaptation scenarios.
Expected results
By the end of the project, the National Bank of Rwanda will have a short-term macro-sectoral model, co-developed with the AFD team, to help understand the economic consequences of extreme natural events. Training sessions and workshops will enable BNR to use this tool to explore different scenarios. In addition, the project will lead to research publications, produced in partnership with BNR, as well as dissemination activities to share the results.
Contacts
- Guilherme MAGACHO, Economist, AFD
- Élise CHRÉTIEN, Research Officer, Expertise France
- Laurent DÉJARDIN-VERKINDER, Economist, Expertise France
- Faustin MANIRAGUHA, Economist, BNR
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