The Economic Impact of the Pandemic in Rwanda: An Analysis of Firm-Level VAT Data

There are substantial differences in the spread of the covid-19 pandemic and policy responses to it between high- and low-income countries. While evidence on the former is growing, there remain more unanswered questions on the latter. This paper addresses this gap by providing insights on the impact of the pandemic in Rwanda, based on firm-level administrative data from Value Added Tax (VAT) returns. We find that VAT sales in 2020 declined by 11.4 % compared to 2019. These losses are particularly associated with a lockdown imposed around April 2020, after which sales quickly rebounded to pre-crisis levels once restrictions were lifted. In absolute terms, the economic cost is concentrated among the largest firms. However, small firms have been most affected in proportional terms. Disaggregating our results further, we show that firms in accommodation and food, transport services, wholesale and retail trade, as well as those registered in the capital, have been particularly affected by the crisis. Overall, the decline in sales translated to a similarly large percentage loss in VAT revenue for the government.