Rwanda’s opportunities for flexible loans increased further after another international credit rating agency, Standard & Poor’s (S&P), revised the country’s long- and short-term credit ratings from ‘Stable’ to ‘Positive.’

The development has been lauded by officials as a "very important signal” to potential investors that it is safe to do business with Rwanda.

A credit rating is an evaluation of the credit worthiness of a borrower, especially a business (private company) or governments.

Finance and Economic Planning minister Claver Gatete said an upgrade such as this means improved credibility that makes it possible for the government to borrow at relatively cheaper rates.

The new rating has mainly been boosted by the country’s resilience to external shocks such as the 2012 aid cuts and suspension that saw the country make budget adjustments to keep the economy afloat.

"A positive outlook is an upgrade from stable and that’s a vote of confidence in our leadership and economic management,” Amb. Gatete said.

S&P also expects Rwanda’s deficit to decline to 2.6 per cent of GDP by 2017 at an average of three per cent change in debt over the period until 2017—compared to a 4.5 per cent change in the 2010-2013 period.

The firm says Rwanda has also benefited from the reduced geopolitical risk following the recent defeat of the Congolese rebel group, the M23.

Donor support had been suspended in 2012 due to allegations that Rwanda supported the M23 that operated in the Eastern part of DR Congo, an accusation Kigali rejected.

The ensuing withdrawal of donor funding had a ripple effect on government spending that saw real GDP growth slumping to 4.6 per cent, its lowest rate in almost 10 years.

Clare Akamanzi, the chief operations officer of Rwanda Development Board (RDB), said the positive rating from S&P, which is one of the important reference points used by investors, will boost the country’s general investment outlook.

"It reassures investors of Rwanda’s ability to refinance her long and short term debt. In addition, this positive rating means it’s likely to be upgraded because of the positive direction of our economy,” Akamanzi said.

Caution

S&P notes that the rating will possibly be upgraded within one year following signs that the economy is picking up from its slowdown in 2013.

However, the American rating firm also cautions that to sustain the current positive evaluation and guarantee improvement next year, a more stable external position, including reduced donor reliance and narrowed external debt, will be needed.

But Robert Mathu, head of the Rwanda Capital Market Authority (CMA), said the country is already working toward breaking foreign aid dependency.

"Reducing external exposure cited in the ratings report will be supported by ongoing initiatives and programmes for domestic resource mobilisation in the medium to long term,” Mathu said.

In July, Fitch, another international ratings firm, upgraded Rwanda’s long-term foreign and local ratings to ‘B+’ from ‘B’, citing the country’s high economic growth prospects as the key drivers.

For instance, in 2014, Fitch expects Rwanda’s real GDP to be 6.5 per cent and increase to 7 per cent or 8 per cent in the medium term, in line with performance during the past decade benefiting mainly from stronger regional integration within the East African Community and rapid gains in agriculture, mines, tourism and services.

S&P makes the same observations of a rejuvenating economy, pointing out that real GDP growth grew 7/4 per cent year-on-year in the first quarter of 2014 and is projected to hit similar figure in the second quarter, laying a strong foundation for the basis for a possibility of real GDP growth exceeding the government’s 6 per cent target.

However, it also retains some reservations, especially regarding the fact that the economy still relies largely on the balance of external financing, which, it notes, has previously exhibited high volatility due to the primary commodities’ trade’s influence.