Rwanda has the capacity to meet its loan obligations, and government is still borrowing within the ‘acceptable’ limits, Amb Claver Gatete, the Minister for Finance and Economic Planning, has said. 

"We are at about 25 per cent of our borrowing limit, which is half the 50 per cent ceiling,” Gatete said. 

Gatete’s remarks followed raising concern from a cross-section of key stakeholders who were saying the country’s borrowing has gone too high, which could make hard for Rwanda to repay all the monies, thus affecting the country’s credit worthiness. 

The source said the borrowing is driven by desire to transform the country into a middle-income economy by 2020, "borrowing beyond our means could affect these efforts”.

The Minister was speaking after signing a $162.4 million (about Rwf130.7 billion) loan agreement with the African Development Bank (AfDB) and Japan International Cooperation Agency last week. The deal will be used for the rehabilitation of two key roads; one connecting Rwanda to Uganda, and another one linking the country with Tanzania. Gatete reassured the country and markets, saying the country’s current credit rating is impressive and "gives confidence on government’s capacity to meet its debt obligations”. He urged the public to stay calm, noting that there is no cause for worry.

As medium-term policy adjustments measure, the government acquired financing from the International Monetary Fund’s Standby Credit Facility last month amounting to $203 million to help keep external reserves above the critical level of three months’ worth of imports during this adjustment period.

In a recent interview, Alun Thomas, the IMF resident representative, said Rwanda’s foreign debt has risen by 15 per cent of GDP over the past three years, but noted that this is natural for an economy that is in the early stages of development and in need of a large influx of foreign capital. 

Rwanda’s 2016/17 financial year budget seeks to widen the tax base to mobilise domestic revenue and reduce dependence on foreign aid to fund. 

According to the 2016/17 budget estimates, the country plans to finance 62 per cent of the budget through domestic revenues, amounting to Rwf1.216 billion, an increase of Rwf40.9 billion compared to the previous budget. The remainder of the budget will be funded by external resources worth Rwf733 billion. 

Of the total external funding, loans will contribute about Rwf367.7 billion from about Rwf235.7 billion in the previous year, while foreign aid will contribute Rwf365.3 billion. However, some experts have said the government "could be borrowing beyond its means”, which is not good for economic sustainability.

In May, Fitch Ratings affirmed Rwanda’s long-term foreign and local currency issuer default ratings (IDR) at ‘B+’ for stable outlooks. The rating, according to Gatete, is a clear testimony of Rwanda’s capacity to meet its loan obligations. Rwanda’s senior unsecured foreign-currency bonds have also been affirmed at ‘B+’. The country ceiling has been affirmed at ‘B+’ and the short-term foreign currency IDR at ‘B’. 

According to Carmen Altenkrich, the director Sovereign Group at Fitch, Rwanda has been one of Africa’s great success stories. Fitch upgraded Rwanda’s credit rating mainly due to its prudent and coherent fiscal monetary policy and the country’s stellar growth record.

The country faces rising balance of payments pressures due to the depressed commodity prices on world market, which has affected the value of its mineral exports. The current account deficit widened to 13.5 per cent of GDP in 2015, up from about 12 per cent in 2014. This was further exacerbated by a rise in construction material imports for key infrastructure projects, including the recently-completed Kigali Convention Centre.

Fitch forecasts the deficit to widen to 16.5 per cent this year, driven by the import bill of two aircraft by the national carrier, RwandAir. The trade deficit is forecast to narrow slightly to 11.7 per cent in 2017 due to monetary and fiscal policy tightening and as import substitution measures in the pipeline mature. 

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