He then concludes that Rwanda is a banana republic.
Before I respond, let me breakdown the National Budget 2019-2020:
This table above shows a resilient budget, which has only one weakness: Aid, also brought down to 14%. A country relying on 86% of predictable hard cash would remain afloat might donors act up in any strange manner (namely: delay, freeze or pose unbearable conditionality on the aid).
But Himbara claims that the fact that Rwanda takes loans means it is not self-reliant. It is sad for an economist to make such a statement. Self-reliance does not mean a country generates all its money; in fact shrewd investors do not tap into all their savings.
There are two points that are worth stressing here:
1. Solvability: Whenever Rwanda issues domestic bonds or Eurobonds are floated, they are oversubscribed. Oversubscription means there are more investors out there willing to lend money to the Rwandan government than Rwanda needs. That is empirical evidence of a vibrant economy which is capable of paying back. Besides, Rwandan loans are mainly concessional which means that they are extended on substantially flexible terms than market loans.
2. Economic stability:When a government is able to borrow domestically without destabilizing the growth of the economy, that’s an indication of strong economic stability. The government routinely borrows on the domestic market, at times to regulate inflation, trade deficit, or like in this case to bridge a budgetary gap. The government does this to make such an interesting financial product accessible to local lenders. In spite of these treasury bonds, the economy continues to grow steadily.
In 2018, Rwanda’s economy grew by 8.6% driven by robust activities in all sectors of the economy. At the same time inflation remained well below Central Bank’s targeted inflation range of 2–8% reflecting ample food supplies and low inflationary pressures.
In 2019 Growth is projected at 7.8% and over the medium term at around 8%. Large investments such as Bugesera International Airport, Hakan Peat Plant and electricity infrastructure are expected to bolster growth.
Over the long term, extensive private and government investments in manufacturing, tourism, agriculture, ICT, health and education among others, are expected to transform Rwanda’s Economy to high- value added activities, and boost per capita incomes and living standards.
Debt is different from a bailout package. For instance, Greece sought a bailout package from the European Central Bank because it had defaulted from its loans. Greece had failed to pay back its loans and was asking for free money to clean up its loans in order be allowed to borrow again.
In the case of Rwanda, loans are not begging, they are not a favor or a grant. Loans are issued on terms that reflect the country’s ability to pay back. And a country consistently accessing loans means it is a reliable, solvent country.
In her book ‘Dead Aid’, Zambian economist Dambisa Moyo argues that loans are more predictable and reliable than grants, which are volatile and conditional. Loans reflect dignity, because they are taken based on one’s credibility. There is no pity, nor charity; it is a cutthroat business where lenders conduct due diligence to ascertain unfailing repayment capacity.
Finally loans taken by the Rwandan government aren’t for recurrent (consumption) budget, they are for investment. David Himbara admits himself that ‘the excess in foreign capital expenditure was due to accelerated implementation of several on-going infrastructural projects especially in the roads sector.’
I will end with the following point: All countries in the world take loans, some way above 100% of their GDP!
The only known country to be debt free is Singapore. It is written in its constitution that the country shall never run on deficit; in fact they have two major reserve funds. And even then, they never touch their reserves, except in the event of a catastrophe. (I will elaborate on this in an article for another day).
All I meant to say is that a few months ago, a debate raged in Singapore questioning the wisdom of such rigid constitutional provision in the modern era of economic uncertainty and economists were seeking constitutional amendment to be allowed to tap into their reserve funds.
Rwanda’s Agaciro Fund continues to grow and has clinched the USD 100 million mark. This money is untapped.
Rwanda also has one of the lowest debt-GDP ratio in the region and the world. According to the International Monetary Fund, Rwanda’s debt remains low with a present value of debt to GDP reaching 32.9% against a threshold of 50%.
The share of concessional loans in the total debt stock stood at 63% as of end 2018 compared to a level of 57.4% as of end 2017. Thanks to the country’s debt strategy to maximize concessional borrowing in favor of commercial borrowing.
In Himbara’s world, a country becomes self-reliant when it has no more debt. The table below shows countries’ debts and the ratio: External debt/GDP:
Source: https://data.oecd.org/gga/general-government-debt.htm
These are five of the six biggest economies in the world. These countries are giving out aid to other countries; shall we say they are not self-reliant? Three of them are permanent members of the United Nations Security Council. Shall we call them ‘Banana Republics’? I am afraid it is Himbara’s understanding of macroeconomics that has gone bananas.
Alas, I expected a critical analysis from an economist, I expected something substantial; an expert rendering of something as technical as the national budget. As usual I was disappointed.
The views expressed in this article are of the author.