London based ‘Fitch’ rankings affirm Rwanda’s economic growth

London based ‘Fitch Ratings’ on foreign and local currency Issuer Default Ratings (IDRs) on Monday this week simultaneously affirmed Rwanda’s short-term foreign currency IDR at ‘B’. The ranks setting, along the scale of ‘B’ means that the country’s growth performance and commitment to reform continue to impress, and is reflected in the positive outlook on the ratings. Purvi Harlalka, the Associate Director in Fitch’s sovereign group said in a statement issued on Monday that, “The ‘B-’ rating also reflects Rwanda’s low per capita income which, although doubled in four years, at $472 in 2008 remains noticeably below the $1,812 ‘B’ median.” The Fitch Group is a financial corporation whose divisions include Fitch Solutions, an advisory firm offering products and services to the financial industry, established to monitor statistical ratings. Rwanda Growth accelerated to 11.2 percent last year, from 6 percent in 2007. The government’s concerted efforts to enhance the business environment by addressing Rwanda’s infrastructure deficit and its resolute plans to develop the rural sector, as envisioned in its Vision 2020 Umurenge Programme, should keep growth in the 6 percent to 7 percent range for the foreseeable future. This will be financed partly by additional funds from the donor community, which has taken increasing comfort from the government’s strict fiscal discipline in the post-debt relief years. Rwanda’s improving prospects, the additional aid it has secured and the high likelihood that these resources will be prudently spent give reasons to be optimistic about Rwanda’s creditworthiness. According to the statement the rating also reflects Rwanda’s status as a Highly Indebted Poor Country (HIPC) which has afforded it substantial debt relief from creditors. As a result, government indebtedness has fallen to an estimated 21 percent of GDP in 2008 from over 100 percent in 2003 and compares favourably against the 28 percent ‘B’ median. Furthermore, since most borrowing is from multilateral financial institutions, it is concessional and entails low annual debt service payments of just 2.2% percent of GDP - well below the ‘B’ range average. Donors’ increased confidence in Rwanda also meant that grants financed about 45 percent of the budget in 2008. Of particular note, however, is the success of Rwanda’s attempts to enhance its domestic revenue mobilisation which have seen its tax/GDP ratio rise to 16 percent in 2008 from 10 percent in 2000. The administration expects continued progress on collecting taxes to reduce the donor share of the budget to 40 percent this year. Nevertheless, Fitch expects the fiscal deficit to worsen to 3.6 percent of GDP from an estimated surplus of 1.5 percent of GDP in 2008 due to slowing growth (5.3 percent in 2009) and the scaling up of public investment and priority spending. The deficit is likely to be financed by a drawdown of reserves by 1 percent of GDP, external borrowing and, possibly, receipts from the privatisation of various public sector companies and publicly owned tea estates. Fitch also expects the current account deficit, which was an estimated 7.8 percent of GDP last year, to widen to 9.5 percent in 2009 owing to a continued high demand for capital goods imports coupled with deterioration in exports. A narrow export base (6 percent of GDP), low domestic savings and large investment needs suggest that the current account deficit will probably remain high (8 percent -10 percent of GDP) in the medium term. Public borrowing and foreign direct investment (FDI) inflows will continue as the main financing sources, although the latter, which rose significantly over the last two years, may decline temporarily this year due to the subdued global financial environment. Nevertheless, the methane gas deal concluded with foreign investors in April this year - Rwanda’s largest ever foreign investment ($325m) - suggests that FDI is likely to be sustained over the medium term. The gas project, which is likely to start generating power next year, will also significantly cut Rwanda’s cost of electricity and could impact creditworthiness should it materially raise Rwanda’s growth potential. Shaped by efforts to promote a single national identity and inclusiveness in government, Rwanda’s political climate has been peaceful and stable in the post- conflict era. Democracy has also been gaining ground. Rwanda held its second parliamentary elections in September 2008, which saw the incumbent Rwandan Patriotic Front and its allies returned to power with a large majority. Rwanda is due to hold its second presidential elections in 2010. Lasting political stability, which allows development and poverty reduction to proceed apace, is a key support to the rating. Ends

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London based ‘Fitch’ rankings affirm Rwanda’s economic growth