Fitch maintains Rwanda’s ‘B’ rating

THE government says the ‘B’ ratings by Fitch rating agency is impressive and gives a clear picture on economic growth to investors and builds confidence to lenders.US based Fitch, is one of the two most respected rating agencies in the world.Rating is an evaluation made to measure credit worthiness of country to ascertain the ability to pay back loans that may be acquired.The latest rating released on Monday simultaneously affirmed Rwanda’s country ceiling at ‘B’ and short-term foreign currency rating at ‘B’ since last year.Finance Minister John Rwangombwa welcomed the rating, saying it confirm to the world that Rwanda is a steady and growing economy.“It’s a good sign where an independent agency tells the world who we are and reassuring people who thought Rwanda was in a crisis as exaggerated by media reports,” Rwangombwa said.According to reports, the agency says Rwanda’s rating is supported by solid economic policies and a track record of structural reforms, macroeconomic stability and low government debt at 22.8 percent of GDP.“The rating is impressive, especially in this volatile situation, and it makes it easier for the government to have attractive rates for project financing,” said Herbert Gatsinzi, a Director with Ernest and Young.The report is released at the time when some development partners delayed some of their assistance to Rwanda, owing to a highly discredited report by the UN that Rwanda was supporting rebels in the DRC.It is said that the rating is constrained by structural weaknesses, including a low GDP per capita and limited economic diversification and the high dependence on international aid that accounts for 44 percent of the country’s budget.“It may not be the best, but we are heading there, I mean to ‘A+’ but at the moment, this is good because it shows how a country has held high its esteem, even mature economies rate ‘B’,” he said.The impact of withholding of aid to the Rwandan budget is said to be insignificant accounting for only 0.5 of GDP and seems manageable for the government by adjusting public spending and increasing domestic debt issuance.Fitch expects real GDP growth to remain robust but to decelerate to around 7 percent in the coming years up from 8.6 percent in 2011. The agency expects inflation to remain around 6 to 7 percent at the two years rating horizon, in line with the central bank’s target.Reports say that Fitch’s central scenario is that Rwanda will continue to attract significant budget support flows reflecting its strong track record in poverty reduction and control of corruption.Current spending is mostly covered by tax revenues while capital spending is budgeted at 13.5% of GDP for fiscal year 2012/13.The CEO of Capital Markets Authority, Robert Mathu, said the rating is an indication that economic growth is on track despite the global situation.“The ratings shows that Rwanda is an investment destination, the weaknesses identified are the challenges that the government is trying to address in its economic development agenda (EDPRS),” Mathu emphasized.Two years ago, the government launched export diversification strategy which is expected to add value to existing exports.In 2011, inflation was 5.7 percent on average, significantly lower than in the East African Community (12.1 percent) due to monetary tightening by the National Bank of Rwanda (NBR), the relatively stable currency.The government will also have greater access to credit after the International Monetary Fund (IMF) eased restrictions on the country’s non-concessional borrowing. Non-concessional loans are provided to IMF members with very strong policies and policy frameworks, mainly through what is termed as stand-by arrangements, flexible credit line and the extended fund facility.According to a letter of intent to the IMF, the government says it has already agreed to a limit of US$240 million of non concessional borrowing during the three-year program under Policy Support Instrument (PSI),which is set to expire mid next year.