Early this month, Rwanda hosted the annual meetings of the Association of the African central banks. It ran under the theme, Rising African Sovereign Debt: Implications for Monetary Policy and Financial Stability. The New Times Julius Bizimungu spoke to John Rwangombwa, the Governor of the National Bank of Rwanda, who was also elected the new Chairperson of the association. The interview revolved around the outcomes of the meetings, the proposed EAC monetary union, Brexit as well as his agenda for the continental association. Below are excerpts: The General Assembly of the Association of the African Central Banks (AACB) was held here and you had a couple of closed-door meetings. Can you talk to us about the outcomes of the meetings in detail? The first day we looked at the challenge of Africa’s rising debt. On average this is not yet a big problem and when you look at the numbers, like the ratio of 45 per cent (Debt to GDP), one would say it is relatively low. I think the concern was on the nature of our economies, the vulnerabilities of our economies, and the main concern was on the structure of our exports. We rely heavily on commodity exports and, therefore, the capacity to raise foreign exchange that we use to service this debt was a concern. The proposal on how to deal with these issues was to develop our domestic markets. It is definitely not possible to think of developing our economies without borrowing, but we should try to borrow mainly from domestic markets to remove the challenge of currency mismatch where we have big debts in external loans with vulnerable export earnings. Two was to diversify our exports and mainly reducing the reliance on commodities that are vulnerable to price shocks from time to time. This brings in the factor of the recently signed African Continental Free Trade Area agreement (AfCFTA) that can increase intra-African exports. To summarise the debt issue, it is good to raise an alarm but it is also not necessary to be alarmist. We need to check our debt in terms of the composition and the maturity and currency mismatches, but we are not yet in any crisis. Is that all you have to say about the concerns of Africa’s rising public debt? Well, another important thing is our capacities to plan and implement our projects and also to avoid borrowing for consumption purposes. The advice is that we need to borrow to invest in projects that will really improve on the capacities of our economies to grow but also to service these debts. Borrowing for consumption, if possible, everyone should avoid it. What else was on the agenda? The second day we looked at the mandate of the AACB to prepare and drive Africa towards achieving a single central bank and a single currency. We recognise we are still far from that but the decisions taken a few years ago was to focus on regional economic communities and make sure that at least we achieve full integrations through these communities and from that we can integrate the entire continent. The concern was that even the regional communities were a bit slow, so the plan was to work with the African Union (AU) and the secretariats of these regional communities and other authorities to expedite deeper integration among the communities. One good development that we had was that West African countries are coming together to agree on a single currency and already, we were seeing good developments in the East African Community (EAC), despite some setbacks here and there. We also looked at what we call the Community of African Bank Supervisors because much as our responsibility is to promote financial stability, we also work together to harmonise businesses of banks that have overseas operations. Another important thing is that we talked about working together to build the capacities of our staff through organised capacity building workshops and training. On the public debt, what role do you see central banks play or can play to help countries borrow within their capacity? Most of the central banks act as economic advisors because we have pretty bigger capacities to do economic research than, maybe, any other government agency. There, we are expected to engage governments and work with ministries of finance to advise on where we see challenges. But we also participate in the debt sustainability analysis of our countries, and this is the basis for any responsible government to take. We work with governments to help make informed decisions. As central banks, we play a big role to develop domestic markets. We are the agent of the Government to issuing government paper (treasury bills) and again working with the government to bring on board more government securities (bonds) that will have to develop the capital market. The other important role we play is to manage the foreign exchange market or the forex policy of countries, which determines how competitive the country will be in promoting their exports or imports. The management of debts in Africa is predominantly highlighted as an issue. Do African countries have the capacities to manage debts? I wouldn’t want to look at it as an African affair because we are 54 countries and countries have different capacities in debt management. But yes, where you find some countries with debts stress there are also issues to manage their debts. I should also have mentioned that it is another area where we need to focus on to build capacities of debt management of governments. I wouldn’t say in Rwanda we have that problem of debt management. We know what we want, we make informed decisions and at least some other countries are like that; South Africa has a highly developed market. An independent assessment of Rwanda’s creditworthiness by S&P raised Rwanda’s ranking to B+ from B. What does this mean? It is a positive development. I know S&P are a bit mean with their ratings. We have been at B+ with Fitch Ratings for quite some time. We are happy that finally they also see that we are a B+ country, and it’s built on strong fundamentals of our economy. The economic growth has been strong over the last two years and the medium-term projections are expected to be strong, our debts stress is very low and the management of our economy as shown by different international authorities is appreciated by many. We have seen big investments coming. This helps those that want to make decisions based on these international rating companies and gives much confidence to any investor. There are proposals to have monetary unions among regional blocs. Are these proposals still viable, given that political considerations seem to take precedence over economics? They are viable but it requires a lot of efforts. Maybe a good example is in East Africa where we committed ourselves to start a single currency and a monetary union by 2024. But there were prerequisites that had to be achieved before moving to that level. One main prerequisite was full implementation of the Common Market Protocol; at least full, free movement of goods, capital and labour. We still see a long way in terms of that. Also, harmonising our economic management approaches [is another prerequisite]. We have done a good job with the EAC Monetary Committee Affairs helping us to achieve that. That is despite the differences we have; approaches of government to debt, opening up the economies for investment... Are we able to achieve our 2024 target? I can’t say anything about that, but there is a lot to be done. There are delays in some milestones; we are supposed to have had monetary institutes that prepare for monetary unions, now we are almost three years behind the schedule. The EAC Monetary Affairs Committee met to review the implementation of previous decisions. Where does the community stand in achieving currency convergence? I think one is to look at how far we have gone in terms of achieving convergence criteria, though this is easier to achieve than the other prerequisites; it is just saying that on inflation we all meet the requirement of average range of 2 to 5 per cent, in terms of the deficit we have no problem, debt to GDP ratio, I think it’s Kenya that has gone slightly above the 50 per cent threshold. Convergence criteria is not a big deal. What we discussed was beyond that. We are supposed to harmonise our regulatory frameworks on financial sector supervision. We found out that we were around 67 per cent of achieving that. Then, we talked about currency convertibility; even before having a single currency we can have our currencies exchanged easily. We still have challenges there. We continue to harmonise the way we do business so that any investor coming to invest in the region feels comfortable to trade across the borders; if a bank establishes in Kenya, it should be easier to establish itself in Rwanda. Traders still talk about the lack of efficiency in things like payment and settlement systems... We have already established the East African payment system that links all our payment systems and we have had volumes traded across these platforms. What remains is that our traders are not aware, able and willing to use these platforms. What we committed ourselves to is to do more awareness campaigns to inform our traders that these systems are there, and they will make their lives easy if they take advantage of them. As the incoming Chairperson of the association of African Central Banks, what plans do you have for the association? One is building on what my colleagues have done. It is really to position the association to drive towards the full integration of African countries and economies. Like today, at least I come in when our heads of state have done great work by establishing the AfCFTA. Part of our business this year is to chart out what we can do as central banks to facilitate this new direction our heads of state have given to the continent, and then it makes the secretariat to be more effective in coordinating the activities of AACB. We are also talking about strengthening financial stability through more collaboration. The issue of payment system is on the table. We have started the link of payment across the EAC, but we are looking at the viability of linking payments systems across the continent. What’s the likely economic impact of Brexit on the continent? I don’t expect it to be that much. But the likely impact is on trade and investment; some of our countries are greatly linked to the UK like Ghana, Sierra Leone, and Nigeria. They have big relationships with the UK. So far, what we see today is a possible threat of a no-deal. That might affect the UK economy and of course, when the UK economy suffers, it will impact on its capacity to externalise its investments and then trade as well. That is one expected direct impact, though we are not able to really quantify the magnitude of that impact. Two, though it might be a blessing in disguise, is that the UK is still a big donor, so if the economy suffers, its capacity to continue giving aid will suffer. Some countries might receive slightly less than what they are receiving. By the way, that is not just linked to the capacity of the economy, but also the orientation of Western politics. This populist politics that we see in the Western world is automatically going to impact on overseas assistance. At the global level, when the UK economy suffers, that will impact on the global demand in general, and withdrawing from the economy might impact on the EU. We are talking of integrating the African continent but when you see the mature men disintegrating, of course, the voices that have been opposing integration have had a hand. That is likely to create a negative push on our drive towards African integration. On the contrary, if anything this is a time to unite as Africa because we need to act as one bloc if we are to survive in this turmoil that is prevailing across the globe. editor@newtimesrwanda.com
