Rwanda Upgraded on Strong Governance

Frontier Friday: High growth, strong governance lift Rwanda

Global ratings agency Fitch in May placed Rwanda at ‘B+’, and deemed the sub-Saharan nation as “stable.” Both the long-term foreign and local currency Issuer Default Ratings (IDR) now stand at ‘B+’ with stable outlooks; and its country ceiling also received a “B”.

Rwanda’s B+ IDRs and stable outlook “balance the economy’s high growth, strong governance indicators relative to peers, and strong fiscal policy reform momentum against its low income per capita,” Fitch said it its ratings rationale. “High structural current account deficit and continued reliance on donor flows and concessional financing,” were also factors taken into consideration.

Rwanda, Fitch explains, is facing rising balance of payments pressures due to the depressed commodity price cycle, which has affected the value of its metal minerals exports. The current account deficit widened to 13.5% of GDP in 2015 (2014: 12.0%), exacerbated by a rise in construction imports and the completion of the Kigali Conference centre. In addition, The balance of payments pressures have led to a structural depreciation of the Rwandan franc (RWF), exacerbated by the strengthening US dollar and slowing of capital flows to so-called frontier emerging market economies. “This has resulted in official reserves coverage falling to 4.1 months of external payments in 2015 (2014: 4.5), which we forecast to fall further to 3.5 months in 2017 before recovering to 4.0 months in 2017 primarily due to an impending IMF loan to support external financing (final details to be announced in early June upon approval by the IMF board),” the rationale stated.

Strong growth and low inflation relative to regional sub-Saharan peers are key to the rating strengths. Real growth in 2014 and 2015 averaged 7.0% year-over-year, with private consumption and construction investments the main expenditure drivers of 2015 growth, Fitch explains.

Accommodative monetary policy in recent years has supported growth, with annual real private sector credit growth averaging 20.5% in 2014-2015.

Fitch forecasts Rwandan GDP growth to ease to 6.0% for 2016 and 2017–mainly due to what has become a worsened global trade demand and shaky outlook for China. The Rwandan authorities’ monetary and fiscal policy tightening to mitigate external pressures will also be a factor potentially impacting GDP.