{Standard and Poor’s Ratings Services revised its outlook on the Republic of Rwanda to positive from stable on 12 September 2014, at the same time affirming its ‘B/B’ long- and short-term foreign and local currency sovereign ratings.}
Standard and Poor’s Ratings Services revised its outlook on the Republic of Rwanda to positive from stable on 12 September 2014, at the same time affirming its ‘B/B’ long- and short-term foreign and local currency sovereign ratings.
S&P said that the positive outlook reflects a one-in-three possibility that it may upgrade Rwanda within the next year.
S&P commented that it considers Rwanda’s fiscal consolidation efforts on target after restored donor support and the near completion of financing of capital expenditures through a Eurobond issue. The ratings service said it expects general Government deficits to decline to 2.6 per cent of GDP by 2017, averaging a three per cent change in Government debt over the period until 2017—compared to 4.5 per cent change in the 2010-2013 period.
It also noted that geopolitical risk is down in the country following the M23 rebel group’s recent defeat and disintegration. Donor support had been suspended in 2012 due to alleged Rwandan involvement in supporting M23’s activity in the Eastern part of the Democratic Republic of Congo. The withdrawal of donor funding had a ripple effect on Government spending and the Rwandan economy in 2013—real GDP growth slumped to 4.6 per cent, its lowest rate in 10 years.
Already 2014 has shown a changing trend. Real GDP growth grew 7/4 per cent year-on-year in the first quarter and is projected to hit similar numbers in Q2. Consequently, S&P says, real GDP is set to exceed the Government’s six per cent target for the year.
Government activity is the largest driver of GDP growth, with the private sector still relatively small. Under a new policy support instrument agreement with the International Monetary Fund (IMF), the Government is looking to reduce donor reliance and increase the ratio of domestic tax revenues to GDP. S&P said that Government plans to collect property taxes and review tax exemption measures should be achieved over the medium- to long-term.
Rwanda’s outlook relies largely on the balance of external financing, which has previously exhibited high volatility due to the primary commodities trade’s influence on the economy.
“Rwanda’s external liabilities are dominated by external debt, which makes up two-thirds of the total, while foreign direct investment (FDI) represents the remaining third. Inward FDI in Rwanda averages two per cent of GDP, which is much lower than for peers such as Uganda, Kenya, and Mozambique. We estimate external debt, net of liquid external assets, will average slightly below 50 per cent of CARs in 2014-2017,” S&P said.
A more stable external position, including reduced donor reliance and narrowed external debt, could boost Rwanda’s ratings in the near future, while its positive outlook could be revised to stable if the external and fiscal deficits deteriorated.
CPI Financial
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