Fitch Ratings has upgraded Rwanda's outlook to positive from stable, maintaining the country’s long-term foreign and local currency Issuer Default Rating (IDR) at B. The global ratings agency affirmed also Rwanda’s short-term foreign currency IDR at B and its country ceiling at B.
The main drivers for the upgraded outlook include Rwanda’s robust GDP growth - at 8% in 2012 and 8.3% on average since 2005. The East African country’s economy has been supported by credible economic policy management, subdued inflation, and large investments, attracted by the third best business climate in Africa according to the World Bank. Fitch expects growth to remain robust, at 7.5% annually up to 2015, driven by continuing high investment, expansion of the private sector and gradual integration within the East African Community.
Rwanda’s GDP growth of 5.9% in Q1 2013 was its slowest Q1 growth in three years. It came after several European donor countries suspended or delayed their aid to Rwanda at the end of last year over allegations it was supporting rebels in the neighbouring Democratic Republic of Congo (DRC), which Kigali has rejected. However, aid has resumed following continued cooperation with the international community and a track record of efficient use of resources. Fitch expects Rwanda to continue to attract significant aid inflows on the back of high governance standards relative to regional peers and its positive performance on poverty reduction. The successful issuance of a debut 10-year USD 400mn (5.4% of GDP) Eurobond with a yield of 6.875% in April 2013 confirms Rwanda's growing attraction as an investment destination.
Fitch mentioned as a key rating driver also Rwanda’s low public and external debt and prudent policy, with central government debt estimated at 27.7% of GDP at the end of fiscal year 2012/13. On the other hand, structural weaknesses include low GDP per capita (USD 630), high dependence on donors' funding (38% of budget in FY2013) and limited economic diversification.
Fitch noted that it may upgrade Rwanda’s ratings in case of continuing high GDP growth, reflecting improved economic diversification and resilience to shocks, reduction of the budget and current account deficits, expansion and diversification of the limited export base (USD 590mn in 2012 or 8% of GDP) that would support the narrowing of the current account deficit and help accumulation of foreign exchange reserves, and a gradual increase in the tax revenue, which accounted for 56% of budget revenue in FY2013, up from 47% in FY2010 and is expected to reach 58% in FY2016. Fitch projects the budget deficit to fall to 2.9% of GDP by FY2016 from 5.8% in FY2013 and the current account deficit to shrink to 6.4% of GDP from 11.4% in 2012. It expects demand for Rwanda's exports, mainly tea, coffee and minerals, to benefit from a gradual recovery in the global economy. The agency warned, however, that any threat to political stability, especially in the run up to the 2017 presidential election, would be rating negative.
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