S&P affirms Rwanda’s B sovereign credit rating, warns about regional political risks

By bne IntelliNews September 13, 2013

Standard & Poor's Ratings Services has affirmed its B/B long- and short-term sovereign credit ratings on Rwanda, saying the country’s strong economic and policymaking performance is counteracted by low GDP per capita of about USD 680, structural current account deficits, and lingering political risks. The global ratings agency warned that the risk of a wider military conflict in the neighbouring Democratic Republic of Congo (DRC), which may involve Rwandan forces, is jeopardising donor funding, on which Rwanda's state budget depends. European donor countries suspended or delayed their aid to Rwanda last year over allegations it was supporting rebels in the 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.

S&P projects Rwanda’s fiscal deficit to shrink from 6.5% of GDP in 2012/13 to 5.7% of GDP in the current 2013/14 fiscal year and further to 3% of GDP by 2015/16 if there is no suspension in donor grants. It estimates net general government debt to GDP to increase from 17% in 2012/13 to about 22% in 2015/16 as the government expands its capital spending and lending to key infrastructure projects. GDP growth is seen at around 7.5% this year, driven by growth in the key sectors of agriculture, services, and industry. The current account deficit is forecast to decline to 10% of GDP in 2013 from 11.5% in 2012, with imports of capital and intermediary goods staying high. By 2016, it should shrink to approximately 6.5% of GDP if capital imports slow, donor grants remain steady, and non-traditional exports rise. S&P also expects Rwanda’s inflation to remain stable as agriculture production improves, and anticipates stable fuel prices in the foreseeable future.

S&P’s outlook on Rwanda’s ratings is stable, reflecting the regional geopolitical instability risks that are balanced by Rwanda's robust economic and reform performance.

Another global rating agency, Fitch, upgraded last month its outlook on Rwanda's B ratings to positive from stable, citing the East African country’s robust economic growth, backed by credible economic policy management, subdued inflation, and large investments, attracted by the third best business climate in Africa (according to the World Bank).

Rwanda issued a debut 10-year USD 400mn (5.4% of GDP) Eurobond with a yield of 6.875% in April 2013. It used the proceeds to retire more expensive existing debt and to finance infrastructure projects and the Kigali Convention Center. 

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