Fitch Ratings has affirmed Rwanda’s Long-Term Foreign and Local Currency Issuer Default Ratings at ‘B+’ with Stable Outlooks.
The issue ratings on Rwanda’s senior unsecured foreign-currency bonds have also been affirmed at ‘B+’. The Country Ceiling has been affirmed at ‘B+’ and the Short-Term Foreign Currency IDR at ‘B’, Reuters quoted Fitch as saying.
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, high structural current account deficit, and continued reliance on donor flows and concessional financing.
Rwanda 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 Center.
Fitch forecasts the deficit to widen to 16.5% in 2016, primarily due to the purchase of two aircraft by the national airline.
Adjusting for this purchase, the deficit is forecast to narrow slightly, and to improve to 11.7% in 2017 due to monetary and fiscal policy tightening and as import substitution measures take effect.
The balance of payments pressures have led to a structural depreciation of the Rwandan franc, exacerbated by the strengthening USD and slowing capital flows to frontier emerging market economies.
Declining Grants
This has resulted in official reserves coverage falling to 4.1 months of external payments in 2015 (2014: 4.5), which the agency forecasts 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.
Rwanda is implementing structural reforms to its fiscal framework to alleviate dependence on donor grants as they are being phased out and converted into concessionary loans over the coming years. Donor grants are expected to decrease from 33% of total revenues in FY13 to 21% in FY18.
It has had some success in rationalizing expenditure and is working on increasing tax compliance and widening the tax base in order to raise domestic revenues, Fitch reported.
Fiscal consolidation in FY16-FY18 will be focused on reducing capital expenditure from 12.6% of GDP to 10.5%, as the government seeks to reduce capital imports to mitigate external pressures.
Fitch forecasts the overall budget deficit for FY16 (year ending June 2016) to remain flat at 5% of GDP, before narrowing to 3.6% in FY17 and 3.1% in FY18.
