On Friday March 10th, Standard & Poor’s (S&P) published its updated rating of Rwanda. S&P affirmed their rating of Rwanda’s long-term foreign and local currency sovereign credit ratings B whilst also reconfirming their short-term ratings as a B.
In September when S&P downgraded the rating for Rwanda from B+ to B they did so on the basis of Rwanda’s external position. S&P cited their belief that Rwanda’s current account deficit would widen to 16% in 2016 year while at the same time they foresaw net external debt levels continuing to increase.
The main reason that they have affirmed this rating this time around is that they believe that the most immediate financing pressures have abated and continued programs with the IMF will help to anchor policy going forward. They believe that whilst there are ongoing problems with Rwanda’s external position it appears that the relevant mineral prices have bottomed out and the completion of several large projects will both reduce pressure on imports and also increase exports of goods and services. Whilst they also see that Rwanda’s debt-to-GDP ratio has doubled between 2012 and 2016, this was from a very low base and they project that a combination of revenue-side measures and expenditure restraint will lead to deficits falling consistently over the next four years after their projection of 5% in fiscal year 2016-17.
The reasons that they have kept the outlook as stable are the steps the government of Rwanda have taken to confront these pressures and the government’s relatively strong fiscal position. Steps they highlight include diversifying the country’s exports, import-substitution efforts and a focus on business-tourism. They do, however, only really see these steps as having gradual impacts rather than in the short-term and this will lead to the current account deficit narrowing to 8% in 2020. The government’s position they see as strong due to the government deficit reducing to 4% of GDP this year from 5.5% the year before and so therefore see net debt peaking at only 39% in 2019 before reducing.
Overall, the stable outlook reflects the balance between the potential for stronger than expected economic growth or fiscal performance, which have solid foundations, with the potential for the external sector to act as an even greater drag. For more information visit