S&P affirms Rwanda’s 'B/B' Ratings; Outlook Stable

Posted on 19.02.2018

Standard and Poor (S&P) Global Ratings affirmed its 'B/B' long- and short-term foreign and local currency sovereign credit ratings on Rwanda. 

The stable outlook reflects S&P expectation of relatively strong growth prospects, and a modest narrowing of fiscal and external deficits over the forecast period through 2021. 

S&P noted that current account deficits will remain high, and it expects public and private sector external debt levels to continue rising. However, Rwanda's medium-term growth prospects are expected to remain relatively strong, with moderate government debt levels relative to peers.

S&P expects government to maintain its fiscal measures to reduce deficits below 4% by 2021 and keep gross government debt levels moderate at around 45% of GDP. The rating remains constrained, however, by Rwanda's low GDP per capita levels of less than US$1,000, which is among the lowest among sovereigns that we rate. 

“We expect that the current account balance will gradually decline as exports increase and import-substitution accelerates, notwithstanding the upcoming import-heavy projects, such as construction of the new Bugesera airport. We expect the exchange rate to be one of the main mechanisms for short-term external adjustments.” S&P said in a statement released Friday last week.

After posting close to 6% real GDP growth in 2016, S&P estimates Rwanda grew at a slightly lower pace of 5.2% in real terms in 2017, due to a drought in the east and south that affected agriculture production, and a contraction in construction activity following the completion of several tourism projects in early 2016. However, growth rebounded strongly during the third quarter of 2017, by 8% year on year. In its medium-term projections, S&P assumption is that Rwanda will grow by around 6% over 2018-2021. 

Factors supporting Rwanda's growth prospects include:

Construction of the new Bugesera international airport over the next two-three years;

Rebound in agriculture following the resumption of normal rainfall patterns and continued investment          to boost the sector's resilience to adverse weather-related shocks;

Increased domestic production of imports (for example cement, sugar, and rice);

Growth in the mining sector, particularly artisanal mining, supported by higher global prices of                    minerals such as cassiterite, coltan, and wolfram; and

Rising domestic demand from an accommodative monetary policy stance.

The rating agency noted that the external pressures eased in 2017 mainly due to higher prices on exports of key goods, including tea and coffee and minerals such as cassiterite and coltan, along with a more competitive exchange rate. At the same time, imports declined, due to lower capital imports following the completion of construction projects, such as the Kigali Convention Center and several new high-end hotels, and the expansion of the RwandAir fleet in 2016. 

S&P estimate that the current account deficit reached 9.7% of GDP in 2017, from almost 15% in 2016. As a result of higher financial and capital account inflows, foreign exchange reserves increased by nearly $200 million to reach close to $1.2 billion at year-end 2017. The lower current account deficit also supported the Rwandan franc, which depreciated by only around 3% in 2017 compared with almost 9% in 2016.

The agency underscores that government’s efforts under the "Made in Rwanda" campaign to support domestic production through import substitution and increase export diversification are yielding results. These measures should improve external imbalances in the medium term. For instance, during 2017, domestic production of cement by local company CIMERWA increased by 21% year on year and led to a decline in cement imports.

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