Rwanda’s GDP’s growth is expected to rebound to 5.0% in 2021, albeit lower than pre-covid levels, says credit rating report
- Improvement is premised on the successful implementation of the Country’s economic recovery initiatives hinged on stable exchange rate, growing foreign exchange reserves and improved performance of the services and agricultural sectors. Also, the ongoing COVID-19 vaccination rollouts and easing of lockdown measures were cited as key factors leading to an increase in economic activities and growth in Gross Domestic Product (GDP).
October 26th 2021: Rwanda’s Gross Domestic Product (GDP) is expected to recover to 5.0% in 2021 on account of the successful efforts of the Rwandan government to curtail the spread of the new variants of COVID-19 and curb its impact on the private and public sectors, especially through the implementation of its Economic Recovery Plan (ERP). Also, the anticipated increase in inter-regional trades on account of the removal of cross-border restrictions will help boost overall economic performance in the near term says a credit rating report.
The report done by Agusto & Company Limited, a leading Pan-African credit rating agency has assigned Rwanda’s sovereign with a “B+” credit rating and a stable outlook.
Key factors that contribute to this rating include the Country’s good macroeconomic fundamentals evidenced by an average GDP growth rate of circa 5.4% over the past five years, growing export revenue, comfortable foreign exchange reserve buffer against short term external shocks, stable socio-political landscape and ease of doing business, relatively low inflation rate averaging 4.2% over the last five years, an acceptable level of capital expenditure to nominal GDP ratio at 12% over the last five years and growing services sector. However, the offsetting factors include the Nation’s high debt to GDP ratio of 66.2%, negative current account to GDP ratio, dependence on foreign aid and a high unemployment rate of 17.9%.
According to Ikechukwu Iheagwam, Regional Director (East Africa), Agusto & Company Limited, “Consistent with the rising government infrastructural spending, Rwanda’s total public debt has been trending upwards over the last five years. Total public debt rose to RWF 6.5 trillion in 2020 from RWF 2.9 trillion in 2016 with the debt to GDP ratio rising to 66.2% from 37.7% over the same period, which we consider high in our opinion compared to some of its regional counterparts –Tanzania (39%) and Uganda (45.7%) although better than Kenya (70.1%).
Nonetheless, Rwanda’s debt service (interest and principal repayments) to revenue ratio of 9% falls within the World Bank’s prescribed limit of 22.5% and is satisfactory in our opinion. However, Agusto & Co. expects the Country’s debt profile to rise in the near to medium term, precipitated by the recent US$ 111.06 million disbursements received from the International Monetary Fund (IMF) under the Rapid Credit Facility (RCF) program. Furthermore, we consider Rwanda’s 5-year (2016 – 2020) average FCY loan portfolio to total debt of 79% as very high in our opinion and this may increase foreign exchange risk, noted Mr. Iheagwam.”
He added: “We view positively the gradual rebound in trade and transport activities in the near term as the economy opens up to international trade and harnesses the benefits of the African Continental Free Trade Area (AfCFTA) agreement to increase intra-regional trades. Also, we expect the government’s infrastructural spending on the Bugesera International Airport project to result in increased tourism activities upon completion in 2022. Furthermore, we expect steady growth in Rwanda’s tax revenue and export earnings premised on the anticipated increase in consumption and business activities following the reopening of the economy and this will be supported by the successful containment of the Coronavirus and the effective nationwide vaccinations.
The rating reflects Rwanda’s good macroeconomic fundamentals, growing services and agricultural sectors, a relatively stable local currency against major international currencies, a comfortable foreign exchange reserve buffer against short-term external shocks, business-friendly environment and continued destination for foreign investments and aid in the East African Region.