Fitch Rates Rwanda with B+, Says Outlook Stable

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Fitch Rates Rwanda with B+, Says Outlook Stable

President Paul Kagame speaking at World Economic Forum panel on tackling climate change alongside Ban Ki-moon, Secretary-General of the United Nations; Jim Yong Kim, World Bank President; Paul Polman Chief Executive Officer of Unilever; Christine Lagarde, Managing Director of the International Monetary Fund (IMF) and Michael Spence, Professor in Economics and Business.

Fitch’s ratings are analysts’ views of future performance which may be informed by non-disclosable management projections, sector or wider economic cycle at a certain stage in the cycle, or may be based on historical performance.

According to Fitch, Rwanda’s stable economy is due to a drop in donor grants and government pursuing sensible economic policies, strong growth performance and a modest fall in country’s external position.

On Friday Fitch ratings affirmed Rwanda’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B+ indicating that the Outlooks are Stable.

Kenya is rated with B+ while Tanzania and Uganda are rated B.

Rwanda’s unsecured foreign and local 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’.

Fitch estimates Rwanda experienced a 6.8% GDP growth in 2014 and was supported by a recovery in the agriculture sector and accommodative monetary and fiscal policies.

The agency says, GDP growth will gather pace in 2015-16, underpinned by increasing regional trade, rising investment and an expanding services sector.

Rwanda is credited with coherent macroeconomic management, including maintaining moderate inflation (averaging 4.2% in 2010-14) and a sound financial system.

Government successfully improved the business environment especially in terms of reducing bureaucracy and electricity costs, as well as increasing credit accessibility.

The country ranks 3rd in Africa in the World Bank’s 2015 Doing Business.

In the fiscal year 2013/14 (FY14, from July 2013 to June 2014) the central government deficit narrowed to 4% of GDP thanks to lower net lending.

However, Fitch expects higher fiscal deficits in FY15 and FY16, reflecting a shift in the structure of foreign aid from grants to concessionary loans and high capital expenditure.

As a result, public debt is set to rise gradually, to 31.2% of GDP in FY17 from 28.7% of GDP in FY14 although it will remain well below the 48% ‘B’ peer median.

The agency says the Rwandan leadership is committed to expanding the country’s low revenue base to reduce aid vulnerability (grants accounted for an average of 37% of total revenue in FY11-FY14).

Tax revenue increased to 14.8% of GDP in FY14, reflecting strong nominal GDP growth and the effect of a series of fiscal reforms pledged under a Policy Support Instrument with the IMF.

Fitch expects tax revenue to rise further to 17.5% of GDP in FY17, supported by efficiency gains and further fiscal reforms in the mining, agriculture and property sectors.

Strong import spending has led to a widening of the current account deficit (CAD), estimated at 10.8% of GDP in 2014.

As strong consumer and investment growth continue to fuel import demand, CAD are expected to remain high in 2015-16.

The agency forecasts that lower oil imports will be largely offset by limited growth in traditional exports such as minerals (1/3rd of total exports).

Higher debt and foreign direct investment inflows will help finance the CAD but a decline in donor grants will limit the rebuilding of foreign reserves (FX).

SOURCE: KTPress

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Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

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