Rwanda continues to face rising BOP, says Fitch Ratings

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A crane unloads a container of imported goods at Magerwa in Gikondo.

A crane unloads a container of imported goods at Magerwa in Gikondo.

With declining commodity prices on the global market, Fitch ratings say Rwanda continues to struggle with the rising balance of payment-BOP deficit.

The Fitch ratings in its report released on Friday which puts the country’s rating at B+’ with stable Outlook says the decline in value of metal minerals exports has further led to a widening BOP deficit.

“The balance of payments pressures have led to a structural depreciation of the Rwandan franc (RWF), exacerbated by the strengthening USD and slowing capital flows to frontier emerging market economies,” a statement read.

According to the rating, the country’s current account deficit grew 13.5 percent of GDP in  2015 up from the 12.0 percent recorded  in the previous year which was driven by increase in construction imports also pushed by ongoing investments.

“But the deficit is forecast to narrow slightly, and to improve to 11.7 percent in 2017 due to monetary and fiscal policy tightening and as import substitution measures take effect.”

Due to this, Fitch says that the official reserves coverage declined to 4.1 months of external payments by end of December, 2015 from 4.5 months the previous year and projects a further decline to 3.5 months in 2017.

Nevertheless, the reserves as Fitch projects are expected to recover to 4.0 months in 2017 also driven mainly by soon to be announced International Monetary Fund-IMF loan expected to support external financing.

The B+ rating was driven by Strong growth and low inflation relative to regional peers which has continued to positively polish the country’s growth outlook.

Moreover, Fitch says that Rwanda is executing its structural reforms to its fiscal framework in a bid to lessen further dependence on donor grants which are being out and phased in concessionary loans in the coming years.

 

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About the author

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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