. . . Affirms ‘B+’ stable outlook for Rwanda

Fitch Ratings has affirmed Rwanda’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘B+’ with Stable Outlooks.

The issue ratings on Rwanda’s senior unsecured foreign-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’.

Rwanda’s ‘B+’ IDRs and Stable Outlook balance the economy’s high growth, strong governance indicators relative to peers, and strong fiscal policy reform momentum, against its low income per capita, high structural current account deficit, and continued reliance on donor flows and concessional financing.

The country is facing rising balance of payments pressures due to the depressed commodity price cycle, which has affected the value of its metal minerals exports.

The current account deficit widened to 13.5 per cent of GDP in 2015 (2014: 12.0 per cent), exacerbated by a rise in construction imports and the completion of the Kigali Conference centre.

Fitch forecasts the deficit to widen to 16.5 per cent in 2016, primarily due to the purchase of two aircraft by the national airline.

Adjusting for this purchase, the deficit is forecast to narrow slightly, and to improve to 11.7 per cent in 2017 due to monetary and fiscal policy tightening and as import substitution measures take effect.

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.

This has resulted in official reserves coverage falling to 4.1 months of external payments in 2015 (2014: 4.5), which we forecast to fall further to 3.5 months in 2017 before recovering to 4.0 months in 2017 primarily due to an impending IMF loan to support external financing.

Rwanda is implementing structural reforms to its fiscal framework to alleviate dependence on donor grants as they are being phased out and converted into concessionary loans over the coming years.

Donor grants are expected to decrease from 33 per cent of total revenues in FY13 to 21 per cent in FY18.