According to a report by Ministry of Finance and Economic Planning, in January-October 2021, New Authorized Loans (NALs) rose by 17.3% as compared to the same period last year where it grew by 9.2 per cent.
The loans increased mainly in the areas of manufacturing, transport, warehousing and communication, commerce, hospitality, personal loans, public works and building in line with sectors driving growth in 2021.
The report further shows that public sector debt increased by 75.6 per cent in 2021 compared to 71.3 per cent in 2020, and is projected to grow by 76.6 per cent in 2022.
Addressing parliamentarians on Monday December 6 while presenting the report, Uzziel Ndagigijimana, the Minister of Finance and Economic Planning allayed their fears over the country's current debt levels.
"For the private sector loans that increased, it shows that economic activity is resuming while we are still fighting the pandemic which is why banks are giving more loans to businesses” he said.
For the increase of the external debt to exports, he explained that it was due to the fact that the government borrowed money to pay off the 2013 Eurobond, where the government paid USD 340 million.
"We paid it in advance because we had to take advantage of the prices on the local market that were lower yet the loan was taken when it was high, so this helped us to save the high interests we would have paid in 2023 and it will benefit us in the long run,”
"This is just for this year because we had those expenses, but in the coming years we will keep the usual levels of debts we acquire” he said.
Experts weigh in
Speaking to The New Times, Diane Karusisi, the CEO of Bank of Kigali and first vice chairperson of Rwanda Bankers’ Association said that it is a good indicator for economic growth.
"Loans are deployed for investments, so the more investments the more jobs and the better the gross of the economy,” she said.
"The uptake of loans is driven by the fact that people are positive about the economic recovery, and we think that we are on the road to recovery from the pandemic and from what we see in our operations, we see that more people will be able to pay the loans they are taking,” said Karusisi.
According to Maurice Toroitich, the Managing Director of Banque Populaire du Rwanda, following the reduced cases of Covid-19 and general resumption of business activities, the need for funding to support restocking and other working capital needs has translated into increased demand for credit.
"Increase in household and business debt is not a problem as long as the finance accessed is used for productive purposes to create incremental wealth. However there may be concerns related to credit that is of a consumption nature as in the long run, which can diminish the ability of households to create long term wealth,” he added.
George Odhiambo, Managing Director of KCB Rwanda Plc said: "Increased lending after a period of lull does not hurt the economy. It is expected that it should spur the economy by enabling businesses to scale up operations in offering goods and services. In the process create employment and wealth”.
Meanwhile, Claude Rusibana, an economic analyst and lecturer at University of Kigali, said that the increase of loans might have a risk to the economy due to the fact that financing economy recovery has increased many personal loans which are not secured and may be overleveraging individuals and the country.
Rusibana added that there is also a risk of prices on commodities and services to be high due to lack of utilizing the recovery fund for production and service delivery to the community, but to sustain loans which will in return affect the local currency.