Ratings agency Moody's Ratings (Moody's) on September 19 changed Rwanda's credit outlook from negative to stable and confirmed the country’s credit rating at B2 for both local and foreign currency debt.

A stable outlook indicates a low likelihood of a credit rating change over the medium term. This implies the country’s capacity to continue meeting its obligations.

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In a statement, Moody's Ratings observed that the change in outlook to stable reflects its assessment that downside risks for Rwanda stemming from the conflict in the eastern provinces of DR Congo have diminished.

Such decreased downside risks were relating to a potential sharp reduction in foreign exchange inflows, including official sector financing, it indicated.

The agency stated that continued dialogue between Rwanda and DRC – brokered by the US and supported by other international and regional partners to deescalate tensions – have led to a peace agreement and statement of tenets to establish a regional economic integration framework between the two countries.

Moreover, Moodys said, external financial assistance for Rwanda has remained strong over the past few months and will likely continue to support its credit profile.

"The stable outlook is based on our expectation that the longstanding tensions in eastern DRC do not escalate into a direct and full-scale military conflict between Rwanda and DRC or result in an acute risk scenario where Rwanda's access to concessional financing becomes significantly impaired,” the credit rating agency said in the statement.

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Moodys also highlighted that Rwanda’s credit challenges are balanced against the country's strong growth prospects, limited liquidity risk due to its debt structure and development partner support.

"Our assessment that Rwanda's institutions and governance are relatively solid compared to similarly rated and regional peers and provide a degree of resilience.”

Risks

The government's large investment in the new Kigali International Airport and Rwandair poses fiscal and debt risks as the size of its remaining investment exceeds 7 per cent of its gross domestic product (GDP), according to Moody’s.

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While such outlay in the country’s aviation sector poses fiscal and debt risks due to the size of the investment, it observed that the risks are adequately captured in the B2 rating and balanced by the recently approved multi-year tax package that provides some fiscal flexibility and the authorities' track record of effective fiscal adjustments and debt management.

"Under our baseline scenario, Rwanda's real GDP will continue growing by 7-8% per year over the next few years, which in combination with ongoing fiscal consolidation efforts will contribute to a reduction in the government's debt burden,” Moody’s stated.

Moody's expects foreign exchange buffers to remain adequate over the foreseeable future, sufficient to cover all the country's external debt due over the next year and around four months of imports.