Over the past decade, the Rwandan franc has depreciated by about 43% against the US dollar. The explanation from the central bank has been consistent: this is part of the cost of development.

ALSO READ: Rwandan franc eases pressure on stronger exports

There is some truth in that argument. Developing economies often import capital goods, run trade deficits, and accept currency pressure as they expand infrastructure and production capacity. However, when depreciation becomes persistent over many years, it reflects more than a temporary transition. It points to a structural imbalance in how the economy earns and spends foreign currency.

ALSO READ: How new multicurrency market could boost access to foreign capital

At the center of the issue is a simple reality: Rwanda demands more foreign currency than it generates. Imports of fuel, machinery, construction materials, and consumer goods remain high, while exports remain relatively concentrated and limited in value addition. The result is steady pressure on the franc.

External financing has helped bridge this gap. Loans, grants, and foreign investment provide short-term relief by supplying foreign currency. Yet they also create future obligations through debt repayments and profit repatriation. The underlying imbalance therefore remains, even if temporarily masked.

Currency depreciation raises the cost of imports, contributes to inflation, and increases the burden of servicing external debt. It can also weaken investor confidence when exchange rate pressure appears persistent rather than cyclical.

Addressing this issue requires structural adjustment rather than narrative management. The objective is not to defend a specific exchange rate, but to reduce the underlying pressure on the currency.

The first priority is expanding export capacity, particularly in higher-value sectors. Rwanda has made progress in exports such as coffee and tea, but these alone are insufficient. Greater focus is needed on agro-processing, mineral value addition, and light manufacturing. Exporting finished or semi-processed goods generates more foreign currency without necessarily increasing production volumes.

Second, selective import substitution can reduce pressure on foreign exchange demand. The goal is not broad protectionism, but targeted local production of goods that can be competitively manufactured domestically, particularly construction materials, food products, and basic manufactured goods.

Third, foreign currency usage within the domestic economy requires stricter enforcement. Some rent and service contracts remain indexed in foreign currency despite existing directives limiting the practice. Encouraging transactions in Rwandan francs would reduce unnecessary demand for dollars.

Finally, external borrowing should be aligned more closely with foreign exchange outcomes. Debt-financed projects are more sustainable when they either generate foreign currency or reduce import dependence over time.

Rwanda has demonstrated strong capacity to plan and implement development projects. The next stage is to ensure that growth is supported by a more balanced external position through diversified exports, lower avoidable imports, and better management of foreign exchange demand.

The depreciation of the franc should not be viewed as failure but neither should it be treated as inevitable. Development comes with trade-offs. The challenge is ensuring those trade-offs become smaller as the economy matures.

The writer is a public policy and socio-economic governance enthusiast.