Fitch Ratings, a global leader in credit ratings and research, has again affirmed Rwanda’s stable economic outlook.
It affirms Rwanda’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘B+’ with Stable Outlooks, which shows or implies the rating agency’s confidence in the country’s leadership and management of the economy in the short and medium term.
The agency says that 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.
“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,” said Fitch.
“Donor grants are expected to decrease from 33% of total revenues in FY13 to 21% in FY18. It has had some success in rationalizing expenditure and is working on increasing tax compliance and widening the tax base in order to raise domestic revenues.”
Fiscal consolidation in the short and medium term.(FY16-FY18) will be focused on reducing capital expenditure from 12.6% of GDP to 10.5%, as the government seeks to reduce capital imports to mitigate external pressures.
Meanwhile, the main factors that, individually or collectively, could trigger positive rating action, include continued strong GDP growth supporting income convergence towards ‘B’ rated peers; continued improvement on fiscal reforms; and a narrowing of the current account deficit over time, supported, for example, by export growth and greater regional integration.
On the other hand, key risk factors that could trigger negative rating action failure to attract long-term capital inflows to finance the wide structural current account deficit, leading to marked weakening of foreign exchange reserve coverage; any material threat to political stability; and or a failure to arrest the upward trajectory of the gross general government debt/GDP ratio.
Much is premised on the rating agency’s assumptions that Rwanda will continue to implement structural reforms and prudent economic policies with support from the IMF, and that broad social and political stability will be maintained.