To finance infrastructure development and other development expenditure, the Government often has to borrow from international financiers, the private sector, its citizens and other governments.
Public debt levels have continued to be a reason of concern among regional countries, prompting the International Monetary Fund (IMF) to caution countries on their debt burdens.
Currently, Rwanda’s total debt levels are at 27.7 per cent of the Gross Domestic Product.
This is still significantly lower than the East African threshold of 50 per cent, according to the Minister for Finance and Economic Planning, Uzziel Ndagijimana.
With Rwanda’s current GDP estimated at close to $10 billion, the country owes about $2.7 billion to both local and international financiers.
The year before, in 2016, the external debt to GDP was at 35.2 per cent while domestic debt was about 9.4 per cent.
Domestic debt is where the government borrows within the country from firms and citizens through bonds.
Given that the country has a low risk of debt distress, it still has room to borrow more money in case it needs financing.
With an ambitious seven-year plan, the Government is bound to borrow, largely to finance infrastructure development projects such as the expansion of the road network, construction of the standard gauge railway, utility penetration, establishment of secondary cities and financing of special economic zones among others.
Officials at the ministry of finance say that the government is comfortable with current debt levels considering that a majority of it stems from concessional loans between (75 per cent and 80 per cent).
Concessional loans is credit that is extended on terms substantially more generous than market loans usually by international development financier such as The World Bank, African Development Bank among others.
The loans have significantly low-interest rates and long grace periods with the possibility of revising terms further.
The ministry said that when borrowing, the always aim at exhausting the concessional options before getting market value loans which are not only expensive but have shorter payment durations.
Payment of the current and future debt is largely pegged on the growth of export revenues which the government says have been growing steadily owing to the Made in Rwanda initiative.
Exports have grown by 69 per cent from $559 million in 2015 to $944 million in 2017.
In the first half of 2018, Rwanda generated $463.16 million from exports compared to $375.91 million in the same period in 2017.
Growth has been a result of diversification, recovery commodity process and value addition.
Economists and development partners say they are comfortable with the current debt levels and would further lend to the country.
Martha Phiri, the Country Director of the African Development Bank, told The New Times that considering the current debt and the growth in export revenues, there is little risk of debt distress at the moment and in the near future.
“We are not worried about the debt that the country is securing now. These are sustainable numbers. When you look at the export revenues which are going to support repayment, they have been growing significantly. We see commodity exports going up as well as aspects such as conference tourism,” she said.
She also revealed that they have been supporting the establishment of a framework to support the government attract more private capital for projects financing.
“Last year we started a conversation with the government that does not look at development financing in its traditional way but rather as a way seeking to move from aid and grants to private capital to support public-private investments. This is almost finalized and will help the government bring in more private capital,” she said.
Rwanda’s debt levels have in recent years been driven by investments in large investment projects, for instance, expansion of RwandAir and construction of Kigali Convention Centre.
The debt levels have also been influenced by the country’s ambition to steer away from development assistance and donations towards dependence and concessional loans.
The IMF noted that the median level of public sector debt in sub-Saharan Africa rose from about 34 per cent of GDP in 2013 to over 50 per cent in 2018.
Over 15 low-income sub-Saharan African countries have been classified at high risk of debt distress.
Among the causes of concern is the fact that global interest rates have been rising steadily making it harder for low income countries to pay back money borrowed.