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IMF speaks out on Rwanda's debt levels

The International Monetary Fund has spoken out on Rwanda’s debt levels, saying that though they have gone up in the recent past they are still manageable.
IMF Head of Mission Laura Redifer.
IMF Head of Mission Laura Redifer.

The International Monetary Fund has spoken out on Rwanda’s debt levels, saying that though they have gone up in the recent past they are still manageable.

IMF said that though the debt levels have gone up, the finance authorities have been taking adequate management measures.


Speaking to The New Times last week, IMF Head of Mission Laura Redifer said that to some extent, the country needs debt to grow.


“Debt levels in Rwanda are manageable. Those numbers have gone up recently but are still manageable. You need debt to grow, the finance ministry is careful on what kind of debt it taking on. It is at a manageable level. One thing we need to be careful with is surprises, things that are not debt but could create fiscal risks,” she said.


Across the Sub-Saharan region, Redifer noted that debt levels were rising significantly high, due countries approaches in attempts to avoid crisis.

“Across Sub-Saharan Africa we are seeing debt levels going up rapidly. It’s for different reasons. In some cases, some big oil exporters are avoiding taking measures to avoid a crisis and are taking more debt. That is a bad debt to be accruing. There are other countries, some of them in East Africa that are taking debt for infrastructure but it’s too much debt,” she said.

She said that in Rwanda’s case, IMF had established that the government only incurred external debt after ascertaining what the returns are as well as finding ways to ensure the debt doesn’t go up unnecessarily.

“In the case of Rwanda, they take on debt thinking how it’s going to be spent and what the returns are going to be. Debt levels have risen rapidly in the last few years but we are hoping that they pay off. They are being careful like in the instance of the airport to find out ways to raise funds without taking on too much debt,” Redifer said.

To keep the debts manageable, she said that Rwanda ought to avoid red flags such as unnecessary debts which do not pay off.

“The red flags are taking on debt for things that do not have a payoff. If you are going to take on debt make sure it’s for a reason that will bring growth in the future,” she explained.

Regarding domestic debt, she said that there is yet to be a viable market for it and they are relatively expensive due to higher interest rates.

“As for domestic debts you need to have the market for it and it’s also more expensive because of the interest rates,” the IMF official said.

According to figures from the Ministry of Finance and Economic Planning, Rwanda’s external debt level to Gross Domestic Product was at 36.6 per cent which is below the East African threshold of 50 per cent.

Domestic debt stood at about 10 per cent at the end of 2017.

This is a slight increase compared to end of 2016 whereby external debt to GDP stood at 35.2 per cent while domestic debt was about 9.4 per cent.

In January, the Minister for Finance and Economic Planning Claver Gatete downplayed concerns of Rwanda’s debt levels, saying the country is still in the Low risk category.

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.

Low income countries often owe private lenders, multilateral institutions (such as World Bank, IMF, African Development Bank) as well as other governments.

Growth in 2018

IMF projections for growth in 2018 are at 6.8 per cent with key drivers being good harvests, continued exports performance among others.

Redifer said that overall economic performance is also dependent on the region’s economic performance due to factors such as demand of Rwanda’s exports.

“You have to remember that growth in the sub-continent is a fraction of that and that growth in the region is always way less than that. We have to consider that Rwanda can only export if there is demand for those exports,” she said.

In 2018, she said that the risk factors include growth momentum in the region which is not as strong as hoped for, weather conditions, as well as some of the political developments in the region.

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