KIGALI - The government is determined to follow up the Standard and Poor’s (S&P) credit rating by issuing sovereign bonds.
Sovereign bonds are national instruments that charge interest when bought by investors, on the international market to raise money to finance various projects.
According to the Ministry of Finance, proceeds from these bonds will be used to finance infrastructural projects as well as attract direct foreign investment.
“Maybe in the next three years,” John Rwangombwa, the Minister of Finance and Economic Planning said, regarding the timeframe when the bonds would officially be floated, adding that, “the rating is to let the market know us better.”
According to the Executive Director of the Rwanda Capital Market Authority (RCMA), Robert Mathu, the purpose of the rating is to calculate the level of Rwanda’s default on loan repayment.
“Investors would like to have a feel of the economy’s level of credibility by reviewing its balance sheet, governance and management of public institutions,” Mathu said in an interview with The New Times yesterday.
“If the rating is favourable, Rwanda will be able to access international capital through its sovereign bond at favourable rates. Generally, the more favourable a rating is, the lower the cost of capital.”
Mathu added that ratings from credible agencies like S&P serve as self-assessment because they are voluntary and lie entirely on the country’s decision.
”The moment one is ready to go on to the international market, you’re sending out a message to the world that we are an investment destination,” the RCMA boss observed.
Mathu added that the rating goes beyond the cause of attracting international capital, but also assure people that Rwanda is not a high risk country but one open to foreign direct investment.
Faustin Mbundu, the Chairman of the Private Sector Federation, said that the rating would certify and guarantee Rwanda’s credibility, thus opening up more space for investors and improving business competitiveness in the economy.
“When investors are assured of safety, reliability and credibility, local and foreign investments will increase, which will lead to more competitiveness in the economy,” Mbundu said.
A report by the Ministry of Finance indicated that the government requires large external financial flows to implement its ambitious economic development programs.
It also showed that domestic financial resources from domestic revenues and domestic borrowing are currently not sufficient to finance the development projects, yet the risk of borrowing must be kept in check to maintain the total debt at sustainable levels.
The government is optimistic that the sovereign bonds would serve the country’s long term objective to reduce dependency on foreign financing for development projects.