Rwanda’s ‘B’ long-term foreign- and local-currency sovereign credit ratings assigned by renowned firm Standard & Poor’s Ratings Services, is a major boost of confidence for the country’s economy over the next year.
Reacting to the development, the Minister of Finance and Economic Planning John Rwangombwa said that the country’s second rating by S&P, following the first rating by Fitch, was timely and a confidence boost.
“It shows a slight improvement in the performance of our economy. Overall, we welcome the rating. We think it boosts our confidence in what we do and also sends a strong message to the whole world on how our economy is doing,” Rwangombwa said.
“Our projection is to see the economy improve over the next year, especially in our exports. Once the export base expands and see our macro economy grow, we will have much better rating next year”.
The United States-based firm announced the country’s new rating on Thursday, assigning its ‘B’ short-term foreign- and local-currency ratings and what it termed as a “positive outlook” for Rwanda.
“The ratings on Rwanda are supported by our assessment of its good economic performance over the last decade,” the firm announced.
“Decisive market-oriented reforms, good macroeconomic management (anchored by the so-far-successful implementation of four consecutive IMF programs), and significant donor support (equivalent to about 13.5% of GDP on average over the decade) have delivered per capita GDP growth of about 5% over the last decade”.
The rating firm cited as the government’s goal, detailed in its “Vision 2020” roadmap, which aims at transforming Rwanda into a service-based middle-income country by 2020 as a major boost.
“It (Rwanda) has invested significantly in infrastructure and skills development and has made continuous reforms to improve the business climate.
“In the World Bank’s Ease of Doing Business index, Rwanda ranks as one of the most business-friendly countries in Africa,” S&P said in a statement.
S&P added that the country’s external balance sheet also improved significantly after it received substantial debt relief from official creditors in 2005 and 2006 through the Highly Indebted Poor Country and Multilateral Debt Relief initiatives.
The ratings are further supported by our medium-term projections of moderate general government fiscal deficits over the medium term, which should keep net general government debt at less than 15% of GDP.
The rating firm however attributed Rwanda’s structural current account deficits to its narrow export base and large investment needs.
Tea and coffee account for about half of Rwanda’s exports. Total exports accounted for about 5.5% of GDP in 2011.
Conversely, S&P observed, transfers made up about half of current account revenues in 2010, and the current account deficit is largely financed by donor flows.
“We expect the current account deficit to deteriorate temporarily over the medium term because of large imports for public-sector infrastructure projects and private-sector investment.
“However, we believe the reserve coverage should remain comfortable. Overall, we estimate that gross external financing needs will remain in the range of other ‘B’ rated sovereigns at around 120% of current account receipts plus reserves,” S&P said
The rating agency says it views Rwanda’s macroeconomic policy mix as broadly appropriate and a good collaboration between fiscal and monetary institutions.
“In that regard, we view positively the government’s efforts to increase access to finance but we are concerned that the recent establishment of a large number of credit cooperatives might be too quick to ensure their adequate management and supervision,” the firm further said.