Fiscal discipline giving economy positive outlook

Fitch’s latest positive credit rating for Rwanda is largely down to a stable macroeconomic policy and strong fiscal regulatory framework, a senior economist with the central bank has said.
Workers at a milling factory. Manufacturing has been one of the drivers of the Rwandan economy. The New Times/ File.
Workers at a milling factory. Manufacturing has been one of the drivers of the Rwandan economy. The New Times/ File.

Fitch’s latest positive credit rating for Rwanda is largely down to a stable macroeconomic policy and strong fiscal regulatory framework, a senior economist with the central bank has said.

Dr Thomas Kigabo, the chief economist at the National Bank of Rwanda (BNR), said yesterday that last week’s brighter outlook came on the back of improved fiscal discipline and a spell of economic resilience.

“We have managed to control not only the inflation rate, but also the exchange rate, excellent financial co-ordination between central bank and ministry of finance and economic planning in ensuring that banks work within a regulated financial framework,” Kagabo said.

The latest Fitch Ratings report shows that Rwanda retained B, scoring aggregate 30, which indicates stability. 

Fitch Ratings also affirmed Rwanda’s Long-term foreign and local currency Issuer Default Rating (IDR) at B and Short-term foreign currency IDR at B. It also affirmed Rwanda’s Country Ceiling at ‘B’ while the outlook on long term IDR’s are positive.

Jean Claude Karayenzi, the director-general of chamber of finance in the Private Sector Federation, said the positive outlook is as a result of a strong financial sector that is steadily growing and contributing to the economy.

“Because of the prudent financial reforms that government has conducted, we are starting to see stability, and I believe it’s due to this stability that we are maintaining this positive economic outlook,” Karayenzi said.

Rapid GDP

Fitch said: “Rwanda’s rating is supported by rapid GDP growth, averaging 8 per cent over the past decade, in a context of macro and political stability. Large foreign capital inflows have been attracted by high standards of economic governance and successful implementation of structural reforms. The government debt has remained low (29 per cent of GDP in 2013) and half of it is owed to donors, ensuring debt service remains moderate.”

A credit rating is an evaluation of the credit worth of a debtor, especially a company or government. The higher the score, the more the chances of getting credit.

It is designed to help lenders determine how likely they are to repay loans.

According to statistics, large foreign capital inflows have been attracted by high standards of economic governance and successful implementation of structural reforms.

The government debt has remained low (29 per cent of GDP in 2013) and half of it is owed to official donors, ensuring debt service remains moderate.

Growth will continue to be driven by investment and expansion of the private sector, according to the report.

Fitch experts said tax policy will lead to an increase in the tax take to 17.1 per cent of GDP by June 2016, from 14.2per cent in June 2013. 

Key measures include broadening the VAT base, reducing current exemptions on mining and agriculture and higher tax compliance.

Fitch expects GDP growth to remain above peers at 7.5 per cent in 2014 and 2015 after a slowdown to 6.6 per cent in 2013 from 8 per cent in 2012.

It said growth will continue to be driven by investment and expansion of the private sector.

“In the longer term, growth will benefit from the second phase of the Economic Development and Poverty Reduction Strategy, which focuses on regional integration within the East African Community and economic diversification, and reforms in the context of a new Policy Support Instrument with the IMF after the previous one ended in December 2013.” 

Other countries that performed relatively well in the region include Kenya, which scored aggregate 21.5 (B+), and Uganda with 32.5 (B-). 

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