Rwanda gets vote of confidence from ratings agency and World Bank

S&P Global Ratings has affirmed its B/B long- and short-term foreign and local currency sovereign credit ratings on Rwanda. The outlook is stable. The move came just two days after the World Bank said it expected growth to peak in the second half of 2017. S&P Global ratings cites Rwanda's moderate pace of real economic growth in the near-term due to structural and transitory factors, while current account deficits remain structurally high, as the reasons for affirming B/B ratings on Rwanda. However, S&P projects medium-term growth prospects remaining strong, government debt and its servicing remaining moderate relative to peers, while monetary flexibility is improving. S&P indicates that the stable outlook balances the strong growth prospects and moderate debt burden against the risks of weak external metrics for the next 12 months. Meanwhile, the World Bank reveals that Rwanda’s economic growth has been slowing down since mid-2016, resulting in a 6% growth in 2016 and in 4.2% annualised growth in the first quarter of 2017. This slowdown was mainly due to a combination of the drought, weak export prices and construction activities following the completion of large investment projects in 2016, it notes. However, the growth is expected to peak up in the second half of 2017, according to the World Bank Rwanda Economic Update: Sustaining Growth by Building on Emerging Export Opportunities. The report also notes improvement in the macroeconomic policy environment in 2017, with inflation decelerating to below 5% by June 2017, down from the peak of more than 8% recorded in February. Depreciation of the exchange rate has also alleviated the pressure on foreign exchange reserves and is expected to contribute to narrowing of external imbalances. Analysing the export sector performance as a special topic, the Rwanda Economic Update notes that exports increased from just $400m in 2007 to $1.6bn in 2016. Non-traditional exports have emerged as an important driver of that growth, thus laying the foundations for export-led growth in Rwanda. Exports to the region, and especially to the Democratic Republic of Congo and to the East African Community countries, mainly as re-exports and through small-scale cross-border trade, contributed the bulk of export growth. “Although Rwanda’s export sector is still small, the progress made in the past decade sends a clear message that an export-led growth is within reach for Rwanda, and the country’s long-term growth strategy should continue focusing on strengthening economy’s capacity to produce exportable goods and services,” comments Aghassi Mkrtchyan, World Bank senior economist. Returning to a higher growth trajectory in 2018 is attainable, according to the Bank, although there are risks. In the medium term, economic activity will benefit from the expected recovery of prices of traditional exports, including minerals, tea and coffee. But the key for sustaining growth at the rates in line with Rwanda’s historical average is private sector investment activity, especially in the tradable and export-oriented sectors, it concludes.

Rwanda gets vote of confidence from ratings agency and World Bank

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