Fitch Affirms Rwanda at ‘B+’ with Stable Outlook
Fitch Ratings affirmed Rwanda’s credit ratings with a stable outlook, it said in a rating note. According to Fitch, Rwanda’s ‘B+’ rating reflects its low level of gross domestic product (GDP) per capita and persistent twin budget and current account deficits (CAD), which have resulted in high public and external indebtedness.
These weaknesses are balanced by the highly concessional nature of the country’s debt, strong governance indicators relative to peers, high medium-term growth potential, and a track record of strong official financial and technical support, Fitch said.
The agency forecasts real GDP growth of 8.0% in 2024, decelerating to an average of 6.7% over 2025-2026, above the projected 4.1% growth for the ‘B’ median, due to gradual fiscal consolidation amid still relatively high public sector investment.
Fitch stated that Rwanda’s economic growth will remain well above peers, supported by the construction of the Bugesera airport and household consumption (buoyed by credit availability and stronger labour market), and easing monetary policy.
It added that the impact of the recently reported outbreak of the Marburg virus in late September is uncertain.
Rwanda’s consumer inflation was down to an average 4.9% during January-August 2024, reflecting the previous tightening of monetary policy over 2022-2023 as well as declining imported and domestic food prices.
Fitch forecasts average annual inflation in Rwanda to fall to 4.5% in 2024 from 14.3% in 2023, before rising to 5.9% in 2025. It noted that this is well within the central bank’s target range, between 2% and 8%, but above the 4.6% projected for ‘B’ peers.
According to the rating note Fitch expects further easing of monetary policy following the central bank’s cut of 100bp to its key policy rate (between January and August) to 6.5%.
Also, Fitch forecasts Rwanda’s fiscal deficit to narrow to 5.5% of GDP in the fiscal year 2024/2025 and to 4.6% in FY26, from 6.4% in FY24. It said the reduction will mostly be driven by a decline in election-related spending and expense rationalisation measures authorities implemented with the support of the World Bank and IMF.
“We also assume a modest decline in capex to 9.3% in FY26 from 9.9% of GDP in FY24. We expect only a small contribution to fiscal consolidation from higher revenues, as we anticipate tax revenue increases to be largely offset by a projected decline in grants.
On borrowing, Fitch expects Rwanda’s government debt to increase to 75.6% of GDP in 2024 and 78.2% in 2025, from 73.5% in 2023, due to further exchange-rate depreciation, primary deficits, and the government’s contribution to the airport construction financing, which will offset strong nominal GDP growth.
Rwanda’s government debt to GDP ratio remains well above the 52% forecast ‘B’ median in 2025. Rwanda’s highly concessional nature mitigates near-term debt sustainability risks, the rating agency said.
It explained that the average time-to-maturity of external debt was 15 years in June 2024, with an average weighted interest rate of 2%. The next Eurobond amortisation is due in 2031, following the repayment of its 2013 Eurobond in 2023.
Rwanda benefits from strong external loan commitments from bilateral and multilateral sources estimated at about USD1 billion per year in 2025 and 2026. These multilateral lenders include the World Bank, African Development Bank and the IMF.
“We forecast access to this financing to translate into an interest/revenue ratio of 10.9% over 2024-2026, below the forecast 12.8% ‘B’ median for the period.”. Rwanda’s performance under its IMF Policy Coordination Instrument, Resilience and Sustainability Facility, and Standby Credit Facility remained strong at the latest reviews, Fitch said
It expects Rwanda’s current account deficit to widen to 12.5% of GDP in 2024 from 11.7% in 2023, reflecting buoyant imports associated with the strong economic activity.
“We forecast the current account deficit to narrow to 11.6% and 10.6% of GDP in 2025 and 2026, respectively, mostly due to the narrowing fiscal deficit and the impact of real effective exchange-rate depreciation.
“A more significant reduction of the current account deficit will be prevented by the imports associated with the construction of the Bugesera airport, which we assume will begin in 2025”, Fitch said.
Rwanda’s modest foreign direct investment inflows to finance the current account deficit mean that net external debt will continue to increase, reaching 66.8% of GDP in 2026 from 54.4% in 2023, well above the ‘B’ median of 23%.
Significant external borrowing, including related to the airport financing, will lift reserves from a projected USD1.9 billion in 2024 to USD2.2 billion in 2026. This will translate into a stabilisation of foreign reserves coverage of current external payment of 3.6 months between 2024 and 2026, according to the rating agency.
Rwanda’s incumbent President Paul Kagame won the July presidential election. Fitch does not expect the electoral outcome to materially alter the direction of economic policy.
The security situation in neighbouring Democratic Republic of the Congo (DRC) has deteriorated since the end of 2023. Nevertheless, a ceasefire brokered by Angola was agreed between Rwanda and the DRC and became effective in August 2024. Fitch’s base case is that international inflows of grants and concessional financing will not be adversely affected by the role of the forces linked to Rwanda in the conflict. #Fitch Affirms Rwanda at ‘B+’ with Stable Outlook
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