Fitch Upgrades Outlook on Rwanda’s Credit Rating

Fitch Upgrades Outlook on Rwanda’s Credit Rating

Fitch Ratings has revised the Outlook on Rwanda’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘B+’.

The Outlook reflects reduced uncertainty over Rwanda’s access to external funding sources, amid increased diplomatic engagement that has supported a de-escalation in the regional security conflict and greater confidence that government debt/GDP will stabilise in the next few years.

The ratings are supported by strong governance indicators relative to peers, high medium-term growth potential, the highly concessional nature of general government (GG) debt and a record of strong official financial and technical support.

These strengths are constrained by the country’s low GDP per capita and persistent twin budget and current account deficits (CADs), which have resulted in high public and external indebtedness.

The revision of the Outlook on Rwanda’s ‘B+’ IDRs reflects easing financing risks, expected debt stabilisation, and the expectation that fiscal deficit will narrow, and easing regional tensions.

Fitch noted that the country’s near-term fiscal and external financing risks have moderated over the past 12 months, reflecting ongoing donor support.

The majority of Rwanda’s multilateral and bilateral partners maintained strong financial support, with external disbursements reaching about USD1 billion -equivalent to 6.1% of GDP- in the fiscal year ending June 2025 (FY25).

Recent conflict de-escalation has reduced near-term uncertainty over access to concessional financing, although the risk of increased diplomatic pressure remains.

Fitch estimates official external loan commitments at nearly USD1 billion a year (5.5% of GDP) in FY26-FY27, supporting budget and balance-of-payments financing, with 89% of public external debt concessional.

Fitch forecasts GG debt will peak at 79% of GDP in 2027, from 75% in 2025, above the ‘B’ median of 53.4%, before stabilising. This will be driven by continued primary deficits, the incurrence of liabilities linked to the Bugesera project and the expansion of RwandAir, and gradual exchange rate depreciation – 80% of external debt is foreign-currency denominated.

Greater-than-anticipated project spending is an upside to our debt projections. “We expect the high debt burden to be mitigated by the highly concessional nature of external debt, which should translate into favourable affordability”.

Fitch analysts expect the interest/revenue ratio to remain below the 2027 projected ‘B’ median of about 16%. Ratings analysts forecast the fiscal deficit will narrow by 1.1 percentage points, to 3.6% of GDP, in FY26, driven by stronger revenue as tax reforms introduced since FY25 gain momentum.

Tax reform measures exceeded the targets in 1HFY26, generating additional revenue equal to 0.6% of GDP. Lower grants, averaging 2.5% of GDP in FY26-FY27 will partly offset these gains amid regional aid cuts.

“We expect expenditure to remain broadly unchanged, as lower capex and spending rationalisation are offset by higher pension spending”.

Fitch considers that increased diplomatic engagement has supported a de-escalation of the conflict in the eastern Democratic Republic of Congo (DRC) between the Congolese paramilitary group M23 and the DRC armed forces relative to early 2025, although the regional security environment remains fragile.

This follows a US-brokered peace agreement between the DRC and Rwanda in December 2025, alongside Qatar-led talks that potentially provide a framework for sustained de-escalation.

However, implementation has been uneven, with sporadic low-intensity violations highlighting weak enforcement capacity and persistent mistrust, and a re-escalation of the conflict is possible.

The US imposed sanctions on the Rwandan Defence Force in early March 2026, but Fitch does not expect a material impact on external financing as concessional funding is disbursed to the government and not the military.

Rwanda’s ‘B+’ IDRs also reflect high, resilient growth, external vulnerability and inflation, according to the rating note.

Fitch estimates that real GDP growth rose to 8% in 2025, despite spillovers from heightened regional tensions earlier in the year.

“We expect growth to remain robust, at above 7% through 2027 (above the ‘B’ median of 4.5%), driven by strong construction activity (notably of the Bugesera airport, set for completion in early 2028), agriculture and tourism. Potential risks include delays in official disbursements and climate- or health-related shocks”.

Analysts expect the CAD to widen to about 15% of GDP in 2026, reflecting strong economic activity and imports associated with the construction of the Bugesera airport.

The trend of CADs largely financed by strong FDI inflows and official borrowing has led to a buildup in net external debt, which we forecast will reach 65% of GDP in 2026.

However, this is mitigated by the high concessional nature of external debt. Fitch analysts project reserve coverage to remain low, equal to 2.7 months of current external payments in 2026, highlighting the importance of continued access to external financing.

Fitch estimates inflation averaged 7% in 2025 and expects it to rise to 7.6% in 2026, closer to the upper end of the central bank’s 2%-8% target, driven by higher food prices and energy costs.

Ratings analysts said this could prompt further policy tightening in 2026. Since August 2025, the central bank has raised the policy rate twice by a cumulative 75bp to 7.25%. Zambia Growth Revised Downward as Fiscal Pressures Emerge