Rwandan franc to drop further against dollar

John Rwangombwa, the National Bank of Rwanda governor. FILE PHOTO | CYRIL NDEGEYA 

By KABONA ESIARA

In Summary

• Central Bank says the franc, which has depreciated by 8 per cent against the greenback, is projected to lose more ground against the dollar and fall by 9.8 per cent by the end of the year.
• There is growing concern that the falling revenue from key exports, including minerals and agricultural commodities, could expose the economy to further foreign exchange shocks.

The Rwandan franc is expected to depreciate further this year as a result of falling commodity receipts, despite an expected injection of $50 million in programme support from the International Monetary Fund.

Under a $204 million facility agreed in June, Rwanda received $100 million from the IMF, improving its capacity to import from 3.6 months in December 2015, to 3.8 months in September.

“We got the facility, and that is why our reserves remain comfortable. Today, we are at around 3.8 months of import cover, and, with further disbursement of $50 million before the end of the year, we expect the reserves to cover 4.3 months of imports,” said John Rwangombwa, Governor of the National Bank of Rwanda.

READ: IMF offers Rwanda $204 million standby loan

But no respite is expected on the currency front, with the franc, which has depreciated by 8 per cent against the greenback, projected to lose more ground against the dollar and fall by 9.8 per cent by the end of the year, Mr Rwangombwa said in a monetary policy statement released on Tuesday.

Analysts say many growing economies are prone to currency shocks.

“Foreign exchange shortages are a problem for a growing economy. We ultimately need a stronger export sector, while at the same time reducing imports through the strategy of recapturing the domestic market, particularly in sectors like cement and building materials,” said Andrew Mold, the acting director at the United Nations Economic Commission for Africa.

The April 2016 Budget Framework Paper showed that the import cover had fallen to 3.6 months, from 4.8 months and four months respectively at the end of 2013 and 2014 respectively.

There is growing concern that the falling revenue from key exports, including minerals and agricultural commodities, could expose the economy to further foreign exchange shocks.

For the period February to June, Rwanda’s export revenue dropped to $268.57 million, from $275.12 million in the same period last year.

The drop was largely a result of Rwanda’s mineral exports dipping by 36.6 per cent, coffee earnings falling by 9.3 per cent, and tea revenue declining by 5.7 per cent over the reporting period.

Despite minerals remaining Rwanda’s second largest foreign-exchange earner after tourism, for the past two years their contribution to the national coffers has been falling.

This has contributed to the slowing down of Rwanda’s economic growth to 5.4 per cent in the second quarter of the year.

However, the government expects the economy to still hit the 6 per cent growth target set for 2016.

The low export receipts have led to the central bank injecting $8 million weekly to support imports. Previously, the central bank was putting in $4 million to $5 million.During the first six months of this year, the country recorded a 5.1 per cent rise in the trade deficit, from $858.98 million in the same period last year to $902.69 million.