President Paul Kagame at the ground-breaking ceremony at Bugesera
International Airport on August 9, 2017. PHOTO | CYRIL NDEGEYA | NATION
Rwanda has received the green light to continue borrowing in
foreign markets, after global rating agency Moody’s this week affirmed
its B2 long-term rating.
In its latest assessment,
Moody’s noted that although Rwanda’s debt burden has risen in recent
years and is unlikely to decline in the next few, the country’s
demonstrated institutional strength will allow the government to
maintain macroeconomic and financial stability and can manage this
burden.
“The quality of Rwanda’s institutions supports
the government’s ability to manage the risks associated with a higher
burden. Rwanda has a record of effective policy implementation and
reform,” said the agency.
The rating comes at a time
when Kigali is under pressure to mobilise resources to finance its
ambitious development projects, particularly in infrastructure, to boost
growth and enhance trade links with the region.
Key
strategic projects in the pipeline that have huge financing needs
include the 400km standard gauge railway line linking Kigali to Dar es
Salaam via Isaka, and which is expected to cost about $2.5 billion.
The two countries will co-finance the project.
Rwanda needs to raise at least $1.2 billion for 150 kilometers
of the railway to facilitate cross-border trade as high transport costs
have long undermined its competitiveness.
Businesses
have to spend a minimum of about $4,990 per 20ft container of goods
through the Central Corridor. The cost is even higher through the
Northern Corridor at approximately $5,000 for the same tonnage.
Preliminary studies show that it will cost $2,500 if the container were to be delivered by rail.
Noteworthy interest
“It
will be a game changer… This is a significant cost reduction of about
40 per cent. It is very difficult for our exports to be competitive if
you factor in the transport costs which are already high.
“However,
once transport costs go down, we will become more competitive on the
export market,” said Jean de Dieu Uwihanganye, Rwanda’s State Minister
for Transport in May.
Mr Uwihanganye said both
countries are still discussing the financing model though they have
received noteworthy interest from investors.
“The
negotiations between the two countries (Rwanda and Tanzania) are moving
quickly because of the instructions we received from our heads of
state,” Mr Uwihanganye said.
The SGR from Mombasa port via Uganda was expected to cost Rwanda close to $1 billion, initial studies had shown.
Tanzania
has already started construction of the railway in two phases from Dar
es Salaam to Morogoro covering 330km, and from Morogoro to Makutupora in
Dodoma covering 426km, using locally sourced funds to the tune of about
$3 billion, according to President John Magufuli.
Rwanda also needs funds for Bugesera International Airport whose construction commenced in August 2017.
The airport will complement the growth of the national carrier RwandAir and improve access to the country.
Construction works have been planned in phases for a total of $765 million.
The
first phase is estimated to take about 27 months and end by 2019 at a
cost of about $400 million. At the beginning, the airport will be able
to accommodate about 1.8 million passengers per year.
Rwanda’s
external debt stock remains among the lowest in the region as a result
of prudent macroeconomic, and debt management, according to the
International Monetary Fund.
Rwanda’s external debt level to GDP was at 36.6 per cent which is below the East African threshold of 50 per cent.
Domestic debt stands at about 10 per cent.
“Since
most of this debt was contracted in foreign currency, the issue is
whether Rwanda has sufficient foreign exchange to make all payments on
time.
Surge in exports
The
good news is that the recent surge in exports will help finance
external debt payments going forward,” Thomas Alun, the IMF Resident
Representative, Rwanda told The EastAfrican.
The
main medium-term challenge for Rwanda according to Mr Alun, is to
maintain the current export momentum so that when payments for the
Public Private Partnerships projects materialise between 2020 and 2027,
the export base is sufficient to make these payments in addition to
those associated with current debt obligations.
Rwanda’s
debt servicing rate is currently slightly higher than in the past due
to interest repayments estimated at $26.5 million a year until 2023.
While
these payments still remain well within sustainable levels, given the
current macroeconomic outlook, a repayment risk does arise in 2023, when
the principal on the $400 million Eurobond issued in April 2013, falls
due.
While across EAC, public debt has been increasing
faster since 2012, the risk of debt distress remains low across the EAC,
excluding Burundi and South Sudan according to the IMF-World Bank Debt
Sustainability Analysis, 2017.
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