Amid a biting trade imbalance, government committed to western funders that it will cut back on imports which enabled it to get much-needed relief from the International Monetary Fund (IMF).
On June 8, the Fund approved a $204 million 18-month Standby Credit Facility (SCF) to help it bolster its foreign reserves which were dwindling at an alarming rate. Reserves had dropped to just 4months worth of imports as of March this year. Only $817m was available.
Government and private sector are buying huge volumes of imports for projects – mainly for construction. As result there is exploding demand for dollars that is nearly swallowing up the local currency- the Franc.
In addition, the country was running low on money to buy imports. The government began selling $8m weekly to support the local currency.
But to get the IMF facility, the government committed itself to “preserve fiscal sustainability and maintain a low risk of debt distress.”
Among the commitments government made was to ensure it imported $330m less during the period 2016-2017. In 2014, Rwanda’s imports reached $2.6billion. The volume was at same level last year. It means there could be a drop of up to 15% of import expenses.
With a high trade imbalance, the government borrowing is also so much. But ratings agencies say there is no need for alarm – a position the government has maintained as well.
Moody’s said Friday that it expects the fiscal balance to improve over the forecast horizon, mostly driven by the planned capital expenditure cuts in order to reduce import demand.
The improvements will ease pressure on the external accounts, said Moody’s.
It added; “In light of Rwanda’s track record of policy implementation, Moody’s expects Rwanda to meet the agreed fiscal and structural targets, although a slightly slower growth in the next two years could challenge the government’s ability to deliver on its fiscal adjustment objectives.”
Moody’s Investors Service (“Moody’s”) also assigned first-time local and foreign-currency issuer ratings of B2 to the Government of Rwanda. The outlook is stable, it said.