Fitch Affirms Rwanda at ‘B+’ Again

The Fitch Ratings has affirmed Rwanda’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a stable outlook. 

This is the second time the international financial rating tool has rated Rwanda at the same level despite coronavirus constraints to the economy.

On May 4, 2018, Fitch Ratings had the same rating which indicates that Rwanda is able to handle its standing debt, promised payments and the expected financial loss suffered in the event of a default.

The Fitch’s review committee report released on August 25, 2020 said that despite the current constrictions in the economy, Rwanda will be able to make it out of the coronavirus shock depending on its Gross Domestic Product (GDP) performance.

“A return to strong GDP growth and fiscal consolidation consistent with stabilizing government debt/GDP will enable Rwanda to absorb the adverse impact of the coronavirus pandemic on its creditworthiness at the ‘B+’ level. Nevertheless, risks are currently to the downside” the report said in part.

Despite Rwanda’s fiscal deficit widened to over 10% of GDP in the fiscal year ending June 2020 (FYE20), from about 5% in Fiscal year ending 2019, the report opinion showed measures in the government’s Economic Recovery Plan are estimated to have an incremental cost of over 3% of GDP in 2020-2021 and include support for vulnerable households, subsidised loans and credit guarantees for hard-hit sectors and tax leniency measures.

Some of these measures are already being implemented with a planned Rwf200 billion expected to be raised in the Covid-19 Economic Recovery Fund (ERF) of which so far Rwf100billion has been pooled in the fund to finance large and medium business affected by the Covid-19 crisis.

The tourism sector alone, which is Rwanda’s largest source of foreign currency is set to take a share of Rwf50billions, while the remainder will be shared in key development sectors such as infrastructure, agriculture and industry.

With these government’s intention to prioritise economic recovery the report said that the fiscal deficit will stay at over 9% of GDP by end of 2021 and to only start to narrow in 2022 to a still high level of nearly 7% of GDP and a five year average of deficits to 5.5% of GDP.

On the other hand, the report said that the government will have to borrow more (with a debt ratio of 70%) above its previous good record of staying within the recommended debt ceiling (of 50% of GDP in present value (PV) terms).

This is based on the current gross debt (at face value) which rose to about 63% of GDP as of July 2020, up from about 55% in July 2019.

However, just as the Central Bank of Rwanda anticipated coronavirus impact on the economy, the Fitch rating opinion, also suggested growth to slow sharply as a result of coronavirus-related disruptions to economic activity.

“Economic activity could still expand by 1% in 2020 (from over 9% in 2019) reflecting high trend growth, although risks are skewed to the downside. Real GDP grew 3.6% yoy in 1Q2020, with agriculture and industry slowing markedly,” Fitch Ratings said.

The report also shows that Rwanda scores better than 53% of all countries on World Bank Governance Indicators, despite weak performance on the Voice and Accountability pillar but hand Rwanda a governance score (of 5) for both political stability and rights and for the rule of law, institutional and regulatory quality and control of corruption.




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