Rosier future as Rwanda gets star borrower ratings
Moody’s’ nod is a welcome relief as Kigali seeks resources to finance its ambitious development projects
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.
“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 $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. of
The good news is that the recent surge in exports will help finance external debt payments.” Thomas Alun, IMF Resident Rep in Rwanda
President Kagame lays the foundation stone to kick off construction of Bugesera International Airport.