IMF Chief Christine Lagarde (c) during her visit to Rwanda in 2015, interacts with Finance Minister Claver Gatete and Governor John Rwangombwa of the National Bank of Rwanda
IMF Chief Christine Lagarde (c) during her visit to Rwanda in 2015, interacts with Finance Minister Claver Gatete(r) and Governor John Rwangombwa of the National Bank of Rwanda(l)

In June 2005, a $1.4billion debt owed by Rwanda to creditors was cancelled under the Heavily Indebted Poor Countries (HIPC) initiative. But as KT Press reports, 10 years later, government has accumulated debt that is double the amount which was written off.

When it became apparent to President Juvenal Habyarimana that the RPF rebels were taking more ground, he borrowed up to $250m from the Central Bank (BNR), Rwanda Development Bank (BRD), Social Security Fund (Caisse Sociale) and National Insurance Company (SONARWA) – to finance the war effort. As the post-1994 government took power, they found Rwanda’s foreign debt alone was equivalent to 85 percent of country’s gross domestic product.

So what has caused accumulation of the current debt again? The current external debt amounts to about $2.2billion million while domestic debt totaled $659 million as of the end of 2015.

Central bank records show that for the fiscal year 2014/15, total debt was about $2.8billion – a 30 percent rise compared to $2.3billion the previous year.

Both inside and outside government, there is growing unease that perhaps the country is borrowing too much. Belgium’s University of Antwerp – a regular source of critical research on Rwanda, is the latest to add its voice to the country’s debt problem. The university’s Institute of Development Policy and Management (IOB) released its findings on November 14.

“To finance the country’s ambitious development goals, and in view of its limited tax base and finite supply of donor grants, the Rwandan government needed to borrow again,” says the paper written by three researchers.

They add; “Overall it appears the Rwandan government has fared a prudent course in re-accumulating debt to finance its development. Whereas in absolute terms total public debt now again surpasses its pre-relief levels, the relative debt-to-GDP ratio is still only a third of what it used to be before the HIPC initiative.”

The researchers agree with assessments by the IMF and World Bank – which wrote off the previous debt, and currently also owed huge sums, that Rwanda has “low risk of debt distress”.

To maintain a safety net from the unbearable pressures of huge debt piles, the researchers identify three things which government has done.

Rwanda has ventured into non-traditional, alternative forms of public debt, in view of diversifying its debt portfolio and reducing its reliance on traditional donor support over the medium to longer term.

The researchers write, “First, Rwanda has increasingly sought credit from non-Paris Club bilaterals, including EXIM China and India.  Second, with its maiden 2013 Eurobond the country has made a (relatively successful) entry into international capital markets, although the real test will come when this large bond needs to be refinanced. And third, Rwanda has gradually stepped up its efforts in developing a domestic market for longer-term local currency Treasury bonds, which remains very small to date.”

For example, Rwanda’s debut Eurobond issued on the Irish Stock Exchange in 2013 collected $400million.

The central bank and finance ministry have established a Debt Management Unit (DMU) that keeps an eye on the numbers – reminding government on the redlines. Central Bank governor John Rwangombwa said in June that the debt levels ‘remained sustainable and well below the indicative thresholds for debt distress’.

The Antwerp research notes; “On the domestic debt side, the buy-and-hold of local investors and lack of regional participation in Rwandan Treasury bonds implies that costs are currently higher than what they could be. Therefore Rwanda would do good to make use of all the technical assistance that organizations such as the World Bank, IMF and others offer with respect to financial market development. Of  course,  efficient  domestic  (and,  by  extension,  regional) government  bond  markets  are  not  built overnight,  and  Rwanda  is  right  in moving  cautiously, keeping an eye on potential crowding out of credit to the private sector.”

But there is a ‘catch 22’. “The growing complication of the country’s debt composition needs bigger debt management capacity,” say the researchers.

“Finally, future debt sustainability will be largely made or broken by how successful Rwanda is in expanding and diversifying its exports.”




Leave a Comment