S&P reports Rwanda’s credit rating at B+ with Stable outlook
Written by: Dias Nyesiga
Sunday, August 25th, 2019, 10:32
Despite government’s increased budget deficit by 3 percent in the 2019/20 budget target as compared to 2018/19 financial year, which is likely to increase its debt, international credit ratings have provided optimism to the economy expected to grow at 7.8 have provides optimism.
The Standard and Poor( S&P ) global ratings raised its long term sovereign credit rating on Rwanda to B + in August from B with a stable outlook while it (S&P) put short term credit ratings at B with the transfer and convertibility (T&C) assessment to 'B+' from 'B'.
In regard to rating, a credit rating is a benchmark investors mainly the sovereign wealth funds, pension funds use to gauge the credit worthiness of Rwanda, which has a bigger impact on the borrowing costs. A lower rating would mean Rwanda would borrow at high costs.
Experts are hopeful that the outlook banked on the ratings is stable given the fact that the country’s real GDP growth expected to grow above average over medium term, balanced against risks of fiscal slippage as well as rising government debt while advising that the government should have the debt ploughed in the sector that generate productive growth.
The government’s debt to GDP accounts for 40.20 percent as of August, 2019 compared to 37.60 percent pervious. Accordingly, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.
Again, Dr Uzziel Ndagijimana, Finance Minister says that the latest Debt sustainability analysis conducted this year in April indicated that the country has the capacity to sustain the debt in both medium and long term.
The S&P says it is likely to raise the rating in the medium term if the external improves substantially which would be triggered by government policies such export diversification to cut down on trade deficit or a rapid increase in income levels.
On the likelihood of lowering the rating, S&P says higher fiscal deficits would prompt it to reassess the country’s debt management and sustainability of public finances but also the capacity of Ebola crisis in DRC to negatively impact on Rwanda’s exports.
Accordingly, as S&P rated Rwanda’s credit worthiness at B+ with a stable outlook, moody’s credit rating was last set at B2 with stable outlook while Fitch’s credit rating for the country was last reported at B+ projecting the country’s continued stable outlook.