S&P raises Rwanda’s credit rating
Standard & Poor’s (S&P), an international financial services company, has upgraded Rwanda’s rating from a flat “B” to “B+” thereby boosting investor confidence in the country.
The international credit rating agency is of the view that Rwanda’s economic growth prospects are stronger than peers’ supported by, among others, robust investment levels of about 25 percent of GDP.
A sovereign credit rating is an independent assessment of a country’s creditworthiness. It is important because it gives investors insight into the level of risk associated with investing in the debt of a particular country, including any political risk.
According to the latest S&P global market intelligence insights, despite planned fiscal expansion, the firm expects the government’s debt levels to remain moderate and debt-servicing costs relatively low.
“We are therefore raising our long-term sovereign credit rating on Rwanda to ‘B+’ from ‘B’, and assigning a stable outlook,” reads part of the credit rating agency’s overview on Rwanda’s economic growth.
The Minister for Finance and Economic Planning, Uzziel Ndagijimana, welcomed the credit agency’s overview which he reiterated is based on the country’s strong growth strides “from last year,” the debt situation, and overall stable macro-economic management.
“This is good for investors; being recognized by independent credit rating agencies gives confidence to investors but it comes adding to the other positive indicators and publications.”
At the same time, S&P Global Ratings also revised the country’s transfer and convertibility (T&C) assessment to ‘B+’ from ‘B’.
“The outlook is stable because we expect Rwanda will continue to achieve above-average real GDP growth over the medium term, balanced against risks of fiscal slippages and rising government debt.”
“We may lower the rating over the next year if the government’s investment program significantly increases external financing requirements and external debt above our current projections. We could also see downward pressure on the rating if higher fiscal deficits lead us to reassess Rwanda’s management and sustainability of public finances.”
An additional downward trigger could be, it is noted, if the Ebola crisis currently in the DR Congo significantly impacts Rwanda’s economy and exports.
Although they do not see further ratings upside in the near term, they noted, they may raise the rating in the medium term if the external outlook improves substantially, possibly as a result of government policies to diversify exports.
“We could also raise the rating if income levels rise more rapidly than our current projections.”
The S&P Global Ratings’ rationale is that Rwanda has demonstrated strong GDP growth and above-average growth trends per capita than peers.
The financial services company expects high growth will be driven primarily by public investment, which will likely result in sizable fiscal deficits and rising government debt levels.
Nevertheless, Rwanda’s track record of delivering inclusive growth through government-financed projects and broader macroeconomic initiatives remains reasonably sound.