$400m Eurobond repayment expected to test Rwanda’s limits

Monday November 11 2019

The multi-million dollar Kigali Convention Centre is part of projects that have fuelled debt. FILE PHOTO | NMG


Rwanda's debt load rose to $5.4 billion last year from $4.8 billion in 2017, as per the latest World Bank data.

Kigali has repeatedly defended the country’s debt level, which is this year projected to rise to 49.1 per cent as a ratio of GDP, from 40.7 per cent last year.

Much of Rwanda’s debt though, is long long-term, with repayment period of up to 40 years, according to the Ministry of Finance.

But the biggest test for the country’s debt burden is expected to come in 2023, when repayment of its $400 million Eurobond will fall due.

The settlement is expected to put pressure on government coffers, even though Kigali still has the option to issue another Eurobond to retire the maturing one like Nairobi has been doing.

The International Monetary Fund has been pressing the government to improve its financial transparency and analyse fiscal risks that could lead to surprises in the economy during the repayment period.


“Rwanda did very well by increasing its domestic revenues by six percentage points to GDP in the decade lead up to 2016. But it kind of stagnated since then,” the IMF Head of Mission to Rwanda, Laure Redifer, told The EastAfrican.

“So we want to look at ways to regain that momentum and we are looking at having a medium-term revenue strategy and tax incentives. But it is all about balance because you do not want a tax burden that is scaring away business.”

Rwanda’s growing debt has been mainly fuelled by large investments like the multi-million dollar Kigali Convention Centre—completed in 2016—for which Rwanda borrowed $130 million.

The expansion of the national airline, RwandAir, which included increases in the size of the fleet at a cost of about $169 million on top of aircraft leases valued at $86 million, also saw its debt rise. This was in addition to the construction of a new airport in Bugesera district, for which Rwanda borrowed $80 million.

A new basketball arena launched in the capital in August is also said to have increased national debt by $104 million.

Despite this aggressive borrowing for infrastructure construction, the county is still within its means to finance those debts, experts argue, citing its heightened capacity to generate enough domestic revenues through taxes from increased exports.

“The current Rwanda medium-term debt strategy looks at what could be the best composition of both external and domestic debt that can actually minimise the cost of borrowing while keeping a prudent level of risk,” the Ministry of Finance said in a recent statement to The EastAfrican about the country’s debt situation.

The government is also banking on maximising concessional funding over the medium term and boosting export diversification to leverage payment of its debts.
“Given Rwanda’s aspirations, continuing the momentum will be important. Analysis suggests that there are additional areas for improvement, however, the potential is limited, given Rwanda’s income level and large informal sector,” says the IMF.

The latest Standard and Poor’s (S&P) rating upgraded Rwanda’s rating from B to B+, as a result of strong economic performance and low deficit which is financed through low-cost borrowing.

The Ministry of Finance says that this rating proves that Rwanda’s risk of defaulting is low – and gives the country a bit of legroom to continue borrowing as long as it does not cross the threshold recommended by the IMF.

Rwanda’s GDP rose by 8.6 per cent in 2018, well beyond the projected 7.2 per cent, supported by strong activity in construction and services.