Rwanda is considering tapping into the precautionary loan given by the International Monetary Fund to reduce the country’s exposure to financial turbulence as well as the economy’s vulnerability to shocks arising from the current global slowdown.

While the details of the negotiations are yet to be made public, the loan is expected to help boost the country’s international reserves, which have come under intense pressure in recent months due to the twin challenges of a strengthening US dollar and lower export revenues due to a decline in international commodity prices.

This has put pressure on the Rwandan franc, which depreciated last year by 7.6 per cent, compared with 3.6 per cent in 2014. 

The EastAfrican has learnt that negotiations with the IMF will be held during the upcoming visit by a team that will be in the country to review the country’s ongoing Policy Support Instrument (PSI) by the end of this month.

“We are still talking …when we reach a final decision we shall let you know,” Minister of Finance and Economic Planning Claver Gatete, told The EastAfrican without divulging further details.

Although the reserves are still above the IMF’s critical threshold of three months of import cover, there is concern that if the country’s import bill continues to rise faster than export receipts, this will put pressure on the country’s reserves. 

On March 11, Standard & Poor’s (S&P) published its updated rating of Rwanda with “B+/B” on the long- and short-term foreign and local currency sovereign credit, but revised the outlook from stable to negative, on rising balance of payments risks.

According to S&P, risks to the economy include further weakening of the mining sector where Rwanda is a price taker for international commodity prices and change in the external financing structure from grants to loans, including an increase in non-concessional loans.

In S&P’s view, the increasing share of debt-financing could pose risks for Rwanda, particularly if the projects it is financing fail to deliver the anticipated increase in foreign-exchange earnings. If these risks materialise or their expectations worsen, it could trigger a lowering of the rating.

“Our government’s fiscal policy has been geared towards reducing unnecessary imports in the future while promoting exports diversification. Our fiscal stance will continue to ensure very prudent borrowing for export and growth-oriented projects,” Mr Gatete said, commenting on the S&P rating.

In 2015, Rwanda’s export revenues dropped sharply by 6.8 per cent to $558.8 million from $599.8 million in 2014 due to lower commodity prices mainly of mineral exports, which dropped by 42.1 per cent from $203 million to $117.8 million.

Rwanda’s growth in 2015 was slightly stronger at 6.9 per cent than the expected 6.5 per cent though it is lower than the 7 per cent registered in 2015.

Inflation remained contained and far below the regional average- 4.5 per cent as of December. However  the IMF says the growth outlook for 2016–17 has become more uncertain, due to recent declines in international commodity prices.   

The economy remains vulnerable to domestic and global shocks, in particular lack of foreign exchange, which may undermine growth.