Rwanda’s economic managers face the daunting task of crafting new measures to bridge the ballooning trade deficit. The country continues to import more goods and services, eating up its narrow foreign-exchange earnings due to sluggish growth in exports.

Despite ongoing efforts to boost exports, the latest central bank figures released this past week show that Rwanda’s trade deficit widened by 12.7 per cent in the first two months of 2016, from $263.55 million to $297.02 million due to high import demand, which increased by 7.2 per cent in value.

Meanwhile exports decreased by 9.7 per cent.

There is growing concern that the widening current account deficit could discourage foreign investors worried about losing their money, while making it difficult for the country to pay its foreign debt as the currency depreciates further.

Figures show that formal exports covered 20.6 per cent of formal imports against 24.4 per cent in the same period of 2015. As a result, the deficit intensified pressure on the foreign exchange market with the franc depreciating against the dollar by 2.6 per cent on March 24 compared with December 2015.

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

“If the current deficit becomes unsustainable, it will ultimately force the country’s currency to weaken; and if you have invested in the country, then obviously the value of your investment drops,” said Andre Roux, co-head of emerging market fixed income at Investec Asset Management Ltd, an asset management company based in South Africa and London.

Mr Roux was in the country to attend a roundtable for the financial sector organised by the Rwanda Development Board.

While definite figures are not available, in 2015, Rwanda was targeting an increase in foreign direct investment to $1.2 billion. In 2013, the latest year for which figures are available, foreign direct investment in Rwanda stood at $257 million.

“I think investors are able to take on risks because high interest rates compensate for the risk of currency volatility, but a very large current account deficit is a weakness that every now and then translates into currency depreciation and hence loss of value of the investment,” Mr Roux said.

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

Minister of Finance and Economic Planning Claver Gatete said the country is now putting more effort into special economic zones to boost industrialisation that will in turn help boost exports.

He also revealed that the country has now identified export areas and has set up an export fund. “If you look at the composition of it is being imported, most of them are consumer goods, things that can be produced here and within the region,” he said.

However, Rwanda is also currently considering taking out a precautionary loan from 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.

But analysts say if the trade deficit is not contained it could also make it difficult for Rwanda to meet its debt obligations.

“If the country has borrowed in dollars, it has a very big current account deficits and if the currency depreciates then the cost of that borrowing goes up as well. It means you have to pay a lot more in terms of your local currency to finally repay what you have borrowed abroad,” Mr Roux observed, adding that a sharply weakening currency creates difficulties for investors as well as borrowers.