Poor absorption of the $400 million that Rwanda borrowed through a Eurobond last year has forced the government to rethink plans to go back to the market soon.

President Paul Kagame had announced two weeks ago that Rwanda would raising another $1 billion from the international markets pending an assessment by the International Monetary Fund of the country’s creditworthiness.

The Permanent Secretary in the Ministry of Finance and Economic Planning Kampeta Sayinzoga said Rwanda would only go to the bond market based on the success of the initial issuance.

“What we are saying is that we are not shying away from borrowing again,” said Ms Sayinzoga, nonetheless pointing out that Rwanda has the capacity to borrow externally to the tune of $1 billion.

The IMF was non-commital about the proposed additional borrowing by Rwanda.

“We have not yet had discussions with the government on the Eurobond,” said Mitra Farahbaksh, the IMF country representative in Rwanda. “We will do so during the next mission, which will take place in the fall [between September and November].”

She added: “Until then, I cannot comment.” 

Fitch Ratings, which upgraded Rwanda’s long-term foreign and local currency issuer default ratings (IDR) to B+ from B, cited political uncertainty in the run-up to the 2017 presidential election as the main risk to economic and political stability.

Fitch expects real GDP growth to be 6.5 per cent this year, rising to seven per cent or eight per cent in the medium term.

Last year, Rwanda registered 4.6 per cent growth, its lowest in almost seven years, due to aid cuts by donors over accusations that Kigali supported the M23 rebels that were then fighting the government of the Democratic Republic of Congo.

Growth is expected to be boosted by stronger regional integration within the East African Community and rapid gains in agriculture, mines, tourism and services.

President Kagame had told Bloomberg during the US-Africa Summit that the $1 billion bond would be invested in energy projects and construction of a new airport.

Officials say implementation of key projects for which the previous bond was floated were on course despite concerns over delays in some, such as the Kigali Convention Centre, which missed its May 2014 deadline.

National Bank of Rwanda (BNR) Governor John Rwangombwa told the media that the Eurobond money was being spent on tourism, energy generation and the transport sector.

Credit sustainability analysis

“Through the Eurobond money we have paid PTA Bank some $60 million in respect of a loan for RwandAir,” said the central bank boss. “We have repaid another $50 million we borrowed for construction of Nyabarongo hydropower station, which will be completed this year.

“Works on the convention centre are under way. The centre will be completed next year.”

Mr Rwangombwa added: “Our debt stands at 27 per cent of GDP. This is far below the ceiling.…

“IMF rates us well on the way we manage the economy. We invest these loans in projects that improve the economy. Before we take a decision to borrow, we do a credit sustainability analysis.”

READ: Opposition cautions Kagame over $1b loan

The IMF recommends that total debt not exceed 45 per cent of GDP. Economists said Rwanda was within its debt ceiling despite deficits in the current account.

“The potential difficulty for Rwanda is, of course, its current account imbalance, a product of the trade deficit, combined with a narrow export base, which makes financing foreign debt more challenging,” said Andrew Mold, a senior economic affairs officer at the the United Nations Economic Commission for Africa’s Sub-regional Office for Eastern Africa. 

Experts also say that countries that have sustained economic growth over a long time have had investment rates of at least 25 per cent of GDP, just two percentage points above Rwanda’s.

Investing in hotels and improving the services of RwandAir fit well with the government’s plans to increase revenues from tourism by turning Rwanda into a preferred conference hub.