The Rwandan opposition has urged the government to shelve plans to seek $1 billion from international markets to finance key projects.
President Paul Kagame announced in Washington during the recent US-Africa Summit that his government plans to borrow the money to finance the construction of a new airport and for power generation, but opposition politicians say the government is accumulating too much unnecessary debt.
Rwanda secured a 10-year Eurobond worth $400 million to complete construction of the Kigali Convention Centre and invest in energy. Sources say part of the money was used to pay an expensive debt for the national carrier, RwandAir.
“I think we are living beyond our means. What did we do with the $400 million that we borrowed? I do not see any progress on the Kigali Convention Centre (KCC). Are they borrowing for elections? How sustainable is this rare appetite for loans? We are concerned,” said Frank Habineza, chairman of the Democratic Green Party of Rwanda.
Should the government succeed in issuing the $1 billion bond, which observers say is likely, it will have borrowed close to the equivalent of its total annual revenue collections. In the fiscal year 20113/2014, the Rwanda Revenue Authority collected Rwf769 billion ($1.11 billion).
The opposition urged the government to embark on internal mobilisation of resources to finance development programmes instead of borrowing.
The opposition said there is a need to implement such programmes in phases by deploying the available resources augmented by limited borrowings.
Claver Gatete, the Minister for Finance and Economic Planning, had promised that KCC would be ready to host the recent AfDB Annual Meetings that were held in Kigali. However, a number of experts have defended the borrowings, saying the money is being invested in projects that will spur growth.
“Indebtedness cannot be avoided but it should be well managed,” said Oscar Bahizi, a Kigali-based economist.
Angelo Musinguzi, a tax expert at KPMG, noted: “The government is looking at developing infrastructure to attract investments that will bring in more revenues.
“There would be a problem if they were borrowing for operation costs but they are investing in projects that make returns and I assume the loan will be spread over a period of time.” He added.
Rwanda’s total public and publicly guaranteed debt was estimated at $2.16 billion, representing 30.2 per cent of the GDP as of June 2013.
The International Monetary Fund urged Kigali to ensure that any new loan commitments do not put unnecessary pressure on the country.
“Going forward, Rwanda’s fiscal policy will need to focus on domestic revenue mobilisation to finance the authorities’ ambitious development goals.
Aligning spending with available resources and judicious selection and financing of investment projects will minimise risks to the budget,” said Naoyuki Shinohara, the deputy managing director and acting chair of the IMF executive board on Rwanda.
Commentators are faulting the government for resorting to massive borrowing in its effort to stem dependence on donor funds as a result of the bad experience of 2012 when aid to the country was suspended over alleged involvement in eastern DRC violence.
By Emmanuel Rutayisire and Alex Ngarambe