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S&P affirms Rwanda’s rating at B+/B with negative outlook
S&P Global has maintained Rwanda's rating at "B+/B", observing that the country's economic outlook remained negative. The negative outlook indicates that Rwanda's large current account deficits could weaken the balance of payment. S&P Sovereign Analyst, Tatonga Gardner Rusike joins CNBC Africa for more.
Tue, 09 Feb 2021 14:49:11 GMT
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AI Generated Summary
- Rwanda's B+ rating is higher than many African peers due to strong growth prospects, policy predictability, international support, and moderate debt levels.
- The pandemic has impacted Rwanda's economy, public finances, and external position, leading to concerns over current account deficits and fiscal challenges.
- Government-funded infrastructure projects are expected to drive growth in the medium term, potentially returning to 7% growth in the next few years despite short-term economic challenges.
S&P Global has maintained Rwanda's rating at B+, with a negative outlook indicating concerns over the country's current account deficits and fiscal challenges. Tatonga Gardner-Roseke, S&P Sovereign Analyst, discussed the factors influencing Rwanda's rating in a recent interview with CNBC Africa. Despite the negative outlook, Rwanda's B+ rating is higher than many African peers, reflecting strong growth prospects, policy predictability, international support, and moderate debt levels. The impact of the pandemic on Rwanda's economy, public finances, and external position has contributed to the negative outlook. Rising public debt, currently at 66% of GDP, has been a result of the country's public sector investment-driven development model. While the current debt level is not yet a high-risk concern, increased fiscal deficits and reduced tax revenue due to the pandemic pose challenges for Rwanda's financial stability. The government's efforts to introduce fiscal stimulus to support businesses and vulnerable households have further widened the fiscal deficit. Projects funded by the public sector, such as infrastructure development, are expected to drive growth in the medium term, potentially leading to a return to 7% growth in the coming years. However, the short-term economic challenges, including the impact of the second wave of the pandemic on sectors like tourism and hospitality, may delay a rapid recovery. With a global economic bounce-back expected post-vaccination, Rwanda's economy could see growth returning by 2022 or 2023. To enhance liquidity for the private sector, reducing fiscal dominance and government borrowing in the domestic market is crucial. By lowering interest rates and improving the transmission mechanism, banks can make more credit available to businesses, fostering economic growth and recovery. While challenges persist in the short term, Rwanda's strong fundamentals and strategic investments point towards a potential resurgence in economic growth in the medium to long term.
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