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Rwanda May Delay Eurobond Sale, Cut Growth Forecast on Aid Cuts

December 05, 2012

Rwanda may reduce its growth forecast for 2013 to as low as 6 percent and delay a global debt offering because of aid cuts over the country’s alleged backing of a rebellion in Congo, central bank Governor Claver Gatete said.

The extent of the slowdown will depend on how deeply the government needs to cut capital spending, he said today in an interview in Kigali, the capital. In June, Finance Minister John Rwangombwa forecast the economy would grow 7.7 percent this year compared with 8.6 percent in 2011.

“We had projected 7.5 percent next year and the impact now could be between 1 and 1.5 percentage points,” he said. “That depends on how the government is going to re-prioritize what to cut -- if it’s an electricity or water project, a road project - - and how that will affect the economy.”

Donors including the U.K., the Netherlands and Germany suspended aid to Rwanda after a United Nations group of experts accused the country of supporting rebels fighting in the eastern Democratic Republic of Congo. Rwandan President Paul Kagame denies the allegations.

The cuts equal about 12 percent of planned expenditure through June 2013, Gatete said. Lawmakers are scheduled to vote on any proposed budget adjustments in January, he said.

The government will also hold back on plans for its first global debt offering as early as this month because the “political” situation has rattled market confidence, which may drive up borrowing costs, Gatete said. Rwangombwa said in May the country planned to raise $300 million in U.S.-dollar dominated bonds in 2013.

‘Political Atmosphere’

“You can imagine when there is an atmosphere like this one, you need the public to understand what is going on,” he said. “We don’t want them to take into account the rumors going on here, the political atmosphere, the allegations, the cutting of aid.”

Rwanda’s ratings outlook was lowered to stable from positive at Standard & Poor’s in October, which cited the aid freeze as a reason. S&P and Fitch Ratings have both assigned Rwanda a B long-term sovereign credit rating, five steps below investment grade and on par with the African nations of Uganda, Mozambique and Seychelles.

Rwanda is trying to wean the economy off outside budgetary aid, which accounts for about 40 percent of planned expenditure for 2012-13, partly because the country doesn’t want to be beholden to the agendas of foreign governments, Gatete said.

Development Fund

The government is operating a development fund, known as Agaciro, which means dignity in the local Kinyarwanda language, with voluntary contributions from citizens and other benefactors, raising 25 billion francs ($40 million) since it started in August, said Gatete. The proceeds will help develop infrastructure and advance education and health programs.

“For Rwanda, now we understand whether you are genuine in terms of giving your money or not,” Gatete said. “What we can see now is that it’s money tied to politics.”

Growth in 2012 is expected to “surpass” the 7.7 percent forecast earlier this year as almost every part of the economy has performed better than expected, while growing private lending has stoked domestic demand, he said. Still, a sustained slowdown in Europe will pose a risk to Rwanda economy next year as it may damage the main sources of the country’s foreign exchange earnings including tourism, coffee and tea exports, Gatete said.

To contact the reporters on this story: Sarah McGregor in Kigali at; Saul Butera in Kigali at

To contact the editor responsible for this story: Nasreen Seria at

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