Steep rise in Rwanda's public debt worries MPs
By EMMANUEL RUTAYISIRE Special Correspondent
Posted Saturday, March 9 2013 at 20:18
Posted Saturday, March 9 2013 at 20:18
IN SUMMARY
- The loans are meant to finance small and medium enterprises in the agricultural sector and electricity rollout in rural Rwanda.
- Rwanda's SME segment has been exhibiting a high appetite for investment capital over the past couple of years even as most local financial institutions continue to shun it, considering it a high-risk area.
Rwanda's recent aggressive borrowing saw lawmakers raising concerns last week over the surge in the country's cost of debt hurting the economy, which is also facing pressures from global economic uncertainties and aid suspensions.
Minister of Finance and Economic Planning Claver Gatete faced tough questions from parliamentarians last week as he sought their approval for government to borrow $17 million.
The loans are meant to finance small and medium enterprises in the agricultural sector and electricity rollout in rural Rwanda.
Parliament ultimately endorsed the government decision to borrow $5 million from Arab Bank for Economic Development in Africa for Rwanda Development Bank to lend to farmers while the rest, $12 million, from Opec, is aimed at accelerating the rural electrification programme as well as boosting the capacity of power distributor EWASA.
Analysts view these as strategic decisions, particularly borrowing to finance SMEs, which account for 90 per cent of the businesses in Rwanda and 84 per cent of private sector employment.
Rwanda's SME segment has been exhibiting a high appetite for investment capital over the past couple of years even as most local financial institutions continue to shun it, considering it a high-risk area.
That's why such borrowing, aimed at improving medium and long-term financing for SMEs, is seen as a crucial long-term investment to support growth, job creation and economic output.
While the rural electrification programme is viewed as a social good, parliamentarians were concerned the country could sink into debt given the recent aggressive borrowing to fund other development needs.
Mr Gatete, who until two weeks ago was governor of the National Bank of Rwanda (BNR), requested parliamentarians to expedite the ratification of the two loan agreements, demonstrating the government's urgent need for money to fix the funding shortfall after some donors suspended or withheld aid to Rwanda.
"What is the national debt level? Do we still have the means to service these debts?" MP Jean Damscene Murara asked.
Mr Gatete has sought to allay MPs' fears, noting that with debt ratio of 22.9 per cent of GDP, excluding grants, the national debt is still below the ceiling government has agreed upon with the International Monetary Fund.
Rwanda's nominal GDP stood at Rwf4,437 billion ($6.7 billion) at the end of last year, meaning the country's debt levels stood at Rwf1,016.14 billion ($1.6 billion). The IMF says that roughly, a ratio of debt to GDP below 30 per cent is considered reasonable.
However, it is the pace at which the government is borrowing is what is worrying MPs and some economists.
Last week, Rwanda also secured $60 million from the World Bank and plans to borrow an extra $350 million through the issuance of a sovereign bond, to pay off loans that were acquired to finance the national airline as well as support the completion of the conference centre.
To bridge its funding shortfall, the government will increase its borrowing from the domestic debt market from Rwf8 billion ($12.6 million) that was earlier planned to Rwf20 billion ($31.6 million).
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