Rwanda: Sovereign Bond in July 2013 to Make up for Aid Cuts
Tuesday, 19 March 2013
Rwanda expects to float its long awaited USD350mn sovereign bond by July this year, with part of the funds expected to be used in the current 2012/13 budget that was recently revised upwards by 12%. Parliament approved the revision from the RWF1,385.3bn budget initially approved to RWF1,549.9bn. confusingly, the government stated that the anticipated bond proceeds would still be used for t he current 2012/2013 fiscal year although it ends in June, and the bond is currently scheduled for July.

Aid cuts threatened to cut the country’s impressive growth rate, but the government hopes that the bond will plug the funding gaps plugged after some reorganisation in spending: Infrastructure projects and those affecting economic performance will remain on course while cuts will be made on those ‘that will not significantly affect service delivery’. Projects that are yet to start are likely to be postponed.

According to Bloomberg, Rwanda has sound macroeconomic fundamentals and has received a favourable ‘B’ credit rating Standard and Poor, factors pointing to a successful offer. It is expected that part of the bond’s proceeds will be advanced to RwandAir and the construction of Kigali Conference Centre. The airline is expected to retire an expensive loan while KCC is expected to become a foreign exchange earner by offering international service.

Although details of the bond are yet to be confirmed, Finance Minister Claver Gatete has been quoted in the local media that the government was considering a 10-year tenure.

There have been cautions that loans should only be used to finance development projects with concerns that the country was accumulating debt too rapidly, which could prove troublesome in the future. Gatete has recently faced a reluctant parliament as he attempted to obtain approval for two loans worth USD17m. The IMF considers the country’s debt position worrisome if it debt were to breach 30% of the country’s GDP. Currently, the debt is at about 22.9%, leaving significant borrowing headroom for the USD6.7bn economy. Besides the international borrowing, the government is expected to more than double its domestic borrowing from the initially planned USD12.6m to USD31.6m – but both options are more expensive than aid, so the government’s financing costs will rise.

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