21 June 2012

Rwanda: IMF Eases Rwanda's Borrowing Restrictions

Rwanda will have greater access to credit after the International Monetary Fund (IMF) eased restrictions on the country's non-concessional borrowing.

Non-concessional loans are provided to IMF members with very strong policies and policy frameworks, mainly through what is termed as stand-by arrangements, flexible credit line and the extended fund facility.

The country needs to raise more resources as it steps up efforts to implement its infrastructural projects mainly in energy generation and transportation.

According to a letter of intent to the IMF, government says it has already agreed to a limit of US$240 million of non concessional borrowing during the Policy Support Instrument (PSI), a macroeconomic programme supported by the IMF-which does not involve financing.

The three-year programme, which was launched in 2010, is set to expire on June 29, 2013. It has helped to improve the confidence of international lenders, allowing the country to access foreign capital in form of non concessional loans.

The US$240 million is expected to fund the expansion of the national carrier, RwandAir and the implementation of the Kigali Conference Centre (KCC).

"We have requested that the current ceiling be raised to US$255 million, and untied from the two previously identified projects to accommodate non-concessional borrowing of up to US$15 million by the Rwandan Development Bank (BRD)," the letter signed by Finance Minister John Rwangombwa and Central bank governor Claver Gatete, which Business Times has seen reads in part.

The letter describes the policies that the country intends to implement in the context of its request for financial support from the IMF.

In a recent interview with Business Times, Rwangombwa said that; "The IMF has eased their restrictions on us borrowing on non-concessional terms. It just shows we are in a good position in terms of our debt numbers and ability to borrow more."

Dmitry Gershenson, the IMF Resident Representative recently told Business Times that Rwanda's debt sustainability conditions appear favourable given the fact that its current debt stock stands at only 15 per cent of its GDP which is rather low, on account of debt waivers it agreed with donors.

The country has also been classified by the IMF and other multi-laterals as one with a high capacity to sustainably manage its debts, he said.

The letter of intent states that the country continues to make progress with its economic programme.

"Growth is robust and inflation remains in the single digits," it reads. "We stand ready to take any further measures that may become appropriate for this purpose,"

The request to raise the ceiling of non concessional loans will provide government with more options to borrow in order to implement its priority projects.

Under the Memorandum of Economic and Financial Policies (MEFP), government commits to achieve sustained economic growth and poverty reduction.

The strategies to achieve these goals are set out in the Economic Development and Poverty Reduction Strategy (EDPRS) for 2008-121 and Rwanda's Vision 2020.

Rwanda's economic growth is estimated to reach 7.7 per cent in 2012, driven mainly by a good harvest, and strong domestic demand especially in the construction sector.

Over the past few months, the Rwandan franc has remained stable, acting as an external anchor and was a key reason for the single digit inflation.

However, the higher inflation risks remain due to uncertainties related to exogenous shocks, including high fuel prices on the international market.

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