Within a period of 12 months, the amount of debt that Rwanda owes its local and international lenders has grown by 19.3 percent – a situation the Finance Ministry says is due to “high disbursement” from external lenders.
The Chronicles has obtained a Finance Ministry internal strategy paper which spells in grim details how much Rwanda owes and how we got there. Titled ‘Rwanda Medium Term Debt Strategy 2021/22-2023/24’, the document shows that even though in public the government puts on a brave face saying the debt level was manageable, behind closed doors there is growing unease as debt expands.
A team of technocrats from the Finance Ministry and central bank called the ‘consultative committee on debt management (DMC)’ is now required to provide month assessments on existing debt and new borrowing.
For the first time, The Chronicles is putting a monetary figure to percentages that have been appearing in the media about Rwanda’s debt.
By end of June, the Finance Ministry document shows, lenders from inside and out Rwanda will be counting a total of Rwf 7.68 Trillion ($7.76billion), or 76.2 percent of GDP – compared to 63.9 percent in June 2020.
To give you idea of the magnitude of this debt, the 2021-2022 budget estimates currently before parliament is about Rwf 3.81 trillion.
“This increase in public debt is attributed [to] external loans (58.8 percent of GDP) contracted to fund the effects of Covid-19 pandemic,” adds the finance ministry in the strategy paper.
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The country’s total external public debt alone will be Rwf 5.93 Trillion at the end of June 2021 from Rwf 4.615 trillion at the end of June 2020, an increase of 10.3%, which the government says is “explained by a high disbursement from multilateral institutions”.
External Public debt is composed of development and budget loans from 17 development partners including China, India, South Korea, the World Bank, Arab countries, and the African Development Bank.
The breakdown is made up of 7 bilateral with individual countries, 9 multilateral donors and some commercial loans which government defends as “supporting various sectors of the economy such as Construction, Transport and Communication, Health, Energy, Agricultural and Rural development, Education and Human Resources Development.”
“Most specifically, the year 2020 and 2021, are characterized by new development partners who have expressed their willingness to support Rwanda in fight against COVID-19, the purchase of vaccines, and the economic recovery,” argues government.
How did we get to all this debt yet in 2000 Rwanda’s entire debt was written off? The strategy paper explains:
Rwanda’s total external debt stock has increased every fiscal year from 2014/15 to 2019/20 due to the largest portion of concessional loans with long grace period (no principal repayment). After HIPC debt relief and MDRI cancellation, the remaining outstanding loans and new disbursements for new loans were under grace period; these imply the accumulation of stock without repayment.
During the period 2014/15-2019/20, multilateral debt held the largest proportion of the debt stock from around Frw 850.7 billion in 2014/15 to around Frw 3,390.5 billion, representing an increase of Frw 507.9 billion on average every year. This increase is mainly a result of Rwanda’s low risk of debt distress status which implied a change of donor’s policy (IDA, ADB) to move from budget loan-grant mixed support to budget loan support only. The change did not only affect the composition of multilateral debt allocation but also the size of the allocated loans upward.
In 2014/15, the commercial debt was around Frw 333.6 billion including Eurobond of Frw 287.8 billion (USD 400 million) and guaranteed debt of Frw 45.8 billion. This has further increased in 2016/17 because of the purchasing of two new airbuses of Frw 142.5 billion (USD 171.6 million) and the contracting of Frw 107.9 billion (USD 130 million) for completion of Kigali Convention Centre (KCC) in 2016. The increase represented 128% which led the stock of commercial debt to around Frw 760.8 billion in a period of six years.
From 2014/15 to 2019/20, bilateral debt has been increased by Frw 271.1 billion. This increase is driven by the increase of financing from EXIM-CHINA, EXIM-INDIA and JICA (Japan).
The exchange rate between SDR and US$ is not fixed overtime, this implies that the total loan disbursed in US$ cannot be equal to the total repaid in US$ at maturity (the end of loan life). Consequently, the Government pays more than it receives on value date as a result of a loss of money during those transactions.
The high increase in [domestic debt] is explained by regular new issuance and reopening of treasury bonds which is costly compared to treasury bills. As the policy is to rollover all matured debt securities (treasury bills and treasury bonds) for helping the market to have tradable debt securities regularly; consequently, interest paid is greater than principal paid.
Although concessional loans still constitute the majority of public debt, non-concessional loans are showing a significant increase since 2016. On the other hand, domestic debt, which is mainly composed of government securities especially Treasury bills together with Treasury bonds (more than 85 percent of total public domestic debt), significantly increased by 3 percent of GDP from 2019 to 2020 given higher issuance of government securities (Frw 347 billion).
Despite the grim numbers, here is how the Finance Ministry defends the debt levels: “Rwanda’s public debt levels remain sustainable despite shift from low to Moderate risk of external and overall debt distress. The debt carrying capacity is still consistent with a classification of Strong performer, thanks to a transparent, accountable and strong prudent debt management. According to the DSA March,2021 Rwanda’s debt sustainability have been significantly affected by negative effect of the COVID-19 pandemic on growth, exports, and revenues, which have sharply raise external and domestic financing needs in 2020.”
As to how much Rwanda is paying back in terms of annual interest, it has reached 3.1% of GDP, or about Rwf 301 billion. However, by 2014, the rate is estimated to reach 3.7 percent of GDP.
Generally, with other countries, the principal payment is higher than interest payment but in the case of Rwanda, the interest payment is bigger than principal payment began in 2013/2014 after issuance of euro-bond.