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Investing.com -- Fitch Ratings has revised the outlook for Rwanda’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from stable to negative, while maintaining the ’B+’ rating. The revision reflects increased risks to external funding and escalating regional tensions, among other factors.
The escalating conflict in the eastern Democratic Republic of Congo (DRC) could significantly limit Rwanda’s access to concessional external funding, potentially impacting external and fiscal metrics and economic growth. Grants and concessional loans from the official sector, which average around $1 billion per year, are a significant source of government revenue for Rwanda, contributing to about 7.0% of GDP in 2025 and 2026.
The recent escalation of military action by the Congolese paramilitary rebel group M23 has led to a backlash from donors. As a result, the UK has paused bilateral aid and Germany has suspended new financial aid to Rwanda. The US and Canada have imposed export restrictions and sanctions on Rwandan officials, and the Rwandan government has ended bilateral aid and diplomatic relations with Belgium.
Despite ongoing negotiations for a ceasefire between Rwanda and the DRC, mediated by Qatar, the success of these talks remains uncertain. Previous ceasefires in 2023 and 2024 failed to result in a lasting suspension of the conflict.
Rwanda’s government debt rose to 77.8% of GDP in 2024, up from 72.8% in 2023, driven by a wide fiscal deficit, exchange-rate depreciation, and an increase in deposits. Fitch expects the debt-to-GDP ratio to stabilize around 81% through 2026.
Rwanda’s ’B+’ rating reflects its low GDP per capita, high public and external indebtedness, and twin budget and current account deficits. These weaknesses are counterbalanced by the highly concessional nature of the country’s debt, strong governance indicators relative to peers, high medium-term growth potential, and a history of strong official financial and technical support.
Real GDP growth increased to 8.9% in 2024, up from 8.2% in 2023, driven by strong public and foreign investment and robust household consumption. Fitch anticipates real GDP growth to average 7% over 2025-2026, supported by the construction of Bugesera airport, lower inflation, and strong labor market dynamics.
Fitch forecasts the fiscal deficit to narrow to 5.9% of GDP in the fiscal year ending in June 2025 and to 4.3% in FY26, from 6.4% in FY24. Government revenue is expected to remain largely unchanged as new tax measures will offset a decline in grants.
Rwanda’s current account deficit (CAD) widened to an estimated 13.0% of GDP in 2024, driven by a high import bill. Fitch expects the CAD to narrow to 12.2% and 11.2% of GDP in 2025 and 2026 respectively, partly due to lower food and fuel imports and reduced capital expenditure.
Factors that could lead to a downgrade include a significant decline in grant and/or concessional external disbursements leading to pressures on external finances, or a failure to stabilize government debt/GDP at or near current levels over the median term. Conversely, reduced uncertainties regarding external financing sources or a material reduction in government debt/GDP could lead to a positive rating action.
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