This month, Paul Kagame was re-elected as president of Rwanda. He has been de facto in power since the end of the genocide in 1994. While Kagame has been responsible for significantly transforming the Rwandese economy, he has been criticised by US and EU human rights groups for silencing virtually all political opposition to his rule. His current bid for the presidency was only possible after the constitution was amended in December 2015 which made it possible for him to run a third time for re-election.

Impact on country risk

The re-election of Kagame does not come as a surprise since the amendments to change the constitution where approved in a referendum by 98% of the votes. In the last 15 years the economy has undergone a significant transition. The country has been growing by almost 8% on average, poverty has been strongly reduced and the business environment has improved significantly. But at the same time the economy continues to face a number of challenges. Indeed, external imbalances are large. While the current account deficit was around 7% of GDP in 2011, it rose to around 14% of GDP in 2016. This increase was mainly due to an increase in good imports and a reduction in development aid on which the country depends heavily. The re-election of Kagame means that the current economic policy will continue. Currently, the government is trying to address external imbalances and become less reliant on aid. The increased exchange rate flexibility has led to an appreciation of the currency and thereby a slight reduction of imports in 2017. At the same time the government is implementing a ‘made in Rwanda’ programme in which they try to replace the imports of goods in 4 specific sectors by local products. The government has also tried to attract more tourism and become a conference destination in East Africa. This is done via large investments in RwandAir and the Kigali Convention Center. But while these investments still have to pay off, they already led to an increase in public debt. While public debt was around 22% of GDP in 2013, it was at 45% in 2016. Nevertheless, this remains a sustainable level. Additionally, the country has been trying hard to attract more FDI. While FDI as a share of GDP has increased the inflows of investments into the landlocked country, they remain relatively small and not sufficient to fund the large current account deficit. This is leading to a build-up of external debt. Nevertheless, both the MLT and ST political risk outlook remain stable in category 6 and 4 respectively.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com