Rwanda’s Misty Sales Swing
Rwanda’s maiden $400 million sovereign bond received $3 billion in orders sending the issue yield below 7 percent even though it is $100 million short of qualifying for the benchmark EMBI, donors have suspended 3 percent of GDP in budget support in response to authoritarian and military intervention tendencies, and the IMF’s latest non-program review presented a mixed picture despite headline 7 percent economic expansion. With currency depreciation and bad weather hurting crops, inflation is running at the same number as the current account deficit tops 10 percent of GDP. The government’s development and poverty reduction strategy envisions middle-income status by 2020 with medium-term double digit growth although social and physical infrastructure continues to lag the target. With the Eurobond borrowing, half to refinance previous commercial debt and the proceeds going to the state airline and Kigali convention center, the fiscal gap will hit 7 percent of output and tax collection is only twice that ratio. On monetary policy the central bank has started to tighten while reserve money increases at a 15 percent annual tempo. According to the most recent financial sector assessment bank non-performing loans are low at 5 percent but three institutions account for 50 percent of assets with corporate credit concentrated in construction and housing. Savings cooperatives in hundreds of districts have been brought under supervision and will be consolidated into national units. The nascent stock exchange should see additional listings that can be cross-traded in East African neighbors, and the World Bank’s 2013 Doing Business ranking led the sub-region in 50th place. The IMF concludes that the sovereign debut will not affect overall debt sustainability as management capacity can handle the challenge within improving export performance as diversification proceeds from the narrow agricultural base.
The exchange rate is roughly in line with fundamentals helped by remittance inflows that came to $400 billion for all developing countries in 2012 at an average 9 percent cost according to the World Bank’s migration unit. China, India, the Philippines and Mexico remain the top destinations, while as a share of national income Liberia and Lesotho in Africa are among the leaders. East and South Asia took half the total, with the latter dominated by Bangladesh and Pakistan mainly from workers based in the Persian Gulf. Eastern Europe and Central Asia were one-tenth the total but slipped 5 percent with the persistent Eurozone crisis. US-Mexican movement prevails in Latin America but recent peso appreciation against the dollar has slowed it. The MENA region spiked from the upheaval in Egypt as existing families joined job-seekers abandoning domestic prospects in the mix. Sub-Sahara Africa and Nigeria in particular were flat last year, but the next phase of expatriate mobilization may specifically embrace diaspora bonds where yields can literally be far-reaching.
