Aid cuts: Hold your horses, the sky isnt falling (Part 2)

Rwanda’s interference in Congo destabilizing region, SADC leaders say (Tehran Times, 21 August), ICC asked to prosecute Rwanda’s Kagame (AFP, 18 August)!!!!  

On the first of this month, in reaction to the Blogospheres and Twitter world’s Chicken Little-like excitement about the aid cuts and delays, I wrote a column titled ‘Aid cuts: Hold your horses people, the sky isn’t falling’. I argued that, despite the unfortunate foreign aid-M23- DRC imbroglio, things weren’t as bad as the naysayers liked to believe. The $46 million in ‘delayed’ aid, while certainly nothing to be pleased about, paled in comparison with the $918 million that hadn’t been cut or delayed. The headlines weren’t in tandem with the reality on the ground.

I’ve decided to serialize the ‘Hold your horses, the sky isnt falling’ articles because, first of all, the aid cut debate is still on people’s lips and secondly because, honestly, I like rubbing our detractors faces in the dirt.

Few people like bankers or to be honest, anyone working in the financial services industry. But these annoying men and women have one characteristic that you must respect. They have the enviable ability to smell a good deal, and the good sense to flee a sinking ship when they need to. Enter Finch Ratings.

Fitch Ratings is one of the NRSRO Big Three. The other NRSRO’s (Nationally Recognised Statistical Ratings Organizations) are Moody’s Investor Services and S&P (Standard and Poor’s). These American companies are the industry leaders (and gold standard) in measuring the probability that companies and countries (securities) will default on their loans. As anyone who has tried to get a loan in a bank will know, the more the bank trusts the fact that you will repay the loan, the less interest you will have to pay. This is simply because you present a lesser risk to them. Well, use this bank loan analogy and you will understand why Finch Ratings is so important to us.

The higher the rating, the easier it is to sell bonds and treasury bills on the international markets and the less interest we have to pay. And since it’s almost impossible to develop without tapping into the global money market, what Fitch Rating says about a country impacts on its ability to attract investors.

Well, last year Fitch gave Rwanda a ‘B’ rating. What the rating meant was that Rwanda was judged to be a “stable” destination for credit. Other nations given this rating included Argentina, Seychelles, the Dominican Republic and Ukraine. We are currently rated above Ecuador, Greece, Ivory Coast, Haiti, Malawi, Zimbabwe, both Congo’s and Tanzania.

Last year was a good year for Rwanda because there were hardly any negative headlines other than, of course, the usual Op-ed’s and HRW reports. We cannot say the same this year. Not with the GoE report and what not. However, I’m interested in knowing how the moneymen reacted.

Well, in a statement released on Monday, Fitch once again gave Rwanda a ‘B’, supporting its rating by adding that Rwanda has “solid economic policies and a track record of structural reforms, macroeconomic stability and low government debt (22.8% of GDP)”. And the aid cut situation? “Fitch’s central scenario is that Rwanda will continue to attract significant budget support flows reflecting its strong track record in poverty reduction and control of corruption.”

What does the Fitch Ratings tell investors?  It “forecasts the budget deficit will reach 2.3% of GDP by FY2014/15 (from 2.6% in FY12/13 and 0.4% in FY11/12) essentially reflecting lower capital expenditure and the increase in tax revenue owing to GDP growth and on-going reforms to increase tax compliance monitored by the Rwanda Revenue Authority”. So, in layman’s terms, the outlook, despite all the negative headlines, is as positive as it always was.

Think that this rating is all talk? Well, a source in the Ministry of Finance and Economic Planning told me that “major American and European banks such as JP Morgan Chase and BNP Paribas have come to Rwanda with the interest of selling our debt internationally”. These aren’t chumps. If they think they can sell our debt internationally, they probably can. Easily. The smart money is on Rwanda and this Government’s socio-economic strategy. All else is simply hubris


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