Rwanda to Design a Medium Term Debt Management Strategy

As in most former Heavily Indebted Poor Countries, Rwanda’s public debt has increased significantly in recent years, both in nominal terms and as a percent of Gross Domestic Product. Public debt increased from US$1.2 billion (or 21 percent of GDP) in 2010 to US$2.8 billion (or 36 percent of GDP) at the end of June 2016. Both external and domestic borrowing to finance infrastructure projects contributed to this increase.

In addition, the debt portfolio is exposed to refinancing and exchange rate risks emanating mainly from short-term domestic debt and dominance of foreign currency denominated debt, respectively. About 59 percent of domestic debt matures within one year while the average time to maturity is 2.8 years. Foreign currency debt which accounted for 79 percent of total debt as at end-June 2016. Recognizing the need to manage the costs and risks associated with the growing debt burden, the Ministry of Finance and Economic Planning in Rwanda organized a workshop on Medium Term Debt Management Strategy (MTDS) from 26th September to 5th October 2016 at Galaxy Hotel in Kigali, Rwanda.

The main objective of the workshop was to build the capacity of officials in the Ministry of Finance and Economic Planning and the National Bank of Rwanda in designing a medium term debt management strategy, based on cost and risk analysis of alternative financing options. Speaking at the opening of the workshop, the Director of the Debt Management Unit in the Ministry of Finance and Economic Planning in Rwanda, Ms. Stella Nteziryayo, said that Rwanda has in the past been focusing on conducting Debt Sustainability Analysis (DSA), which assesses the levels of government debt.

Given the rising debt burden as well as the need to meet the large financing needs going forward, the Director said that it was important to analyse the cost and risks of alternative financing strategies in addition to conducting DSAs. Furthermore, she observed that the MTDS that they had prepared in the past did not have benchmarks which are deemed important in cost and risk management. She therefore thanked MEFMI for responding to Rwanda’s request for technical assistance at a very short notice. In his remarks, the Director of the MEFMI Debt Management Programme, Mr. Raphael Otieno, said that MEFMI was pleased to work with the Ministry of Finance in the important exercise of designing a medium term debt management strategy. He expressed the hope that Rwanda would use the analysis conducted during the workshop to design a debt management strategy to guide debt management operations over the medium term.

The workshop comprised two activities, namely; training participants on the use of the IMF/World Bank MTDS Analytical Tool, and analysis of alternative borrowing strategies for Rwanda to help in the preparation of a debt management strategy. The following topics were covered during training: overview of the MTDS; debt data preparation using excel; setting objectives and scope of debt management; assessment of cost and risk of existing debt; assessment of the potential sources of funding; determining the baseline macroeconomic projections; determining interest rate and exchange rate projections as well as the shock scenarios; review of the main structural factors in the economy that may have a bearing on the chosen borrowing strategy.

The workshop targeted mid-level to senior officials from the departments of Public Debt Management and External Finance in the Ministry of Finance and from the Financial Markets Department in the National Bank of Rwanda. A total of 10 participants attended the workshop, of which 3 were female, representing 30 percent of the total.

The main outcome of the workshop was that it enhanced knowledge and practical skills of participants on the use of the IMF/World Bank MTDS Analytical Tool. Participants used this knowledge to analyze the costs and risks of Rwanda’s alternative financing strategies over the medium term. They also developed debt management strategic benchmarks for consideration by the authorities.