Rwanda’s franc likely to drop 8 pct this year- central bank

Rwanda’s franc is likely to fall 8 percent in 2016 and about 5 percent in each of the two following years, central bank governor John Rwangombwa said, as a construction boom fuels the demand for dollar-priced imports.

Adding to the downward pressure on the franc, the nascent mining sector, a significant foreign exchange earner, has been hit by the global fall in commodity prices, pushing the trade deficit out to $297 million in first two months of this year.

The currency has lost 11 percent of its value against the dollar in the last year, eating into foreign exchange reserves, and now trades near a record low of 775, according to Thomson Reuters data.

Rwangombwa said the government was trying to compensate by phasing its investment projects and embarking on a “Made in Rwanda” import-substitution drive, but accepted that the franc was going to have to weaken.

“According to our three-year plan, we expect the pressures to continue but not take us to any crisis,” he told Reuters late on Monday in his offices in the capital, Kigali.

Given the drop in foreign exchange reserves, the International Monetary Fund has said the authorities should allow the exchange rate to “adjust as necessary”.

The governor did not give a figure for reserves but said there was no question of Rwanda, which launched a $400 million Eurobond in 2013, being unable to meet its obligations.

“We don’t have any problem with meeting our commitments as a country,” said Rwangombwa, a former finance minister.

Rwanda’s economy has expanded rapidly since a 1994 genocide in which 800,000 people were killed, posting average annual growth of 8 percent in the last decade and lifting its gross domestic product to $8.5 billion.

The government has embraced market-based reforms as part of its plan to achieve middle-income status by the end of the decade. The World Bank defines middle income as a nation with annual per capita income of more than $1,045.

However, it remains one of the poorest countries on the continent, with its 11 million people scraping by on just $730 per capita a year, according to the IMF. The central bank is forecasting economic growth this year of 6.3 percent.

In a bid to deepen its domestic capital markets and reduce a reliance on foreign aid – which still accounts for 40 percent of government revenues – the central bank is launching a debut 15-year domestic bond this month that Rwangombwa said should attract interest from investors in Kenya and Uganda.

A five-year, $20 million infrastructure bond launched in February had a final coupon of 12 percent and was more than three times oversubscribed.