Kagame’s Banana Republic Has Recently Acknowledged Rough Times


By David Himbara

Kagame’s banana republic has recently acknowledged some serious difficulties. These range from poor exports, massive imports, depletion of foreign reserves, to changed donor attitudes. Donors no longer want to dump their cash into Kagame’s budget — but would rather spend their money through projects.

This is how the Minister Of Finance, Claver Gatete, and Central Bank Governor, John Rwangombwa, explained Rwanda’s difficulties to the IMF in December 17, 2015:

“ The foreign exchange (forex) market in Rwanda is operating in a structural deficit, due to a narrow export base and strong imports underpinning high growth, exacerbated by recent trends in donor support (away from budget support grants to more project lending). This situation was exacerbated by recent cyclical developments related to mining exports, leading to the aforementioned drawdown in commercial banks’ forex reserves. This situation, coupled with the continued strengthening of US dollar, has put pressure on the value of the Rwandan franc. In cumulative terms, the depreciation of Rwandan franc between 2012 and 2015 will be at around 21.3%, compared to 4.2% recorded between 2004 and 2011. Pressure on the Rwandan franc was also fuelled by speculation from cash traders in July-August. The NBR increased NBR sales to the market in an attempt to mitigate the speculative pressure.”

Regarding trade deficit, Gatete and Rwangobwa explained as follows: “At US$1.32 billion for the first nine months, the deficit is 1.9 percent less than the same period a year ago. The fall in mineral export prices has been offset by the fall in energy import prices, but this offsetting impact is expected to taper in the rest of the year and into 2016. However, the overall balance of payments was in deficit and, as programmed, there has been substantial use of central bank reserves over the course of the year.”

On depleted foreign results, Gatete and Rwangobwa said: “In light of depleted commercial bank forex reserves, the BNR is planning to sell additional reserves of US$90 million, bringing reserve cover down to 3.3 months of projected 2017 imports. The BNR plans to allow further exchange rate flexibility needed to contain additional deterioration of external balances.”

 And what does the IMF say about all this? Here we go:

“ In the short term, downside risks remain. The external position remains vulnerable to further shocks to mineral exports, and the front-loading of donor support in 2015/16 will put pressure on financing in the subsequent year. Hence, the authorities should be prepared to act quickly if additional fiscal and monetary policy adjustment is needed. Notably, the NBR should stand ready to tighten the monetary stance if external circumstances and/or the foreign exchange constraint worsen. Reserve levels, while declining, remain adequate for now, but will eventually need to be buttressed to restore buffers and improve external resilience.”

We live in interesting times.