Rwanda recovers from financial squeeze, slowly

The Rwandan government issued a $400 million Eurobond yesterday, successfully borrowing capital on the international market to plug its debt gap. The funds, which pay a yield of 6.875 per cent, will be used to finance the building of its convention center, the development of RwandAir, and a hydroelectric power project.

This success comes on the heels of the World Bank and the African Development bank releasing some of the funds that had been suspended last year––$50 million and $49 million, respectively, according to diplomats in Kigali. While most of this money has been shifted from general to sectoral budget support, the range of donors I spoke with in Kigali all questioned this absolute distinction, suggesting that both categories consist of fungible funds. This releases some pressure on a cash-strapped budget. Donors estimate that at the end of the financial year in June, the Rwandan budget will be around $30-$50 million down due to aid cuts, but that's a sharp improvement on the over $200 million in suspensions that took place last year. The UK government, the largest bilateral donor, is due to make its decision on released aid in June. The IMF has projected healthy GDP growth of around 7,5%, still far below the Rwandan target of 11,5%.

The challenge confronting donors is to make decisions on aid while the M23 and Congolese government are in a de facto ceasefire, pending the talks in Kampala. In the past, Rwandan support has been most obvious during fighting, when the understaffed M23 has relied on Rwandan support. So how do you know whether Rwanda has really ceased its support if fighting has halted since November?

For the moment, most donors don't seem to have evidence of Rwandan support to the M23 this year, although there have been unconfirmed reports from Congolese and NGO officials during the past several weeks of Ugandan and Rwandan crossings. The UN Group of Experts is due to submit an interim report––which is usually conservative, saving most information for the final report at the end of the year––in several months.

Meanwhile, the relation between donors and the Rwandan government has been deeply affected. While donors used to be intimately involved in financial planning with the government, relations have cooled on both sides.