As Rwanda Piles Up Yet More Debt, Paul Kagame Is Still Not Telling Full Truth to Investors

By Bosco Mutarambirwa, MBA

Due to understandable fear that his dictatorial regime is coming to an end, Paul Kagame is rapidly mortgaging the country to ensure that he’s not the only loser. He wants to force the people of Rwanda to support his ill-conceived plans, or else risk losing their lifetime savings in case the regime collapses.

The highly publicized Agaciro development fund was unable to raise enough free money to shore up RPF failing regime. Consequently, Kagame is now resorting to issuing yet more debt, in domestic currency this time. It is widely known that RPF had to do a lot of arm twisting in order to fundraise for Agaciro development fund. Today, there are reports that they are also coercing citizens to buy into the new debt issuance, in addition to maliciously making empty “get rich” promises to potential bondholders as you can read in the title of the article below:

What are the implications?

It’s important to notice that foreign investors will not be interested in a Rwandan government debt denominated in the local currency, the Rwandan Franc (RWF). The main reason is that the currency is already very weak, and Rwanda’s high political risk makes it likely that the currency will depreciate even further. Rwanda therefore has no choice but to borrow from its own domestic institutional and individual investors.

It is also crucial to keep in mind that any government debt is always indirectly a taxpayers debt. By accumulating more debt, the government of Rwanda is tragically resorting to financing its operations with more leveraging, which is no different than an individual financing a lavish lifestyle with credit card debt, rather than trying to live within their means. Similarly, what Rwanda ought to rather be doing today is imposing economic structural adjustments on itself – say – by cutting spending on some unnecessarily expensive labor costs etc. But it is not. Like many other troubled economies, Rwanda will wait until IMF comes in and impose austerity. These measures imposed from outside will always ensure two things: that the local population suffers, and that international creditors collect payments on their debt instruments which are usually denominated in foreign currency. Simply put, foreign debt holders are the end winners, while taxpayers are the end losers.

Rwandan taxpayers can see the political risk as well as foreigners can. But in quasi-totalitarian state like Rwanda, the government has enormous power over its population, so enormous that it can tell them what to do without simple resistance. That is because nobody is allowed to protest against the dictatorial regime in the first place.

Rwanda government is therefore likely to take dramatic measures to ensure it collects enough cash on this debt issuance. The first is for RPF to use the usual disguised forceful means. They stare at you and you know what to do, or else you know in the back of your mind that your business is in jeopardy. The second is through malicious trickeries such as telling the ordinary non-sophisticated investors that they are going to get rich quick if they lend money to the government.

Once the above techniques are put into practice and the government receives the borrowed cash, then the clock starts ticking. The good news is that investors are likely to get their money back. Indeed, any monetarily sovereign currency government can pay any debt of any size, so long as that debt is denominated in its sovereign currency. It needs neither to borrow nor to tax, to service debts in its sovereign currency. The bad news, though, is that it has to impose taxes, firstly, to create a demand for the currency and underpin its value and secondly, to allow it to spend without inflating the currency. In Rwanda’s case, given its political risk, inflation is going to be inevitable. Investors who hold RWF denominated debt will be left holding a quasi-empty bag. Their coupon rate will not be adjusted for inflation. This is the advantage that holders of the Eurobond have over RWF public debt holders. Eurobond holders will be paid in dollars no matter what, whether there is a regime change or otherwise.

Notice the timing of the issuance of this Treasury bond. It comes at a time when Rwanda has started running low on other sources of funding, such as foreign aid and DRC minerals once looted through M23. As a result, the government has started piling up a huge amount of debt as its last resort. These are relatively new developments that mainly started with 2013, a year for which Rwanda’s economic results have not been published yet. Potential buyers of the new bond are therefore lacking key information on Rwanda’s economic performance which would facilitate their decision making process.

Nonetheless, this whole bond issuance has to be wrapped up in a month from now. I urge caution to those who are considering buying into this massive fraud called the RPF government. If you have alternative ideas to invest your money, it would be better for you to focus on those and let Paul Kagame drown alone in his sinking yacht.

Edited and submitted by: Jennifer Fierberg

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