The Current Rwanda’s currency crisis should worry those who would rather see Rwanda’s good economic performance. Last week, the international monetary fund (IMF) has warned Rwanda that Rwanda’s foreign reserves must be maintained to allowable limit in order to keep stabilising Rwanda’s domestic currency and Rwanda’s only foreign income generator comes from the trade of coffee and tea and in mining sector and since December, the export of tea, coffee and mining product have been increasingly declining which sends the signal that Rwanda will be shortly out of cash and will be forced to print more money into the economy that will further deteriorate the current currency crisis.
The saviour to Rwanda’s currency fluctuation can only come from Rwanda’s central Bank (BNR) but the current situation where foreign reserves falls below the allowable limit, the BNR can only watch and do nothing because it cannot increase the rate, it cannot shrink the money supply because out of foreign reserves, the central bank is not able to create a capital outflow which means that Rwanda’s domestic currency does not have any demand hence the currency crisis where Rwanda’s exchange rate keeps going up against the dollar(hard currency).
Obviously Rwanda’s central bank has no other choice but to let the Rwanda’s currency fluctuate in order to continue keep foreign reserves because it cannot use Rwanda’s foreign reserves to fix exchange rate and if by mistake, it does so, then it means Rwanda will run out of cash and the risk from doing that; the inflation rate will go up and interest rate will also go up and that will create Rwanda’s economic disasters worse than that one that was witnessed in Zimbabwe and horribly thought is that the current Rwanda’s economic crisis may lead to another Ruzagayura famine that Rwanda went through between 1943-1944 killing almost 50,000 Rwandans.
Unlike Ruzagayura Famine which was caused by a prolonged period of drought in the region, another famine in Rwanda would be caused by the political crisis in the region. All doubt towards future and current political stability in the region does hold the further creation of markets and it slows down domestic and foreign investment meaning with that future doubt on economic condition, people would rather hold their foreign currency rather than buy domestic currency because with that doubt on future economic condition, the domestic currency loses demand and foreign currency gets more demand.
The president Kagame’s third term announcement also adds up to any doubt any investor/trader would have towards Rwanda’s future political and economic stability as a result, people are not now willing to invest in Rwanda’s economy and those who hold domestic currency are selling it quickly (more domestic currency supply) to keep foreign currency as their tomorrow’s financial security becomes uncertain hence foreign currency is more preferred than domestic currency.
The current Rwanda’s move to abandon the west and turn eye to Arab world is not in the interest of Rwanda’s economy but a show of defiance by president Kagame and his clique to international call of his to step down coming 2017 and instead of listening, he has chosen to attempt different path of economic partnership and trade between Rwanda and Arab world. This is also a bad move basing on fact that these Arab countries are rich in oil hence their ability to dictate the world market and they cannot be inspirational to Rwanda, a country that sits on the rock.
Rwanda must be open up to more economic trade and opportunities and that can benefit Rwanda and it would make Rwanda a better country that we all deserve and the only remedy to the current Rwanda’s currency/economic crisis is for President Kagame to announce once again that he will not run for a third term coming 2017 and that would be an action that would not make investors jittery and that would save Rwanda from running out of cash.
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Jean paul Ndindamahina
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