Rwanda hits dollar shortage as franc weakens

Traders are buying dollars at about Rwf 1,400 per unit from black market agents, compared to Rwf 1,350 a few months ago.

According to official data, the Rwandan currency lost 3.7 percent against the dollar in the first half of 2024.

“Here in the CBD, we only sell dollars to a few well-known currency brokers, a customer who wants dollars has to go through them. One dollar is worth Rwf 1,400, and in some places it is more. This is of course very expensive and that is why we cannot sell to anyone for fear that the central bank will send its agents disguised as customers,” said an agent who sought anonymity for fear of reprisals.

The central bank recently organized a crackdown on currency traders involved in illegal trading, closing several offices.

Now, importers say they can’t even get half the dollar amounts they need from their banks, forcing them to turn to the black market.

D’amour Uwamungu, a Kigali-based importer, said his foreign suppliers had been waiting for payment for weeks, but he could not find dollars.

“My bank can’t even give me 40 percent of the dollars I need. Many traders are stuck with unpaid buy orders,” he said.

Diane Karusisi, CEO of the Bank of Kigali, confirmed that there has been a shortage of dollars in the market for some time, “but it is not out of control.”

“If you want a million dollars, you can’t get it, but we try to give our clients up to 80 percent of requests,” Dr. Karusisi said. “What we do is give assignments based on the request. It may not be immediate but, after a few days, we give them the money.”

Zephanie Muhigi, a foreign exchange trader in Kigali, blamed the crisis on external forces, including the war in the Democratic Republic of Congo.

“The demand for dollars continues to rise, and the war in eastern DRC has also hurt our business. We used to get a lot of dollars from the DRC, but they have dried up since the conflict broke out in 2022,” he said .

The Rwandan franc depreciated by 3.7 percent in the first half of 2024, above historical averages, which the central bank blames on a widening trade deficit.

“We expect to see further depreciation this year, around eight percent, compared to the normal five percent or less, which we have been seeing for the past 20 years,” said National Bank of Rwanda Governor John Rwangombwa .

Rwangombwa says although the economy has seen some growth, it is not reflected in the export sectors, so it is affecting the country’s foreign exchange earnings.

In the first half of 2024, exports fell by 0.9%, from growth of 11.2% in the same period in 2023, while imports grew by 5.7%.

The trade deficit widened by 9.5 percent in the second quarter of 2024, and is expected to grow further and worsen the depreciation of the local currency.

“Most of our traditional and non-traditional exports were affected by price reductions in the international market. Food exported to the region also declined, we need to continue to diversify our export base,” Rwangombwa said.

“Official reserves rose from 4.1 months in June 2023 to 4.7 months of imports in the first half of 2024, and are expected to remain strong growing to 4.8 months by the end of the year” , he assured.

The growing appetite for capital goods, which the country needs to fuel its development, will continue to drive demand for dollars.

“The concern will be that depreciation remains high. Like last year, when we had a depreciation rate of 18%, that’s not healthy,” the central bank chief said.

Although Rwanda’s economy has shown resilience, it continues to suffer contractions attributed to external factors such as the wars in Ukraine and Gaza.

Falling commodity prices on the international market have hurt the country’s main exports, such as coffee, tea and minerals, although the underperformance of the coffee sub-sector has also presented a problem.

The central bank recently cut its key policy rate by 50 basis points to 6.5 percent, a move it said was driven by the need to stimulate lending and boost economic growth.

The central bank projects inflation within the range of 2-8%.