Rwanda is experiencing a dollar scarcity amid a depreciating franc and fears of a rise in inflation.
Forex bureaus in Kigali have stopped changing francs into dollars for regular customers, with reports that they are hoarding the greenback to sell to a select clientele at high exchange rates.
Traders are buying dollars at as high as Rwf1,400 per unit from agents in the black market, up from around Rwf1,350 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 are only selling dollars to just a few known forex brokers, a customer who wants dollars has to go through those. One dollar goes for Rwf1,400, and in some places it is more. That is, of course, very expensive and that’s why we can’t sell to anyone for fear of the central bank sending its agents disguised as customers,” said one agent who sought anonymity for fear of reprisals.
The central bank recently mounted an operation against forex traders involved in illegal trading, closing down a number of bureaux.
Now, importers say they cannot even get half of the dollar quantities they need from their banks, forcing them to turn to the black market.
D’amour Uwamungu, an importer based in Kigali, said his foreign suppliers have been waiting for payment for weeks but he couldn’t find dollars.
“My bank cannot even give me 40 percent of the dollars I need. Many traders are stranded with unpaid purchase orders,” he said.
Diane Karusisi, Bank of Kigali CEO, confirmed that there has been a dollar scarcity in the market for a while now, “but it is not out of hand.”
“If you want $1 million you can’t get it, but we try to give our customers up to 80 percent of the requests,” Dr Karusisi said. “What we do is give allocations depending on the request. It might not be immediate but, after a few days, we give them the money.”
Zephanie Muhigi, a forex trader in Kigali, blamed the crisis on external forces, including the war in the Democratic Republic of Congo.
"The dollar demand keeps rising, and the war in eastern DRC has also hurt our business. We used to get a lot of dollars from DRC, but they've dried up since the conflict broke out in 2022," he said.
The Rwandan franc depreciated 3.7 percent in the first half of 2024, higher than the historical averages, with the central bank blaming it on a widening trade deficit.
“We expect to see further depreciation this year, of around eight percent, compared to the normal five percent or below, which we have been seeing for the past 20 years,” said National Bank of Rwanda Governor John Rwangombwa.
Mr Rwangombwa says that although the economy has registered some growth, it is not reflected in export sectors, so it is impacting the country’s foreign exchange earnings.
In the first half of 2024, exports reduced by 0.9 percent, from an 11.2 percent growth in the same period in 2023, while imports grew by 5.7 percent.
Trade deficit widened by 9.5 percent in the second quarter of 2024, and it is expected to grow further, and worsen depreciation of the local currency.
“Most of our traditional and non-traditional exports were hit by price reductions on the international market. Food exported to the region also declined, we need to continue diversifying our export base,” Mr Rwangombwa said.
“The official reserves increased 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 end of the year,” he assured.
The growing appetite for capital goods, which the country needs to power its development, will continue to drive up demand for dollars.
“The concern will be, the depreciation remains consistently high. Like last year, when we had a depreciation rate of 18%, that is not healthy,” the central bank boss said.
Although Rwanda’s economy has shown resilience, it continues to suffer from contractions blamed on external factors such as the wars fought in Ukraine and Gaza.
The dip in commodity prices on the international market has hurt the country’s key exports such as coffee, tea and minerals, although underperformance of the coffee subsector has also presented a problem.
The central bank recently cut its key policy rate by 50 basis points to 6.5 percent, a decision it said was driven by a need to stimulate lending and boost economic growth.
The central bank projects inflation within the 2-8 percent band.
