The Board of Directors of the African Development Bank Group granted loans of nearly $250 million to Rwanda in Abidjan to enhance the population’s access to water and sanitation services. The loan includes $199.5 million from the Bank and $50 million from the African Growing Together Fund (AGTF). The Rwandan government will also contribute $24.7 million towards funding the program.
The project was designed to achieve the following goals: (1) improve access to water supply and sanitation services for the Rwandan population; (2) strengthen the management of water resources; (3) enhance the operational performance of water and sanitation service providers; (4) rehabilitate the Nzove 1 wastewater treatment plant; and (5) provide drinking water to an additional 227,000 people.
According to a statement by the African Development Bank, the program, which aligns with the Bank’s Country Strategy Paper for Rwanda and its Ten-Year Strategy, as well as the “High 5” priority areas, especially “improve the Quality of Life for the People of Africa,” will increase the Rwandan population’s resilience to climate change.
The loans granted to Rwanda are probably concessional, meaning the interest rate will be lower than commercial rates. This is typical for AfDB loans aimed at supporting development projects in low-income countries like Rwanda. The repayment period is likely to be long, potentially up to 20 years or even longer. This provides the Rwandan government with ample time to generate the necessary resources to repay the loan without putting undue strain on its budget. And the loan might include a grace period, during which the Rwandan government will not be required to make any repayments. This allows the government time to invest the loan funds effectively and start generating revenue from the improved water infrastructure. The loans granted to Rwanda came with specific conditions related to the project’s implementation.
The first condition is about procurement. The Rwandan government is likely to be required to follow transparent and competitive procurement procedures for the selection of contractors and suppliers for the project. This ensures that the project gets the best value for money and avoids corruption.
The second condition is related to environmental and social safeguards. The Rwandan government will need to comply with the AfDB's environmental and social safeguards policies. These policies aim to ensure that the project is implemented in an environmentally and socially responsible manner. This might involve conducting environmental impact assessments, resettling affected communities, and protecting cultural heritage sites.
The third condition is related to financial management. The Rwandan government will need to implement a strong financial management system to track the use of loan funds and ensure that they are used for the intended purpose. This might involve establishing a dedicated project account and reporting regularly to the AfDB on the progress of the project.
What will happen if the Rwandan government ends up defaulting on its loan? It is clear that defaulting on the loan would damage Rwanda's creditworthiness, making it difficult and expensive to borrow money in the future. This could limit the government's ability to finance critical development projects and infrastructure investments. Moreover, investors may become wary of investing in Rwanda if they perceive the country as a risky financial proposition. This could lead to reduced foreign direct investment (FDI), which is vital for economic growth and a loss of confidence in the Rwandan economy could lead to the devaluation of the Rwandan franc (RWF). This would make imports more expensive and could lead to inflation.