The ongoing conflict between Rwanda and the Democratic Republic of Congo (DRC) has sparked concerns about the economic stability of both nations, with S&P Global Ratings cautioning that their credit ratings could be negatively impacted. The rating agency warns that the economic strain of war could weaken both countries, leading to increased borrowing costs and potential downgrades to their credit ratings.

The conflict has been escalating, with a Rwanda-backed rebel group destabilizing eastern Congo, further heightening concerns about a broader regional conflict. According to Reuters, the presence of the M23 rebel group has intensified risks to the ratings on both sovereigns. Clashes in eastern Congo persisted on Thursday, with M23 rebels advancing toward Bukavu in South Kivu province.

S&P Global Ratings notes that Rwanda risks losing foreign aid, a critical component of its budget, while the DRC could see its finances stretched thin due to increased defense expenditures. The agency warns that continued fighting could widen Congo's budget deficit and deter foreign investment. At the same time, Rwanda may face reductions in concessional loans and donor funding due to growing international condemnation of its alleged involvement in the conflict.

The economic impact on Rwanda could be significant, as the country's substantial economic growth stems from large-scale public investment, almost exclusively financed through concessional financing and donor support. S&P Global Ratings points out that Rwanda's economic growth slowed significantly after foreign aid cuts followed the M23 rebellion in 2012, dropping from 8.6% in 2012 to 4.8% in 2013. A similar reduction in aid due to the ongoing conflict could lead to further economic instability.

Rwanda currently holds a $620 million Eurobond maturing in 2031, and S&P cautioned that prolonged conflict could trigger currency depreciation and increase debt servicing costs. Rwanda, however, denies backing the M23 rebels or having troops in eastern Congo.

The M23 claims its fight is for the rights of Tutsis and other Kinyarwanda speakers in Congo. However, the Congolese government argues that the group—and Rwanda—are more focused on exploiting its rich mineral resources, including gold, tin, tungsten, and tantalum. Despite Congo's vast natural wealth, much of it is smuggled into neighboring countries, limiting its economic benefits.

S&P currently rates the Democratic Republic of Congo at B-/B with a stable outlook and Rwanda at B+/B, also with a stable outlook. The agency's warning serves as a reminder of the significant economic risks associated with the ongoing conflict, which could have far-reaching implications for both nations and the broader region.

The conflict's impact on the region's economy is a pressing concern, and the international community must take notice of the potential consequences of inaction. As the situation continues to unfold, it remains to be seen how the conflict will affect the credit ratings of Rwanda and the DRC, and what measures can be taken to mitigate the economic risks associated with the ongoing violence.