The Government has said that it plans to spend the biggest share of the 2020/21 budget on activities that will boost the economy as part of a broader plan to respond to the impact of COVID-19.

This was said by Finance and Economic Planning minister Uzziel Ndagijimana while presenting the Budget Framework Paper to Parliament on Thursday, May 21. He said the plan prioritises activities that will accelerate the economy, including agriculture, private sector development and youth employment, transport, and energy.

At least 57.2 per cent of the total budget will go towards job creation and entrepreneurship promotion, Made in Rwanda promotion, as well as development of border facilities, and industrial parks.

Ndagijimana told parliamentarians that export promotion, increasing electricity access, accelerating transport projects, and increasing agricultural productivity, are among the priority areas.

The Minister of Finance and Economic Planning Uzziel Ndagijimana briefs MPs about the government's recovery plan to deal with the impact of COVID-19 on Thursday, May 21. / Courtesy

According to the framework, Government is expected to spend Frw3,245.7 billion in 2020-2021 fiscal year, which is Rwf228.7 billion higher than the revised budget estimates of Rwf3,017.1 billion.

Of this, Rwf1.8 trillion has been set aside for all economic transformation activities for July 2020 - July 2021 financial year.

"In line with the plan to address the impact of COVID-19 on the economy and the well-being of the people, the budget for 2020-2021 will focus on implementing the government’s economic recovery plan,” Ndagijimana said.

Just like in other parts of the world, the new Coronavirus pandemic has had an unprecedented effect on Rwanda’s tourism, hospitality, and transport, sending the economy into shock.

Estimates show that the economy will grow at only 2 per cent in 2019-2020 from 9.4 per cent recorded in 2019.

There were already uncertainties in the global environment due to weak economic performance in the current fiscal year, and this has worsened with the world expected to fall into recession.

Thus, COVID-19 is expected to have a far reaching impact in terms of expenditure.

Ndagijimana said growth was expected to rebound next year to 6.3 per cent and improve further to 8 per cent in 2022, thanks to the recovery plan that has been laid down.

Under the economic recovery plan, the Government had said that the total Covid-19 related cost was estimated to be at Rwf882 billion over the next two fiscal years.

The Government will increase public spending by 7.5 per cent in the 2020-21 fiscal year to Rwf3.245 trillion.

Increased spending is expected to support sectors that generate more job creation.

There is a plan to provide startup tool kits to Technical and Vocational Education and Training (TVET) graduates for self-employment, and support Integrated Craft Production Centers (ICPCs) to acquire modern equipment.

The budget will also facilitate small and medium sized businesses (SMEs) to access finance, and the Government expects to provide startup capital to agribusiness.

The Rwanda Development Bank (BRD) will continue to be recapitalized to enable it to play an increased role in the expansion of the private sector to accelerate growth, according to the framework paper.

Some Rwf 7.2 billion will be invested in BRD next year, while the national carrier RwandAir whose operations have been adversely affected by the pandemic will be financed at Rwf145.1 billion.

Health, agriculture

The Minister told parliamentarians while presenting the draft budget that the Government will particularly prioritise healthcare and agriculture, among other things.

"We shall place more focus on building a sustainable health system through establishing hospital infrastructure, availing medical equipment, and providing training to healthcare workers,” he said.

At least Rwf 248.87 billion has been allocated towards the health sector.

The Finance Minister also indicated that spending will be directed toward promoting agriculture through the use of improved agriculture inputs – inorganic fertilizers and improved seeds.

Radical terraces and progressive terraces will be constructed, marshland and hillside schemes as well as small scale irrigation technology will be put in place, and livestock development will be promoted through mass insemination as well as vaccination against various diseases.

Similarly, cash crops production for export will be strengthened through increased production of coffee and tea, as well as expropriation for new investments in tea production.

While post-harvest losses will be reduced through establishing new drying shelters and storage facilities.

Agriculture production could be affected by bad weather conditions, despite efforts put in place to be more climate resilient, according to the Finance Minister.

The agriculture sector, which will receive some Rwf 92.2 billion in the new draft budget, currently represents 24 per cent of our Rwanda’s gross domestic product (GDP).

Experts

Joseph Nkurunziza, the Chairperson of the Rwanda civil society platform, told this publication that health spending should be directed towards specialised health services, infectious diseases prevention and control, health service delivery and quality improvement, and maternal child and adolescent health.   

He suggests budgeting for tax cuts on things like water and electricity in the next fiscal year.

"Taxes should be reduced on water. Water is very expensive. Tax reduction will enable citizens to access water which is a basic requirement during Covid-19,” she noted.

Nkurunziza insisted that the Government should "remove taxes on soap and sanitizers to make them affordable during covid-19.”

Angello Musinguzi, a tax expert at KPMG Rwanda, proposes that Rwanda Revenue Authority expedite tax refunds for taxpayers citing delay for some companies.

He believes it is also critical to consider giving relief for Value Added Tax (VAT) for companies in the hospitality industry such as hotels.

"It can be reduced VAT rate for them or a year or two of VAT grace period to enable them recover from Covid 19,” he says.

Meanwhile, 28.7 per cent of the budget will go towards supporting social transformation activities, while 14.1 per cent has been directed towards governance activities.