Government plans to trim domestic borrowing for financing the budget deficit in the medium term to help boost credit to the private sector to encourage investments.
While presetting the 2012/13 budget to parliament last week, the Minister of Finance and Economic Planning, John Rwangombwa, said that overall cash deficit (including grants) in the medium term is projected to be 1.6 per cent of Gross Domestic Product (GDP) from 2.6 per cent in 2012/13.
Government forecasts suggest total outlays in the medium term will decline steadily to 23.7 per cent of GDP by the fiscal year 2015/2016.
Government plans to bridge the deficit by increasing the mobilisation of domestic revenues as well as prioritising expenditure to complete on-going strategic investment projects.
While most of the projects, including electricity rollout and road construction are set to be financed by debt, which would increase the fiscal deficit, the Minister told Business Times in a recent interview that government has no worries of paying back.
“What is important is that we are investing in projects that will impact on the functioning and growth of the economy which will increase our resources as well. We don’t have any worries that we will have challenges in paying back,” he said.
The country’s debt indicators are still very good, meaning that it has room to borrow should it need to do so.
According to Rwangombwa, the country’s present value of debt to export ratio is around 92 per cent compared to a threshold of 150 per cent, where a country would start having problems to service debts.
The share of total debt to GDP ratio is around 16 per cent compared to 40 per cent, which indicates that the country has problems in repaying its debt.
“As we invest in these particular projects, we will increase our exports and we will be increasing the size of our economy. So it will increase our capacity to pay,” the Minister said, also emphasising government‘s plans to restrict debt
“We only borrow to finance specific projects that will have a big impact on our growth in the economy.”
Rwanda pays out Rwf20 billion every year to service its debt.
With domestic revenue collection estimated at Rwf700 billion annually, the Minister says the country has no problem in repaying its debt.
“Over the medium term, domestic revenue will be expected to rise on average by 0.3 percent of GDP per annum and reach 14.9 percent of GDP by 2015/2016.”
The total budget support grants for 2012/2013 are projected at 10.2 percent of GDP.
“Even though the value in nominal US dollars is not projected to decline, in the medium term, this value is projected to decline as a share of GDP and reach 7.2 per cent of GDP by 2015/2016,” he adds
The loans according to the Minister are projected to rise from 0.2 per cent of GDP in 2012/2013 to 0.6 percent in 2014/2015.
Over the medium term, domestic revenue will be expected to rise on average by 0.3 percent of GDP per annum and reach 14.9 per cent of GDP by 2015/2016.