Budget seeks to boost growth, curtail inflationary pressures

Government will focus on the continued macroeconomic stability as a necessary condition to meet the 7.3 per cent growth projected in the medium term that is to be driven by the agriculture sector.The agricultural sector will continue to be significant in contributing to economic growth with an annual average growth of about 6.4 per cent led by food crops production especially cereals.The good performance in agriculture is expected to ensure food security and help reduce food imports in the medium term thus controlling the imported inflation.“The expected increase in food production together with the adoption of prudent monetary policies by BNR will support the achievement of the inflation rate objectives both in 2012 and in the medium term,” the Minister of Finance and Economic Planning said in his 2012/13 budget statement last week.However, the budget indicates that the risks of higher inflation are expected to remain due to uncertainties related to exogenous shocks, including high fuel prices.The National Bank of Rwanda will continue to further tighten monetary policy to maintain a low level of inflation whilst ensuring adequate provision of credit to the private sector to promote the required growth.The establishment and transformation of Sacco’s micro credit will be extended to rural communities to allow significant farmer investments in agricultural activities.In the medium term exports in value terms are projected to increase on average by 5 per cent per annum to reflect the implementation of the comprehensive national export strategy.Growth in the services sector is estimated at an average of 7.6 per cent per annum in the medium term driven by growth in wholesale and retail trade, finance and insurance sub-sectors.According to the budget, the projected performance reflects the increasing monetisation of the economy, increasing yields from food crops production and profitability of banking and insurance activities.Despite the positive growth trend projected locally, weak global demand, low commodity prices on international market and high oil prices are expected to impact negatively on the country’s external sector performance.The value of exports is projected to increase by 1 per cent despite significant increases in the volume of traditional export products like coffee, tea and minerals.For instance, a 41 and 10 per cent volume increase in coffee and tea, respectively, is projected whilst prices will decline by 27 per cent and 7 per cent, respectively, in 2012.In the case of minerals, the export volume is projected to rise by 11 per cent. However, a 10 per cent decline in prices is anticipated.The budget also projects public and private capital flows to increase to partly compensate the decline in grants as well as respond to the expected rise in FDIs for private sector projects.