On Thursday, Finance and Economic Planning Minister Claver Gatete presented the 2013/2014 budget to both chambers parliament. Below is his speech Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Vice Presidents Honourable Members of Parliament, As provided under article 79 of the Rwanda constitution of 2003 as amended to date as well as articles 36 and 42 of the Organic Law on State Finances and Property as amended to date, I have the honour to present to you on behalf of the Government, the Budget and Economic Policy of the financial year 2013/2014. In the last ten years, our nation has experienced one of the most exciting and fastest period of economic growth and socio-economic progress in its history. Rwanda has been recognized as the tenth fastest growing economy in the world during the last decade from 2000. Our achievements during this period include growing the economy at an average real GDP of 8.2 percent, the lifting of more than one million of our compatriots out of poverty from 2006 to 2011 among others. However current world developments including a weaker global economy and a prolonged crisis in the euro zone which could reduce our commodity export earnings, donor aid flows, migrant remittances and foreign direct investment flows will be expected to impact negatively on our domestic economic performance. It is in the light of these global developments that we have chosen the theme “Striving for self-reliance and dignity” for the budget and economic policy statement for this fiscal year 2013/14. We have chosen this theme because as I have just mentioned generous resource flows from the OECD countries are declining. This is happening at a time when we need more resources to fulfil our economic and social objectives of becoming a middle income nation. This situation calls for the redoubling of our efforts to earn more foreign exchange from our exports of goods and services as well as increasing our domestic resource mobilization to generate the required resources for our development. The policies in the 2013/14 budget are designed to achieve these objectives. The Budget and economic policy statement for fiscal year 2013/14 is therefore organized as follows: First, I will provide a brief summary of the global economic performance for 2012 and the projections for 2013 and 2014. This summary will also include the performance and outlook for sub-Saharan countries including the EAC countries. Second, I will briefly summarize our recent economic performance with special emphasis on 2012/13. This summary will include fiscal performance and results of public spending. In the third portion of my delivery, I will present the Government’s medium term macro-economic framework. However, I will not go into details as we discussed much of this in the Budget Framework Paper last month. In the fourth section, I will focus on the Government’s budget and economic policy for the fiscal year 2013/14. In this section, I will also spell out the detailed allocation of resources consistent with our EDPRS2 priorities and expected outcomes for fiscal year 2013/14. In the fifth and final portion of my delivery, I will briefly highlight some expected Public Finance Management reforms, I will then end with some concluding remarks Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Members of Parliament, According to the recent World Economic Outlook (WEO), global economic activity in 2012 was mixed. Real GDP growth decelerated to 3.2 percent, down from 3.9 percent in 2011. Global GDP growth is expected to pick up slightly in 2013 and 2014, to 3.3 percent and 4.0 percent respectively. GDP growth for sub–Saharan Africa which was robust at 5.3 percent in 2012 is projected to pick up to 5.6 percent in 2013 and continue to reach 6.1 percent in 2014. This growth path confirms sub-Saharan Africa’s economic dynamism as the economies continue to respond positively to improved economic policies coupled with large infrastructure developments. GDP growth in the East African Community (EAC) member states averaged 6 percent in 2012, higher than the Sub-Saharan African average of 5.3 percent. The region is expected to sustain average growth rate of 6.7 percent between 2013 and 2014. Regarding commodity prices, the high increases in 2011 were not repeated in 2012. In the case of oil, the sharp rise of about 31.6 percent in 2011 declined sharply to only 1 percent in 2012. Projections for 2013 and 2014 show further declines of 2.3 percent and 4.9 percent respectively. With regard to non fuel primary commodity prices, these also rose sharply by 17.8 percent in 2011 but declined by about 10 percent in 2012. Projections for 2013 and 2014 also show further declines of about 1 percent and 4.3 percent in 2013 and 2014 respectively. These projected price developments will affect our external sector performance over the medium term. In the EAC countries, inflation accelerated sharply to 14.6 percent in 2011 on account of the high oil prices which increased by 31.6 per cent, high food prices which also rose by 17.8 percent and the drought in the horn of Africa. In 2012 the trend was reversed as inflation declined to about 11.6 percent reflecting the decline in both oil and food prices as well as the tightening of monetary policies in the EAC countries. A further fall in inflation to 6.9 percent in 2013 is projected. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Members of Parliament, Despite a modest slowdown in domestic economic activity during the second half of 2012 due in large part to the delay in donor disbursements, real GDP growth in 2012 at 8 percent was higher than the projected GDP of 7.7. The strong performance was largely driven by the expansion of the service sector by 12.2 percent, particularly communication and transport activities, which expanded by about 19.5 percent. In industry sector growth increased by 7.3 percent, particularly due to construction robust growth that increased to 15.2 percent. Agricultural production mainly of food crops grew by 3 percent. Rwanda continued to achieve moderate inflation, with annual headline inflation falling from 8.3 percent in December 2011 to 3.9 percent in December 2012 and to 3.3 percent in March 2013. The moderate inflation rate is explained by higher than expected food production as well as a rapid deceleration in inflation across the region, most notably in Kenya and Uganda. Exports in value terms grew by 27 percent in 2012; import growth was 26 percent, leading to a widening trade deficit. This was largely due to the response of our policy to increase investment, capital and intermediate goods to boost future domestic production for both the local market and export. Rwanda’s total external public and publicly guaranteed debt in 2012 amounted to US$1.2billion.This represents 16.5 percent of GDP as of end December 2012 compared to 14.6 percent in 2011. The total domestic debt at end December 2012 was at RWF 190.3 billion up from RWF 174.9 billion at end December 2011. This brings the total debt stock at end December 2012 to about RWF 899.4 billion. The increase in debt stock was largely due to higher external financing, comprising the International Development Association (IDA) project loans, as well as higher commercial borrowing for the Kigali Convention Centre (KCC) project and Rwanda Air. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Members of Parliament, The shortfall in aid inflows has hampered the ability of the NBR to continue meeting market demand for foreign exchange, leading to a depreciation of 4.5 percent over the year 2012 against 1.6 percent recorded in the previous year. The external reserves declined by 18.1 percent as the NBR attempted to meet market demand for foreign exchange. The banking sector, which dominates the Rwandan financial sector, demonstrated an increase in the balance sheet of 15.1 percent. The Capital Adequacy Ratio (CAR) stood at 23.9 percent as of end year 2012, far above the 15 percent minimum regulatory requirement. The non-performing loans (NPL) stood at 6.1 percent in 2012 down from 8 percent in 2011. On the resources side, as of end May, total resources that accrued to the budget amounted to RWF 1,447.8 billion representing 91.5 percent of projected resources. Regarding expenditures, the shortfall in donor support funds mentioned above led to lower spending of about RWF 70.5 billion in the July-December 2013 period. As at end May about RWF 1440 billion of total outlays have been spent showing a performance of 91 percent. On this trend we expect that by end June the expenditure budget would have been fully implemented. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Vice Presidents Honourable Members of Parliament, After giving the highlights of our general budget implementation, I will now mention some key programmes and projects implemented as well as some results achieved in key sectors during the 2012/13 financial year. In the Education Sector, a number of achievements were registered in 2012/13 fiscal year and the major ones include: The number of pre-primary schools increased from 1,471 in 2011/12 fiscal year to 1,870 in the 2012/13 fiscal year. The increased number of pre-primary schools is at least partially responsible for an increase in the number of enrolments of pre-primary pupils from 111,875 in 2011/12 fiscal year to 130,403 in the 2012/13 fiscal year. In primary education, the number of enrolled over-age pupils is gradually decreasing and for the 2012/13 fiscal year, the percentage of these pupils had decreased from 127.3% to 123.2%. This implies that the number of students enrolled at the appropriate age increased from 95.9% in the 2011/12 fiscal year to 96.5% in 2012/13. Due to the Government initiative of school feeding, the numbers of drop-outs in primary education have also decreased from 11.4% in the 2011/12 financial year to 10.9% in 2012/13. Due to the success of the 12YBE programme, the number of pupils graduating primary school and joining secondary school also increased from 84,675 in the 2011/12 fiscal year to 99,525 in the 2012/13 fiscal year which is an increase of approximately 18%. 930 new teachers were hired in secondary schools to reduce the pupil teacher ratio but also to help improve how English as a language of instructions is administered at this level. In an effort to promote science and technology in secondary schools in the 2012/13 financial year; 37 new laboratories were constructed, 1000 computers were distributed, and 30 secondary schools were given science kits and 500 GIS books. The number of pupils that completed Lower secondary school increased from 341,742 pupils in 2011/12 fiscal year to 352,796 pupils in the 2012/13 fiscal year. Of these the percentage number of boys and girls was 46.5 % and 53.4 % respectively. In the Health Sector, the following achievements were registered in the 2012/13 fiscal year: Efforts to increase universal access to health care have been aided by the construction of 3 Hospitals namely, Bushenge, Kinihira and Ntongwe. Furthermore construction works at Kibuye and the Kirehe Hospitals is underway. In addition, there was construction of Health centers notably Mukura Health center in Rulindo District as well as the health center in Huye District. Government has also undertaken the construction of maternity sections in a number of Health Centers in Mubuga, Kicukiro, Ruhengeri and Jarama. Government is continuing its fight against communicable diseases. Government distributed 2.5 million bed nets and treatment of Malaria continues to be subsidized. 110,000 Individuals are currently under treatment for HIV and ART coverage is at 93% of adults and children. The Government policy of “Mutuelles de santé” to increase financial accessibility of health services and the financing of the health insurance scheme has been strengthened to better address the increasing health care risks facing the citizens of Rwanda. To this end the average coverage rate of “Mutuelles de sante” increased in 2012/13 to 81%. The following achievements have been registered in the Agriculture Sector during the 2012/13 fiscal year: Intensive efforts by Government to protect soil against soil erosion has seen advances from 40% in 2006 to 75.7% in 2012/13, resulting in significant increases in agricultural productivity and production through the crop intensification programme and increases in the production of key food security crops. Efforts in land terracing have also seen a total of 54,200 ha terraced to date, with 7,993 ha terraced this year alone. Marshlands development for agricultural use has successfully increased agricultural production from 11,000 ha in 2006 to 23,000 ha for the 2012/13 financial year, thereby contributing towards addressing shortages of land and increasing the income of farmers. Strengthening of post-harvest storage programme is a critical component of Government’s strategy to ensure food security. Efforts were therefore focussed on the construction of several strategic grain reserve facilities in various parts of the country during the course of 2012/13. This has led to storage capacity by both the Government of Rwanda and the private sector being increased to 142 000 tonnes from 100,000 tonnes last year. Livestock development has been enhanced through the GIRINKA Programme and about 15,000 cows were distributed during the 2012/13 financial year. This represents a significant increase from the 3,300 cows which were distributed in the 2011/12 Fish production has also increased from 17,000 tonnes in the 2011/12 financial year to 19,400 tonnes in the 2012/13 financial year. The “One cup of milk” programme has seen the increase of litres of milk distributed to children from 633,958 litres in 2011/12 to 1,841,893.5 litres distributed in 2012/13, the number of children benefited from this program tripled. Thus, the number of children who benefited from this Government programme has therefore increased from 74,728 in 2011/12 to 80,884 in 2012/13. The following achievements have been registered in the Trade and Industry Sector during the 2012/13 fiscal year: Data from the 2012 Industrial Survey indicate that during the 2012/13 period, the turnover of industries increased by 33.9% compared to 2011.17 medium to large industries have started construction works in 2012/13. Most of them located in Kigali SEZ. The HangaUmurimo programme was launched with over 16,000 business ideas received and 50 selected from each district for development of business plans in 2011/12. Of these a total of 216 projects to the value of RWF 3,539,900,602 have been approved to date and a total of 4,982 jobs will be created. The following achievements have been registered in the Financial Sector Development during the 2012/13 fiscal year: To enhance efforts and mechanisms for resource mobilization, Government is proud of the sale of the first International Bond (Eurobond) to the value of $400 million, the buyers had over-subscribed more than eight times, due to the confidence they had in our country’s economy. The Agaciro Development Fund (sovereign wealth fund) has been established to improve the present and future financial autonomy of Rwanda. The total pledges to the fund are equivalent to RWF 26.4 billion and the total amount recovered to-date is RWF 17.5 billion. We are thankful to every one that contributed to this fund. The following achievements have been registered in the Information Communication Technology Sector during the 2012/13 fiscal year: International bandwidth capacity was acquired increasing the total capacity in the country to 2.4 Gb/s (Gigabit per Second) from 1.1 Gp/sat full redundancy for a period of 10 years. As result, the cost of bandwidth was reduced from (500 – 700 USD) to 125 USD per Mb/s. Over 592 ICT professionals from public and private sector were trained in critical ICT professional courses and over 4,325 members of the business community and rural areas trained in basic ICT. 60 Service Access Points were fully operationalized in addition to the already established 30 centers. In the Transport Sector, the following achievements were registered in the 2012/13 fiscal year: The 2012/13 fiscal year saw the successful rehabilitation of the Butare - Kitabi - Ntendezi Road, specifically the 30km Crête Congo/Nil- Ntendezi section. The rehabilitation and upgrading of the 80km paved road network for Kigali-Gatuna is at 40%. The rehabilitation of 51km of the Rusizi – Ntendezi – Mwityazo road is proceeding well and the work is 98% complete. About 50km of roads in urban areas have been successfully paved or fully rehabilitated. In the Energy Sector, the following achievements were registered in the 2012/13 fiscal year: A number of electricity generation projects were pursued during the implementation of EDPRS1 including the 2012/13 fiscal year. The installed capacity for electricity generation has increased from 45 Mega Watt (MW) in 2006 to 110.4 MW in 2012/13. In the Social Protection Sector, the following achievements were registered in the 2012/13 fiscal year: The VUP as the core social protection program has been scaled-up in 180 sectors for direct support and 150 sectors for public works and financial services components. Policy guidelines have been developed to guide targeting, exit and graduation from VUP support. This will help to expedite poverty reduction strategies. 16,858 people have been relocated from high risk zone and settled in Imidugudu and 570 people have been trained to use brick making machines with the purpose of availing low cost construction materials. In the Environment and Natural Resources Sector, the following achievements were registered in the 2012/13 fiscal year: The governance structure for the Fund for Environment and Climate Change (FONERWA) was put in place. Currently US$ 700,000 domestic capitalization and approximately US$ 36 Million has been mobilized to fund projects aimed at pursuing a green Rwandan economy. As part of Government’s process of land tenure regularization, 7.7 million land titles were issued and 4.6 million have been collected by owners. The total output of the mining sector increased from 5,802 tonnes in 2010/2011 to 7,397 tonnes in the 2011/12 fiscal year. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Members of Parliament, The total budgeted resources for the 2013/14 fiscal year are RWF 1,653 billion, which is RWF 103 billion higher than the 2012/13 revised budget. The total domestic revenues for the period are estimated at RWF 994.9 billion which is 60.2% of the total budget. External resources account for only 39.8% of the total budget or RWF 658.6 billion. Total recurrent expenditures are projected at RWF 735.7 billion or 44.5% while development projects account for RWF 802.7billion which is equal to 48.5% of the total budget. Net lending accounts for the remaining 6.9% or RWF 114.8 billion. The amount of RWF 84.4 Billion will be allocated to the completion of Kigali Convention Center as I had presented in the BFP. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Vice Presidents Honourable Members of Parliament, The revenue projections for the 2013/14 fiscal year do not envisage any substantial changes in the tax regime. However they are underpinned by several on-going as well as new measures to be implemented by the Rwanda Revenue Authority (RRA) in fiscal year 2013/14 as outlined below: The Revenue Administration Measures for 2013/14 include: E-filing and E-payment: Its introduction and implementation will reduce compliance costs for both tax administration and taxpayers. Electronic Single Window: It was launched and rolled out to different bonded warehouses. In addition other agencies involved in import/export clearing were fully connected. Electronic cargo tracking equipment: Its introduction will help to ensure the protection of cargoes from source to destination Introduction of mobile technology in payment and filing of taxes. This is a platform to file and pay taxes through mobile technology Introduction of Gold CardScheme to facilitate compliant taxpayers Revision of investment codeto adapt the prevailing business environment. Introduction of a royalty tax on minerals: A royalty tax will be introduced on different types of minerals in Rwanda and the rates to be applied are as follows: 4 percent of the value of extracted minerals on basic metals and 6 percent on both precious metals and precious stones. The revision of the Double Taxation Avoidance Agreement (DTAA) between the Rwanda and Mauritius. Introduction of Electronic Billing Machines: The new VAT law requires registered taxpayers to use Electronic Billing Machines (EBM). Honourable Speaker of Parliament Honourable President of Senate Honourable Members of Parliament, Following recent consultations of Ministers of Finance of the EAC member states, the following changes in the common external tariff (CET) for Rwanda were agreed: Rice in the husk, husked (brown) rice, semi milled or wholly milled as well as broken rice—CET of 30% instead of 75% or USD 200/MT; Road tractors for semi trailers—CET of 0% instead of 10%; Wheat (grain)—CET of 0% instead of 35%; Wheat Flour—CET of 35% instead of 60%; Buses for transportation of more than 25 persons—CET of 10% instead of 25%; Buses for transportation of 50 persons and above—CET of 5% instead of 25%; Other motor vehicles for transport of goods, with compression-ignition internal combustion piston engines (diesel or semi-diesel) g.v.w exceeding 5 tonnes but not exceeding 20 tonnes—CET of 10% instead of 25%; Other motor vehicles for transport of goods, with compression-ignition internal combustion piston engine (diesel or semi diesel) g.v.w exceeding 20 tonnes—CET of 0% instead of 25%. Furthermore, in the spirit of gradually moving from staying of applications of EAC CET and encouraging firms to be more efficient and competitive, it was proposed that Rwanda apply official EAC CET on the following: Construction materials: CET of 25% instead of 0% for local investors with a minimum capital of US$ 100,000 in hotels and 10% for projects worth US$ 1.8 million and above; Importation of telecommunication equipment: CET of 25% instead of 0%; EAC exemption scheme - Rwanda submitted an additional list of raw materials and industrial inputs of 17 companies visited by EAC officials for consideration under EAC exemption scheme. This list was approved and will be gazetted for 5 years exemption. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Vice Presidents Honourable Members of Parliament, The allocation of resources to the EDPRS2 priorities has been done taking into account these thematic areas. The thematic areas have been allocated 50 percent of the total budget. The foundational issues have been allocated 37 percent while the support functions have been allocated the remaining 13 percent. In the first thematic area which is the engine of EDPRS. It is composed of four parts and these include: The economic transformation thematic area has been allocated RWF 459 billion which makes it 28 percent of the total budget, The rural development has been allocated RWF 164 billion which makes it 10 percent of the total budget, Productivity and youth employment has been allocated RWF 163 billion of 10 percent. The remaining RWF 41billion which adds up to 2 percent has been allocated to accountable governance. The key projects and programmes of the economic transformation thematic area that have been allocated resources in the 2013/14 financial year are: Construction of Nyabarongo Hydro Power Stations (27 mw): RWF 26.7, Billion construction of 145 MW on Rusizi III Hydropower power plant: RWF 18.4 billion Electricity Roll out Programme: RWF, 30.9 Billion Kivu-belt (66 km) lot 4 &5 Rehabilition- Mwityazo -Karongi road: RWF 30.1 Billion Kivu Belt(50km) Lot 7 Rubavu-Gisiza Road RWF 19.3 Billion Kigali-Gatuna Road (80km) Rehabilitation: RWF 13.9 Billion Development of peat to Power Plant: RWF 6.1 Billion Feasibility Study and Construction of MHPS RWF 17.3 Billion Electrification of 6 districts in Eastern Province: RWF 9.8 Billion Geothermal resource development: RWF 8.1 Billion Construction of 4 Provincial Industrial Parks and Relocation of Gikondo Industrial Park: RWF 9.5 Billion Development Regional ICT Center for Excellence and ICT Private Sector Development: RWF 12.8 Billion The key projects and programmes that have been allocated resources in the 2013/14 financial year to finance rural development are: Land Husbandry, Hillside Irrigation and Water Harvesting: RWF 28.4 Billion Rural sector support project (Phase III): RWF 7.8 Billion Kirehe watershed management project: RWF 10.1 Billion National Strategic Food Reserve Project : RWF 2.2 Billion Priority crops intensification: RWF 9.2 Billion Water sanitation and hygiene: RWF 4.6 Billion. Lake Victoria Water Supply And Sanitation Project PHASE II: RWF 4.1 Billion Support to Establishment of Livestock Infrastructure RWF 4.1 Billion. National Rural supply and Sanitation Programme (PNEAR) RWF 5.5 Billion. The key projects and programmemes that have been allocated resources in the 2013/14 financial year are: TVET schools infrastructure development and equipment project: RWF 13.9 Billion Expansion and development of the integrated Polytechnic Regional Centre project – IPRC Kicukiro: RWF 10.4 Billion School construction project: RWF 11.4 Billion Skills Development project: RWF 22.5 Billion. One Laptop per Child RWF 6.9 Billion Rukara Infrastructure Development Project RWF 2.7 Billion SFB Infrastructure Development and Installation of equipments Project RWF 2.1 Billion Umutara Polytechnic Equipment and Infrastructure Project RWF 1.1 Billion The key projects and programme that have been allocated resources in the 2013/14 financial year for the governance and sovereignty cluster are: National cyber security: RWF 5.7 Billion Statistical Surveys: RWF 10.3 Billion Inclusive participation in governance: RWF 947 Million. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Members of Parliament, Various structural reforms have been on-going in various areas. Most of these reforms are aimed at improving conditions that are conducive for private sector growth. I will now mention a few of them in the public financial management and financial sector reform areas. Some of government entities were given responsibility to manage public funds by the chief budget manager, thus making it possible to streamline the way they engage in public procurement activities. Some of those agencies are sectors, primary and secondary schools, district hospitals and health centers. Article 3 provides for special guidelines for procurement in Rwandan Embassies abroad and Government business enterprises which have been experiencing problems in using the public procurement law. Provide framework for procurement agreements. Such agreements will enable procuring entities to engage in public procurement process only once, for things which are required frequently, over a period of three years. Provide administrative sanctions and transferring criminal offenses to the penal code in public procurement. Follow up of the implementation of the new Organic Law on State Finances and Property which was prepared with the aim to improve public financial management. The review of the existing regulatory framework specifically, the NBR Law, the banking law as well as put in place a Deposit Insurance Law. Strengthening the SACCOs by consolidating them into a Cooperative Bank. To put in place the measures to provide issuers with a wide range of products to choose from when seeking capital to suit their financing needs. These include Asset Backed Securities (ABS), Commercial Papers (CPs), Real Estate Investment Trusts (REITs), and Municipal bonds. These measures will increase the available financing in the domestic market for the business community. To review the policy and tax laws in order to increase domestic resources. This will be done by increasing the taxable base and mobilizing people and government institutions to abide with this law. Honourable President of Senate Honourable Speaker of Chamber of Deputies Honourable Vice Presidents Honourable Members of Parliament, The proposed public expenditure levels in the 2013/14 budget will be augmented by private sector investment to ensure that the high growth economy requires to reduce poverty is realised. The Government is fully committed to realizing these growth objectives whilst maintaining macro-economic stability. I hereby recommend to you the Government’s budget and economic policy for fiscal year 2013/14 and the accompanying draft law to consider and consequently approve in the framework and timeframe prescribed by the law. I thank you.
