Budget Framework: Government focuses on agriculture, banking sector

In the 2009/2010 Budget Framework Paper presented to Parliament early last week, government has focused on agriculture and financial sectors.

In the 2009/2010 Budget Framework Paper presented to Parliament early last week, government has focused on agriculture and financial sectors.

The Rwandan economy is set to suffer at the heel of the global financial and economic crisis through reduced foreign exchange receipts as a result of falling commodity prices.

James Musoni, the Minister of Finance and Economic Planning said that as result of the global economic downturn, tourism receipts will drop by some 15 percent while remittances and foreign direct investments will also decline by 15 percent.

According to the Budget Framework Paper, these factors will reduce the foreign exchange available for imports, leading to reduced imports for consumption and investment.

Musoni said that reduced imports for consumption will reduce tax revenues, to finance government expenditures, whereas reduced imports for investment will affect the projected growth rate and consequently employment and tax revenues.

The International Monetary Fund (IMF) projections have shown that commodity prices continue to show a declining trend whereby tea is expected to fall by 13 percent and coffee by 15 percent this year. 

Rwanda’s agricultural growth increased from 0.4 percent in the last five years to 15 percent last year. The growth is attributed to successful implementation of the crop intensification program.

“In a bid to increase value and volume of output government intends to support agri-business projects and increase access to credit in rural areas,” the Minister said.

He added that government is scaling up the crop intensification program and improving storage facilities to smooth out seasonal price movements in order to mitigate the effects of the global economic crisis on the agriculture sector.

The government is also focusing on the banking sector because there seems to be evidence of increased tightening credit conditions regarding bank lending.

In 2008 the banking sector was sound where Non Performing Loans (NPL) reduced from 14.8 percent in 2007 to 9.3 percent in 2008.

Musoni noted that Rwanda’s banking sector has not yet been affected by the first round effects of the global economic recession but there has been declining liquidity in the commercial banks over 2008 due to the mismatch of short term deposits and long term investment needs.

The medium term budget policy is also in line with Rwanda’s Economic Development and Poverty Reduction Strategy (EDPRS) and focuses on the development of physical infrastructure to enable the business environment and reduce the cost of doing business in Rwanda.

“The development of the productive sector puts much emphasis on the agriculture supply, agri-business, land reform and promotion of value addition for exports,”

A recently released World Development Report calls for greater investment in agriculture in Africa and warns that the sector must be placed at the centre of the Region’s development agenda if the goals of halving extreme poverty and hunger by 2015 are to be realized.

The report, dubbed: “Agriculture for Development,” says the need for action is especially urgent in Sub- Saharan Africa, where agricultural productivity growth has lagged behind other regions.

Agriculture in Sub-Saharan Africa employs 65 percent of the labour force and generates 32 percent of GDP growth.

In Sub-Saharan Africa, home to 229 million extremely poor rural people, agriculture is about much more than simple food security, said Robert B. Zoellick, World Bank Group President.   

A greater focus on agriculture will help boost overall economic growth and   offer multiple pathways out of poverty.

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