Rwanda’s Development Partners (DP) that directly contribute resources to the national budget have applauded government’s expenditure plans in the Financial Year 2010/11, saying that it will boost economic performance.
Rwanda’s economy is expected to rebound to 7 percent growth this year and accelerate further to 8 percent in 2011 on account of increased government spending.
“We welcome the fact that the budget not only provides for the investments to increase economic growth, it also includes expenditure to protect the poorest members of society, and increase access to basic services such as health and education,” Tony Polatajko, Head of Programmes at UK’s Department for International Development (DFID) said in an email interview.
Polatajko, who is also the current co-chair of the budget support development partners group, underscored that the DPs are providing budget support with the overall objective of contributing to the elimination of poverty in the country.
Government plans to increase spending by 9 percent from Rwf899 billion in the Financial Year 2009/10 to Rwf984 billion in 2010/11 where human development and social sectors will took the lion’s share of the budget, consuming approximately Rwf305 billon or 33.8 percent of the entire budget.
Infrastructure was allocated Rwf241.6 billion or 24.6 percent while the productive capacities were allocated Rwf144.5 billion or 14.7 percent.
Under human development and social sector Rwf155 billion was allocated to finance education programs including increasing access to education while Rwf97 billion is to finance the health sector programmes including increasing access to health care respectively.
“This requires both social sector spending and capital investment, such as in infrastructure and agriculture, that will promote economic growth and increased wealth,” Polatajko.
According to the DPs which include the African Development Bank, Belgium, European Commission, Netherlands, Germany, United Kingdom and the World Bank, increased government spending is positive given the country’s sustained positive economic growth.
Despite the impact of the global economic and financial crisis, the economy registered positive growth and expanded by 6 percent last year.
Polatajko explained that as the economy grows, government will be able to collect more taxes and use those additional resources to repay the money it currently has to borrow to finance the budget deficit.
Rwanda’s budget deficit is projected to widen by 4 percent of Gross Domestic Product (GDP) due to increased government spending.
Currently the budget deficit stands at 14 percent of GDP though according to Polatajko this figure is “still well below levels seen in many other countries”.
However, Polatajko observes that Rwanda’s low level of exports and dependence on a limited number of commodities for export (tea, coffee and minerals) is the main source of the country’s vulnerability concerning its external debt.
“Exports bring in foreign exchange to the country, which is required to pay interest on and eventually repay the foreign debt. Expanding the export base is therefore a very important policy objective for Rwanda,” he said.
Last year, imports outstripped exports, widening the trade deficit by 20 percent.
Over the medium term, the official underscores that increasing domestic tax collections is another important objective to reduce the need to borrow funds from abroad.
DPs say that they are generally pleased with the (budget) process in particular about the sector working groups that are open to the public and civil society organizations as this makes the budget information publicly available.
“We were pleased to see the government’s public guide to the budget that was produced last year and hope that such initiatives continue,” Polatajko said.
“However, we think that Parliament should be allocated more time to debate the budget and therefore increase their influence in budget decisions.”
Based on commitments made in December last year, Rwanda will receive $296 million in direct budget support in 2010/11 compared to approximately $280 million committed last year.