2008 Budget: Rwanda will spend more on investments

“This an investment budget. Where government plans  to spend four franks, two will be invested in development projects,” Elias Baingana, the Director National Budgets in the Ministry of Finance and Economic Planning said.

“This an investment budget. Where government plans  to spend four franks, two will be invested in development projects,” Elias Baingana, the Director National Budgets in the Ministry of Finance and Economic Planning said.

He was commenting on the recently passed 2008 budget.
The budget is 15 percent greater than the 2007 one  and 2.5 times more that of 2003.

It amounts to Frw607.5 billion, an increase of about Frw 80 billion in comparison to 2007.

A large proportion of the increase, 73 percent has been allocated to the transport and communication, fuel and energy, agriculture, health and education sectors.

 In contrast to the previous budgets, a lot of emphasis has been placed on productive sectors while maintaining the momentum in the social sectors. Projects embraced by the 2008 budget are as follows:

Fuel and energy
Government allocated substantial amount of money in this sector to mitigate the power shortage partly stemming from lack of other viable energy sources.

Like most Great Lakes Region, Rwanda was plunged into a deep electricity crisis in 2004 when water levels dropped affecting hydro power production.

Most parts of the country were left in darkness and industries almost closed down.

But Electrogaz, a power generating and distribution company in the country responded to the crisis by acquiring diesel generators.

They currently produce 12.8 MW of power to light the city and run industries.

However, energy experts argue that these fuel-oil powered generators are expensive for the consumers and are putting further strain on the national budget—Government meets 85 percent of fuel cost in the country.

There is also growing worry that if the energy question is not addressed, wood resource reserves will be totally exhausted between 2010 and 2015.

Some circles also argue that high power costs in the country have slowed down economic development. Doing business in Rwanda is arguably the most expensive as operational costs are high.

Environmentalists say the rate at which trees are being felled may affect the ecological balance - and the economic balance - will be drastically disrupted.

To mitigate, on the power crisis and attract investors, fuel and energy was allocated Frw 42 billion.

At least Frw13.7 billion was allocated for the renting of the Gikondo and Mukungwa generators. Part of the allocation will be used for paying taxes on the fuel used in these generators.

Urgent electricity rehabilitation project was allocated Frw7 billion.

The ongoing construction of hydro electricity stations of Rukarara and Nyabarongo Frw5.7 billion. Rehabilitation of Mukungwa, Gihira and Rubavu hydro electricity stations Frw4 billion.

While the ongoing construction of 8 micro-hydro plants including Janja, Mukungwa, Rugezi, Gashashi, Nyabahanga was allocated Frw1.5 billion.

Government allocated for the establishment of the electricity transmission lines between Rubavu-Mukungwa, Karongi-Rubavu, Kigali-Kiyumba, Rambo-Rubona, and Kirinda-Rukarara Frw1.9 billion.

Majority of Rwanda’s population, approximately 9 million people, 80 percent are dependant on agriculture.

In practical terms, the birth rate is very high, not in harmony with the available surface area and food production to feed these millions.

Though some economists argue that a high population provides market, approximately 56 percent of the population in Rwanda is still in absolute poverty.

Meaning that these people don’t have demand for both locally produced and imported goods since they spend less than a dollar a day. Most of their income is from selling their agricultural produce. Government wants to modernise this sector to increase output.

Increasing agricultural output has been allocated about Frw26 billion compared to Frw10 billion in 2003. The increase of Frw16 billion represents 1.6 times higher than the 2003 budget. 

Modernisation of agriculture
Provision of fertilisers and selected seeds in agriculture as well as improved breeds of livestock was allocated Frw3.7 billion.

Intensification of production of what experts call priority crops including, rice, maize, sorghum, cassava and potatoes got Frw2.8 billion while terracing got Frw2.1 billion.

The fight against crops and livestock diseases was allocated Frw1.7 billion. Rainwater harvesting for agricultural purposes was given Frw1.5 billion.

Hillside irrigation got Frw1.6 billion.

The ongoing programme to give each needy household a cow (One cow-One Family) was allocated Frw1.4 billion.

Marketing agricultural products both in the domestic and foreign markets is to receive Frw900 million.

It is argued that education is the best investment one can undertake if poverty is to be eliminated completely in Africa. It is also argued that human beings in any organisation are the most important ‘machines’.

And to crown it all, the country is aiming at transforming into an information-rich, knowledge-based society and economy by modernising its key sectors using information and communication technologies.

Therefore to bridge the skilled manpower gap needed to drive the economy and achieve Vision 2020, government has decided to invest heavily in the education sector.

The sector was allocated Frw103 billion compared to Frw42 billion in 2003.

The Frw62 billion differences represents about 1.5 times higher than its 2003 budget while promotion of technology, science and research a recent development was allocated Frw 14.2 billion.

Lower and Upper secondary was allocated Frw28 billion. Three Colleges of technology will get Frw2.5 billion; this amount will assist in rehabilitating Colleges of Tumba, Kicukiro and Gitarama.

Two polytechnical colleges of technology out of the 5 planned to assist vocational training centres were allocated Frw800 million. Advanced Teacher Training Colleges of Rukara and Kavumu  got Frw1.4 billion.

Higher education wa allocated Frw27 billion  while non formal education  received Frw550 million.

Development of infrastructure including transport and energy was allocated Frw102 billion compared to Frw16 billion in 2003. The increase of Frw87 billion represents 6.5 times higher than the 2003 budget. 

Projects and programmes
Rehabilitation of National roads, especially Kigali-Musanze, Musanze-Rubavu, and Muhanga-Ngororero-Mukumira, was allocated Frw20.4 billion.

The construction of Kicukiro-Nemba road, Frw 6.6 billion.
Rehabilitation of rural roads—Frw10.8 billion.

The roads that the government plans to work on in 2008 include; Butare-Kibeho-Muse and the Byimana-Buhanda-Kitabi.

Others roads are Cyakabili - Nyabikenke – Ndusu; Mudasomwa –Gisovu; Gashirabwoba-Nyamirundi; Kazabe-Rutsiro-Gashubi and Maya-Rushaki-Muhambo.

The Nyanza – Karongi; Bulinga-Kanyanza and Kabaya-Rubaya - Ngororero; Kigali-Rushashi-Gakenke; Byumba-Butaro-Base and Kigali – Rushaki- Gakenke will also be worked on.

Detailed studies on Bugesera airport, Isaka-Kigali railway, and rehabilitation of Kamembe and Rubavu aerodromes were allocated Frw1.2 billion.

While studies on improved habitat and maintenance of public buildings got Frw5 billion.

Provision of clean water was allocated Frw25 billion. The increase of Frw21 billion represents 4.6 times higher than the 2003 budget. 

Increased supply of clean water in rural areas Frw17 billion; provision of clean water in Kigali city from Nyabarongo river Frw5 billion. Strengthening systems for rainwater harvesting Frw428 million.

Environment protection and land conservation got Frw7 billion compared to Frw1 billion in 2003. The Frw6 billion differences represents about 4 times higher than the 2003 allocation.

Reforestation in various districts was allocated Frw1.2 billion. Conservation of rivers and lake shores Frw910 million.

Implementation of the land law got Frw1.4 billion. While the land-use plan received Frw700 million.

Trade and industry was allocated Frw12 billion compared to Frw4 billion in 2003. The Frw8 billion difference represents about 2 times higher than its 2003 budget.

Investment and export promotion got Frw2.0 billion. Promotion of handicrafts was allocated Frw1.5 billion. Preparation of the sites for the Free Trade Zone and Industrial Parks Frw1.1 billion.

Support to Small Medium Enterprises (SMEs) Frw1.9 billion.
Support to strengthening regulation and standards in industry and trade Frw1.0 billion.

Promotion of cooperatives and creation of an agency to regulate their activities was allocated Frw530 million.

Creation of four business development centres in districts was allocated Frw100 million;
Support to the Private Sector Federation Frw500 million.

Science technology and research
Promotion of technology, science and research was allocated Frw14.2 billion. This is a recent development.

Establishing and strengthening of laboratories was allocated Frw3.7 billion.

Completion and operationalisation of Karisimbi communication project –Frw400 million.

Creation of technological research network at the national level received Frw402 million.

While the extension of rural telecommunication got Frw300 million.

Strengthening Govnet applications bagged Frw400 million. Then the rehabilitation of the ICT Park was allocated Frw200 million.
Health and social services was allocated Frw58.6 billion compared to Frw11 billion in 2003. The Frw48 billion difference represents about 4.3 times higher than its 2003 budget.

Support to community scheme and mutual health insurance got Frw8.8 billion.

Support to the contractual approach in health service delivery received Frw13.6 billion.

Purchase of vaccines, drugs for tuberculosis, malaria as well as other epidemics was allocated Frw21.8 billion.

Family planning received Frw2.3 billion. Promotion of youth programmes including the under-20 CAN preparation for 2009 got Frw4.7 billion.

Public service
General Public Services was allocated Frw146.1 billion compared to Frw87 billion in 2003. The Frw59 billion difference represents about 0.7 times higher than its 2003 budget.
Activities .

Parliamentary elections was allocated Frw5 billion.
Contributions to international bodies, especially to the East African Community got Frw6.8 billion.

External debt repayments (amortization and interest) was allocated Frw7.7 billion whilst domestic debt repayments (amortization and interest) got Frw18.5 billion. Arrears payments Frw7.0 billion.

Support to the Genocide Survivors Fund (FARG) was allocated Frw12.8 billion.

Prison feeding received Frw6 billion.
Creation of commercial courts got Frw1.2 billion.

Social protection
Social protection, especially of orphans, widows and other needy persons was allocated Frw3.8 billion.

The ongoing demobilisation and reintegration programme received Frw5 billion. Resettlement of returnees–Frw2 billion.
Completion of the Inkiko-Gacaca programme—Frw1.4 billion.

Strengthening of local governments to enable them implement recurrent and development activities  received
Frw93.4 billion

These projects will partly be funded by the domestic revenues. Government expects to raise Frw325.5 billion from domestic revenue collections.

This represents 54 percent of the budget whilst external grants amount to Frw282 billion representing 46 percent of the budget.

Domestic revenue
The domestic revenue has increased exponentially over the years due to the efficiency of the Rwanda Revenue Authority. The main source of the increase comes from tax revenues.

Tax has increased from Frw74 billion in 2000 to Frw111 billion in 2003 and are now projected to reach Frw263 billion in 2008.

External grants have similarly increased.

This has been induced by commitment of the Government to implement poverty reduction programmes as agreed by development partners.

External grants have increased from about Frw53.2 billion in 2000 to Frw82.1 billion in 2003 and are estimated to increase to Frw282 billion in 2008.

Borrowing to finance the budget has been declining following the steady increase in tax revenues. Loan financing decreased from 22 percent of the budget in 2000 to 14 percent in 2003 and is estimated to go down further to 5 percent in 2008.

The recent big cuts in loan financing are associated with the decision of the Government to carefully contract new loans following the multilateral debt relief initiatives to avoid another round of debt trap.

The recurrent spending of the Government in the 2008 budget was squeezed to create more room for spending in development projects.

The recurrent spending of the budget was at about 58 percent in 2000, it grew to about 68 percent in 2003 and is estimated to 60 percent in the 2008 budget.

The larger component of the recurrent budget in the years from 2000 to 2005 was focused on the good governance sector particularly demobilisation, unity and reconciliation, democratic elections, decentralisation and strengthening of rule of law and order.

Obstacles to economic growth
Some of the bottlenecks to rapid economic growth in Rwanda include, poor infrastructure, including roads, electricity and water used as industrial inputs.

Others include inadequate entrepreneurial capacity and skilled labour force that have adverse impact on the rate of technological progress.

Agricultural practices that are still rudimentary and output dependent on weather have also been cited.

Other include; the demographic growth rate that is not aligned to the economic performance of the country. Weak capacity of the private sector and weak institutional arrangements to support its growth.