Economy grew by 8.4 per cent in first Quarter of 2019

Tuesday June 18 2019

Minister of Finance and Economic Planning Dr.

Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana. The government says it is taking measures to minimize shocks by increasing investment in agriculture and infrastructure. PHOTO | COURTESY 

RWANDA TODAY
By RWANDA TODAY
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Rwanda economy registered 8.4 per cent growth in the first quarter of 2019 according to figures released by the National Institute of Statistics of Rwanda on Monday.

Rwanda’s overall spending will increase by 11 per cent in the financial year 2019/2020 to Rwf 2.877 trillion ($3.16 billion) from Rwf2.5 trillion ($2.7 billion) allocated for the current 2018/19 revised budget, as the government increases infrastructure and development spending to accelerate growth and reduce poverty.

In 2019, the Rwandan economy is projected to grow at about 7.8 per cent, showing a slight slow-down from 8.6 percent in 2018, due to the anticipated external shocks associated with the ongoing trade war between China and the US – an escalation may dampen global demand and negatively impact its exports.

The government says it is taking measures to minimize shocks by increasing investment in agriculture and infrastructure.

Economic activity is expected to pick up in 2020/2021 to an average of 8 per cent, largely boosted by better performance in the agriculture sector which is expected to expand by 5.5 per cent in 2019 and 5.2 per cent in 2020 as government steps up investment in sector including improving uptake of improved seed varieties, application of fertilizers, post –harvest measures and extended irrigation.

Investment

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Growth is expected to be boosted by the anticipated completion of government’s large strategic investments including the new multimillion dollar airport project - Bugesera airport in which more than $130 million has so far injected.

The first phase of construction is estimated to cost $418 million whose deadline is set for 2020.

Once complete, Bugesera Airport whose total investment cost is estimated at $820 million is expected to handle 1.7 million passengers per year, almost double the country's current total traffic.

In the new financial year, the government has earmarked Rwf244.1 billion ($269.4 million) towards expansion of the national carrier Rwanda Air and recapitalization of the Development Bank of Rwanda (BRD).

Rwanda is counting on the aggressive expansion of its national carrier RwandAir to grow its tourism and Meetings, Incentives, Conferences and Exhibitions (MICE) revenues.

The airline is expected to expand its network to at least 32 countries in the coming years following a recent cabinet approval of bilateral air service agreements (BASA) with the airline set to launch new routes including Tel Viv (Isreal) and Guangzhou (China) by end of June.

“We shall operate these new routes with the existing fleet, we shall have to re-arrange our fleet and accommodate the Guangzhou and Tel Aviv routes as we finalize the process of purchasing new aircrafts” Ms Yvonne Makolo the CEO of RwandAir told Rwanda Today.

According to the latest available figures, Rwanda earned $ 438 million from tourism in 2017 up from $404 million in the previous year while MICE tourism fetched $ 42 million in 2017 slight lower than $47M in 2016.

In May last year, the country signed a three-year sponsorship deal with giant English football club Arsenal – worth about $30 million – and also launched its Visit Rwanda campaign that aimed to boost its tourist attractions.

The country targets to collect $800 million and receive over 2.2 million arrivals by 2024, buoyed largely by the continued focus on MICE tourism, which fetches in about 20 percent of the total tourism receipts annually.

However, the government has had to borrow aggressively in recent years to fund its growth though the International Monetary Fund (IMF) recent the debt sustainability analysis shows that the risk of the country’s debt remains low with a present value of debt to GDP reaching 32.9 per cent against a threshold of 50 per cent.

Concessional borrowing

The share of concession loans in the total debt stock stood at 63 per cent as of the end of 2018 compared with a level of 57.4 per cent as of end 2017, due to the country’s debt strategy to maximize concessional borrowing in favor of commercial borrowing, according to the IMF.

“Most of the country debt is concessional and was taken out to finance huge investment projects that are expected to bring returns so we are not worried about the debt levels.

On the other hand, the ongoing implementation of the National Strategy for Transformation has resulted in strong investment inflows and increased exports diversification,” said Laure Redifer, the IMF mission chief for Rwanda  after  a two week IMF staff mission to Rwanda in March.

Data from the Ministry of Finance shows external debt stands at 38.5 of total debt while domestic debt stands at 10.9 and State Owned Enterprises and external Guarantees at 4.2 per GDP as of 2018.

Total external debt stands at $4 billion and in 2013, the government acquired a $400 million Eurobond loan to fast-track investments. The country committed to complete payment of its Eurobond loan by 2023.

Officials say there are two main options to repay the Eurobond namely debt refinancing and payment.

Officials say the country is managing the debt prudently to service it and tame a growing trend while investing in projects that will increase the country’s production and bring in foreign currency.

“The problem is not even the level of debt, the problem will be if every year you are unable to service the debt,” said Leonard Rugwabiza, economic adviser in the Ministry of Finance and Economic Planning at a recent Policy Dialogue about Rwanda’s Debt Status.

Expenditure on infrastructure takes the lion’s share of the budget with an allocation of approximately Rwf 551.1 billion ($ 6 billion) to expand the country’s basic infrastructure including road, energy and water supply.

The government expects to fund the 2019-20 budget through domestic resources worth Rwf1, 963.8 billion ($2.1 billion), which represents 68.3 per cent of the entire budget.

Out of those resources, tax revenue collections are estimated at Rwf1, 535.8 billion ($1.6 billion), accounting for 53.4 per cent of the total budget, while non-tax revenues are estimated at Rwf190.4 billion ($209.2 million) representing 6.6 per cent of the total budget.

The remainder of the budget will be funded through external sources worth Rwf906.7 billion ($996.2 million), which accounts for 31.5 per cent of the total budget and include grants worth Rwf409.8 billion ($405.2 million) 14.2 per cent and loans worth Rwf497.0 billion ($546 million), 17.3 per cent.

Government is set increase its recurrent expenditure with Rwf1424.5 billion ($1.5 billion), representing 49.5 per cent of the total budget from Rwf114.5 billion ($126.3 million) compared to this year due to a higher public wage bill due to fresh structures of hospitals and health centers across the country as well as operationalizing newly-created and restructured government institutions.

The development budget which stands at Rwf1152.1 billion ($1.2 billion), having increased by Rwf111.2 billion ($122.7 million), representing 41 per cent of the total budget.

Fact BOX
Rwanda’s Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana says government expenditure policies in fiscal year 2019/20 are guided by National Strategy for Transformation (NST-1) priorities and objectives while ensuring appropriate allocation to enhance service delivery across sectors.

The Economic Transformation pillar takes the lion’s share of the resources at Rwf 1,636 billion amounting to 56.9 per cent of the total budget. Social transformation will take up Rwf 781.7 billion (27.2 per cent) while Transformational Governance is allocated Rwf 458.7 billion representing 15.9 per cent of the total budget.

In line with NST-1 strategic objectives, some of the priority areas agreed during both planning and budgeting consultations formed the basis for resource allocation in 2019/20 fiscal year. These include:   

  • Supporting projects and activities that contribute to the creation of 213,198 decent and productive jobs,   

  • Revision of secondary cities’ master plans and improving transportation infrastructure and services in urban and rural areas.

  • Improving air transport infrastructure

  • Promoting a Knowledge-based Economy through operationalization of Rwanda Innovation Fund and continuing support to Centers of Excellence

  • Promoting industrialization and exports

  • Scaling up agriculture and livestock productivity

  • Increase electricity access to households and productive uses and socio-economic facilities;

  • Improving access to quality education

  • Increasing accessibility to quality health for all

  • Accelerating graduation from poverty by scaling up VUP to reach 158,554 households

  • Eradicating malnutrition and stunting by distributing Fortified Blended Foods to 14,679 pregnant women and 86,531 children, supporting 12,555 under-five malnourished children through milk distribution

  • Improving service delivery through scaling up services offered online

  • Strengthening Justice, Law and Order

Reporting by Johnson Kanamugire, Moses Gahigi, Pierre Afadhali, Ivan Mugisha

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