Rwanda to finance 39 per cent of budget with external loans

Wednesday June 24 2020

Uzziel Ndagijimana, Rwandan minister of finance

Uzziel Ndagijimana, Rwandan minister of finance and economic planning, arrives at the parliament building to present the budget for 2020/21 fiscal year in Kigali on June 22, 2020. PHOTO | CYRIL NDEGEYA 

IVAN R. MUGISHA
By IVAN R. MUGISHA
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Rwanda will turn to international lenders to fund its budget deficit for the 2020/2021 financial year due to reduced domestic revenues from a slowdown in economic activities caused by Covid-19 impact.

In his budget presentation to Parliament on Monday, Finance Minister Uzziel Ndagijimana said that Rwanda will spend Rwf3.25 trillion ($3.4 billion) in the next fiscal year, which begins in July, an increase of Rwf229 billion (Rwf240 million) from the previous year.

While domestic revenues will finance a large proportion of the new budget—to the tune of Rwf1.8 trillion ($1.9 billion)—the deficit will sourced through loans and grants, representing 39 per cent of the budget, up from 32 per cent in the current fiscal year.

The Finance minister said that the funding gap was as a result of reduced tax revenue collection caused by the coronavirus pandemic.

“We will focus on maximisation of concessional funding—with lower and fixed interest rate, longer maturity and grace period—while taking into account the currency denomination. We will also focus on the use of non-concessional borrowing only for targeted investments with high economic impact and within the limits of debt sustainability assessment,” Mr Ndagijimana told Parliament.

However, domestic budget financing through the sale of securities to commercial banks is expected to increase from Rwf403 billion ($245 million) to Rwf492.5 billion ($520 million).
Rwanda plans to borrow about Rwf1.28 trillion ($1.3 billion) in loans and grants, up from Rwf976 billion (approximately $1 billion) in 2019/2020 to plug the deficit.

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Most of the budgetary loans and grants are expected to be provided by international lenders like the International Monetary Fund (IMF), World Bank and the African Development Bank, as well as countries like the US, Japan, the UK and the European Union.

As of 2018, the country’s total debt was estimated at $4.9 billion (Rwf4.67 trillion), representing 53.6 per cent of GDP, according to the Ministry of Finance.

Budget allocation

In the new budget, the education sector will receive the largest share with an allocation of Rwf481 billion ($506 million), followed by the justice with Rwf289 billion ($304 million) and health Rwf248.8 billion ($262 million).

The transport sector will receive Rwf240.4 billion ($253 million), decentralisation will get Rwf156 million ($164 million), job creation Rwf126.5 ($133 million), energy development Rwf136.5 billion ($144 million) and social protection Rwf123.1 billion ($130 million).

Agriculture, which employs over 80 percent of the Rwandan population, has been allocated Rwf122.4 billion ($129 million).

Covid-19 funding

The IMF has been Rwanda’s biggest financier during the coronavirus pandemic with funds aimed at addressing the socio-economic impact.

The lender earlier this month approved a $111 million loan, bringing the lender’s total disbursement to Rwanda to $220 million, after giving $109 million credit in April.

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