Rwanda will direct a bigger portion of the resources in the 2020/21 National Budget towards activities that will resuscitate the economy from the New Coronavirus pandemic impact.
While presenting the national budget on Monday at Parliament, the Minister of Finance and Economic Planning Dr Uzziel Ndagijimana said that Rwanda’s economy, like many economies around the globe, suffered from an economic downturn due to the COVID-19 outbreak which paralyzed most economic activities.
The Rwanda government will spend Rwf3,245.7 billion in the 2020/2021 Fiscal year, reflecting an increase of Rwf228.6 billion compared to Rwf3,017.1 billion in the 2019/20 revised budget.
Minister Ndagijimana said that the 2020/21 spending will be in line with COVID-19 economic recovery plan and National Strategy for Transformation (NST-1) priorities.
“The COVID-19 pandemic had an impact on our economy due to the many stagnated economic activities both in Rwanda and abroad,” Dr Ndagijimana said, adding that the government has set up an Economic Recovery Plan aimed at addressing the challenges and giving the economy ahead start.
“Focus will be on increasing health-related spending to contain the epidemic and to strengthen the health system, scaling up social protection, strengthening the education sector, as well as supporting the private sector through the Economic Recovery Fund,” the Minister said.
In terms of the resource, the 2020-21 budget will be financed through domestic resources worth Rwf 1,969.8 billion representing 60.7% of the entire budget while the remainder of the budget will be funded through external sources worth Rwf1,275.9 billion which accounts for 39.3% of the total budget.
The government said these include grants worth Rwf 492.5 billion and loans worth 783.4 billion. Of the Rwf3,245.7 billion in 2020/21, recurrent expenditure will take up Rwf 1,583.0 billion which accounts for 48.8% of the total budget while development projects are projected to consume up to Rwf 1,298.5 billion, which represents 40% of the total budget.
Domestically financed projects are estimated at Rwf 703.4 billion, while externally financed projects are projected at Rwf 595.1 billion. In addition, the government said net Lending has been allocated Rwf 306.5 billion which accounts for 9.4% of the total budget.
Rwf35.2 billion is allocated to payment of arrears and Rwf 22.6 billion reserved for the accumulation of deposits to boost the Government reserves representing 1.1% and 0.7% of the total budget respectively.
“The share of the recurrent budget in the total budget of 2020/2021 reduced by 2.6% compared to 2019/2020, while development budget and net lending increased by 2.6%. This confirms the Government’s effort to contain recurrent expenditures and to focus on development spending,” Dr. Uzziel Ndagijimana, the Minister of Finance and Economic Planning said.
The economic Transformation pillar took the lion’s share of the resources at Rwf 1,802 billion amounting to 55.5 % of the total budget while Social transformation will take up Rwf 960.4 billion (29.6%) while Transformational Governance is allocated Rwf 482.7 billion representing 14.9% of the total budget.
The Minister of Finance told the joint sitting of the legislative assembly that economic growth in the year 2020 was drastically slowed down by the pandemic, setting back the high rate registered last year.
“The impact of COVID-19 on the global economy and on our country has led to a decline in global and international production,” Dr Ndagijimana said, pointing out that the World Bank this June said that global production will be reduced by 5.2% to below zero while sub-Saharan Africa’s GDP will drop by 5% to below zero.
“Based on these effects of COVID-19 on the world economy and the economy of our country, and also as a result of the Government’s measures to fight the epidemic which had an impact on the national economy, it is expected that our economy will grow by 2% in 2020,”
“In the medium term, the economy of our country is projected to grow at a rate of 6.3% in the next year by 2021, and at a rate of 8% in 2022, where it will return to its pre-Coronavirus level,” Dr Ndagijimana said.
The agricultural sector is projected to grow by 2.8% compared to 5% in 2019, mainly due to rain disasters, and a reduction in market prices for agricultural products for export while the industrial sector is projected to grow by 4% compared to 17% last year.
The decline is due to industrial activities and construction projects which were affected by the COVID-19 lockdown while the service sector is expected to increase by just 1% compared to 8% growth registered in 2019.
Minister Ndagijimana said that the service sector was particularly affected by the COVID-19 epidemic, especially in the field of tourism and conferences which were all put on hold as part of the measures to contain the spread.
In the first quarter of 2020, Rwanda’s Gross Domestic Product (GDP) grew by 3.6%, mainly due to the effects of the COVID-19 and the effects of the heavy rains which affected the productivity of foodstuffs leading to a hike in food prices.
In terms of trade, Dr Ndagijimana said that the gap between exports and imports (trade deficit) increased by 16.4% between January and April 2020 compared to the previous year 2019.
“What we export decreased by 23.7%. Exports of tea increased by 22.9% but coffee prices fell by 49.2%, while those of cassiterite and coltan declined by 37.8%, due to the decline in prices on the international markets,”
“Coffee prices fell by 8.1%, cassiterite went down by 19.5%, and coltan went down 5.5%. What we import rose slightly to 2.5% between January and April, including petroleum products which increased by 12.2%, and other commodities including food, medicine and medical equipment increased by 11.4%,”
“Revenues generated from tourism decreased by 35% in the first quarter of 2020 compared to the year 2019,” the Finance Minister said.
Exports will fall by 7% due to global trade shocks and a drop in oil prices while export revenues are also expected to decline by 19% mainly due to the decline in commodity prices and the destabilization of the tourism sector. The government has also projected a reduction in remittances from abroad.
Among other things, revenues from air travel will be reduced by 70% in 202. It is also expected that foreign investment will fall by 62%, due to various economic and trade challenges around the world resulting from COVID-19.
Dr Ndagijimana said that the epidemic devastated economies around the world and Rwanda too was not spared. He said that the measures put in place by the government to minimise the spread, including stopping various activities, had a direct impact on the economy.
“It has been shown that the epidemic will have a significant impact on the country’s internal budget revenues whether taxes or other non-tax revenues which will reduce due to poor economic conditions,”
“The country’s gross domestic product (GDP) is expected to fall by Rwf556 billion in the two years 2019/2020 and 2020/2021 to 2.8% of GDP,” the Minister said.
Although the revenue from the state treasury will be reduced, tackling the effects of the epidemic requires an increase in the expenditure of about 882 billion Rwandan francs in the two years 2019/2020 and 2020/2021.
As such, the Minister said that the Government decided to increase domestic and foreign loans, but to such an extent that the debt ratio remains below the minimum rate so that the country can continue to have a reasonable debt-to-debt ratio.