Rwanda adjusts budget, cuts spending by $99m
By JOHN GAHAMANYI The EastAfrican
Posted Saturday, February 16 2013 at 18:09
IN SUMMARY
This is part of the government's austerity measures aimed at realigning the country's spending with available financing after development partners suspended or withheld aid to Rwanda.
Rwanda has reduced its spending by more than $99 million, freezing recruitment of public sector workers and slowing implementation of some projects, as it deals with the prolonged suspension of aid by some donors.
Jobless Rwandans are the biggest losers in a supplementary budget approved by Parliament last week, which seeks to sharply cut public spending in the wake of revenue shortfalls and rising expenditure.
Treasury will reduce spending on public sector wages by Rwf14 billion ($22 million) while the development budget will be cut by Rwf18 billion ($28.4 million).
This is part of the government's austerity measures aimed at realigning the country's spending with available financing after development partners suspended or withheld aid to Rwanda.
Reduced development budget
Finance Minister John Rwangombwa said implementation of on-going projects will be slowed down, except for local government, agriculture and infrastructure projects due to their impact on the country's development and poverty reduction.
The development budget was cut by Rwf18 billion ($28.4 billion).
"We're cutting the original financing we were supposed to get from the suspended aid of Rwf54.4 billion ($85.9 million), and we are making changes in our receipts from the peacekeeping operations that we had overestimated from the beginning. These cuts in resources automatically lead to cuts in expenditure," Mr Rwangombwa said.
He said Treasury had overestimated its costs from peacekeeping operations by Rwf14 billion ($22 million). Rwanda has peacekeepers in several countries, among them Sudan, South Sudan and Haiti.
Economists say the impact of spending cuts will trickle down to the private sector, because government is still the major investor and buyer of goods and services.
"If some of the projects the government planned to execute are affected by aid suspension, incomes of the private sector will be affected, and certainly the ability of the private sector to employ more people and to produce more goods and services will be affected," said Eric Rutabana, chief investment officer of Business Partners Rwanda.
Since the government is the biggest single employer, business executives believe spending cuts will hurt employment and reduce demand for goods and services thus slowing down overall economic activity.
"There will be an effect on employment, but these are short term measures to mitigate the impact of aid suspension," said Sanjeev Anand, the managing director of Rwanda Commercial Bank.
Government spending will reduce by Rwf62.4 billion ($99 million) although the overall budget will rise to Rwf1.54 trillion ($2.5 billion) from Rwf1.38 trillion ($2.1 billion) stemming from planned borrowing to finance RwandAir and the Kigali Convention Centre.
Treasury will be seeking to borrow Rwf227 billion ($350 million) through the issuance of a sovereign bond, to pay off loans that were acquired to finance the national airline as well as support the completion of the conference centre.
To bridge its funding shortfall, the government will increase its borrowing from the domestic debt market from Rwf8 billion ($12.6 million) that was earlier planned to Rwf20 billion ($31.6 million).
Analysts warned the government to be cautious when borrowing from the local market to avoid competing for resources with the private sector. Mr Rwangombwa said the government has taken such risks into consideration.
"If we didn't take that into consideration we would have borrowed to finance the entire budget we had," he said.
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