The Independent (Kampala)

8 January 2013

Rwanda: Economy Could Slow Without Aid

Uganda has refunded Sh14 Billion that was allegedly misappropriated. The move comes months after the Irish, Swedish, Nowergian and Danish ... ( Resource: Uganda Refunds Sh14 Billion Aid Money to Ireland

Rwanda's economy will slow down by 1.5% next year, if donors do not unfreeze aid according to Finance and Economic Planning Minister John Rwangombwa.

Rwangombwa said this while briefing members of parliament of the likely implications the aid suspensions will affect the country in the next quarter.

"Although there is no effect the freezing and delaying of disbursement of aid from donor countries is going to have on the projected growth of the country this year, the rate of growth for 2013 will reduce; provided the aid situation remains unresolved," Rwangombwa noted.

For the year ending 2012, The National institute of Statistics of Rwanda had projected a growth rate of 7.7% for the economy and according to what has been realised in the first and second periods of the year; the target growth will be surpassed.

According to the finance minister, growth in the first period was registered at 7.7% while it rose to 9.6% in the second and was projected to be at 7.5% in the closing period. Therefore the national economic growth for 2012 will exceed 8%, which is averagely higher than had been projected.

However although 2012 annual growth rate will be achieved and possibly surpassed, the effect of the aid freeze and delay in disbursement for some cases will be felt in 2013 if the current condition between the donor states and Rwanda is not rectified.

According to Minister Rwangombwa, the total budgetary support that was awaited in form of aid funds amounts to US$362.7million of which only 122.4million has been disbursed. This leaves a total of about 240.3million (approximately Rwf155billion) awaiting the decisions of the source institutions, after half of the financial has been completed.

Donor countries including the Netherlands, Germany and Sweden were the first to freeze their support in July of 2012 when fighting between the Congolese government and the rebel group M23 started with allegations that Rwanda supports DRC rebels.

Later, other countries like the United Kingdom followed suit when they delayed the first disbursement in August of US$16million. This however was later on delivered and currently, of the US$80million support that the British government had pledged to Rwanda, 48million has already been disbursed.

Other withheld budgetary financial support from particular countries is an agricultural sector support pledge that the USA had made of US$12million.

This, Rwangombwa said, was the first time the Americans were giving budget support, different from their usual channels which are through projects and non-government organisations. However, he clarified that negotiations are ongoing through which USA is expected to channel the withheld financing to an agriculture project for the preservation of mountainous soils through terracing.

Besides the already mentioned donors who have not respected their side of the aid agreements with Rwanda, using insecurity in the DRC as an excuse; Belgium is yet another donor who has not disbursed pledged budgetary support but for their case, it is a result of amendments that their domestic aid policy is undergoing and communications on the outcomes will be to their aid recipients including Rwanda and they have not claiming to be doing so basing on insecurity in DRC.

The remaining amount that was pledged towards budget support and has not been disbursed until today is equivalent to about 12% of the total government expenditure for the 2012/2013 budget that was passed at a total of Rwf1385.3billion.

For Rwangombwa, missing out on 12% of the funds that the government was considering for the support of the 2012/2013 budget is not something that would greatly damage the economy although the situation is an alert for vigilance in the use of public funds and thus greater efficiency.

"This should not be looked at as a fatal situation for the economy for I assure you that the major activities of the government are not going to be affected at all but rather some development projects might be delayed," Rwangombwa explained to the law makers.

Among such major government expenditures that the finance minister spoke of as not going to be hampered by the aid freeze and delays, is the payment of salaries for the public servants. He was quick to exhort public servants who he said have already been hit by fear thinking that there might be salary delays and in some cases downsizing of employees, confirming that no such thing will happen.

"The amount of salaries that are paid to all public employees is Rwf204billion which is just about a third of domestic tax collections. Thus there is no way the government might run short of funds to pay its workers only because aid was frozen," he highlighted.

However, Rwangombwa is skeptical on whether the insecurities in the DR Congo's eastern region were not just used as a trigger to expose the long held negative connation that some people in the donor countries have about aid.

"I am not convinced that the aid freeze we are facing today is only as a result of the unfounded reports that Rwanda is playing a part in keeping the particular region in Congo insecure; rather it seems to have been a spark for some people in the west and America who are on a strong campaign against aid."

On grounds of financing the 2012/2013 budget, the government was eyeing domestic resources that added up to Rwf724.4billion implying a 52.6% contribution to the budgeted expenditure. The implication is that about 48% of the budgeted expenditure was planned depending on money from aid.

For Rwangombwa, the inconsistencies in disbursing aid by some of the donor countries during this time ought to serve as a warning bell that government planning should cease relying on foreign financing. The 2012/2013 budget is set to undergo revisions which changes will be presented in January.

"In the changes that the budget is undergoing, emphasis is being put on basing all planning on domestic resources to facilitate economic growth. Also, the changes will highlight areas where expenditure would be efficiently managed to do more activities with lesser funds compared to the earlier budgeted."

Rwangombwa's suggestions of self-reliance during planning processes for government expenditure were warmly welcomed by parliamentarians many of whom marked the actions of the donor states as against any moral standards. "How can one back away from something they have pledged to do?" some asked noting that the donors' actions are absurd.

However the parliamentarians like Senator Jean Damacien Bizimana hope that there should be a popular action against the activities of the donor countries which to him is taking Rwanda just for granted. "It is high time we acted against the widespread allegations that we have any reason to support insecurities in DRC; which are now even threatening our national sovereignty and security."

According to Bizimana, parliament needs to discuss how and what Rwanda ought to do demonstrate its grievance to the international community that has on many occasions showed interest in blackmailing the country.

In order to sustain development amidst the aid freeze, MP Mukama Abbas suggested ensuring efficient and effective use of public funds based on new directives providing for heavy punishment of those people who would be caught misusing funds.

Rwanda also needs to grow its tax base as the major revenue for the country through supporting businesses to develop from informal to formal trade.

Initiatives such as the Agaciro Development Fund, give hope that Rwanda will be able to attain economic independence as Vision 2020 suggests. According to Rwangombwa, the wake-up call from the donors is timely.

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