•Excise duty on airtime increases to 5 percent
•Domestic Revenues to generate 51 percent

Rwanda’s annual budget will increase by 24 percent in the 2009/10 financial year as government takes bold steps to boost growth amidst a turbulent global economic situation.

Finance and Economic Planning Minister, James Musoni presented budget to parliament highlighting four pillars of expenditure; infrastructure roll out, maintaining growth in productive sector, development of human capital and promotion of good governance.

Musoni said government spending would increase to Rwf838 billion during this financial year compared to Rwf674 billion spent in 2008.

For the first time, internal resources financing the budget have slightly surpassed external remittances. This year’s budget that is aligned to the rest of EAC countries will be financed by domestic revenues amounting to Rwf427.2 billion or 51 percent of total revenues while external funding will account for Rwf410.8 billion.

To curtail accumulation of huge external debts, much of the donor financing will be grants other than loans. Grants will increase by 11 percent to Rwf342.2 billion from Rwf307.6 billion in 2008.

To increase on domestic share of revenues, Rwanda Revenue Authority’s (RRA) target has been increased to Rwf 401.5 billion in 2009/10 financial year compared to Rwf297.8 billion the tax body collected in 2008.

But the Finance minister did not announce far-reaching tax reforms despite a likely loss to the national treasury resulting from Rwanda acceding to the EAC customs union and the impact of global recession on theeconomy.

Musoni projected the economy to grow by 5.6 percent in 2009/10 driven mainly by growth in agricultural sector. He said inflation will be kept at a single digit.

"Government will continue to invest in the priorities outlined in EDPRS which will provide a solid base for future growth and ensure that Rwanda weathers the global financial storm,” Minister Musoni said.

Key allocations

The current budget estimated at 27.6 percent of GDP is grouped into four clusters; infrastructure, productive sector, human development and social sector as well as the governance and sovereignty cluster.

Governance and sovereignty cluster takes lion share of Rwf289.2 billion to cater for areas of "General Public Service, Defense and Public Order and Safety.” Within this cluster, Defence takes the least share of Rwf43.6 billion mainly spent on professionalization of the military.

Human Development and Social sector is allocated Rwf 270 billion to finance programs in Education (Rwf139 billion), health (85.6 billion), Youth, Culture and Sports (Rwf6.2 billion) and Social Protection (39.5 billion).

The Infrastructure cluster is projected to take Rwf190.5 billion, distributed in the sectors of transport and communication (103 billion), water and sanitation (19.1 billion), fuel and energy (Rwf62.9 billion), land housing and community amenities (48 billion).

The productive sector that mainly looks at the agricultural sector will consume Rwf87.9 billion.

Musoni was questioned by some parliamentarians as to why he had not included Rwf 40 billion, an increment legislators had proposed for the productive sector during the initial debate on draft budget framework paper.

But Musoni said government had managed to secure Rwf25 billion which was now included in the new budget. As a new norm, in conformity with the EAC countries, Finance minister is obliged to make a draft budget framework paper that he initially discusses with parliament before returning to present a full government budget.

Tax regime

As Rwanda joins the EAC customs union, Musoni said external tariff band will change from four to three with the highest tariff rate standing at 25 percent for finished products, 10 percent for intermediate goods and zero percent for raw materials and capital equipment.

This move will cost government close to Rwf12.2 billion but finance minister said COMESA secretariat had agreed to compensate Rwanda for the loss.

"While this shift will lead to revenue loss for the Government in the short term, it will increase the economic welfare of the citizens through more affordable and competitive prices,” Musoni said.

The only new tax increment announced was on airtime rising from 3 to 5 percent in excise duty, but the new budget puts in place a number of tax exemptions mainly for capital goods.

Stimulus package

Minister Musoni said his budget provided three key strategies that he called a "stimulus package” which he says should promote growth and weather external shocks resulting from the global crisis.

Within the four pillars of the budget, some Rwf139.2 billion is earmarked to support activities in rural areas. Central to this will be a local development support fund that will mainly finance rural infrastructure and support income generating activities.

Similarly, Rwf214 billion will be spent on activities that increase competitiveness within public and private sector with key aim of attracting more investments.

To avail liquidity to commercial banks, Musoni said government would work with the Central Bank to help banks get external lines of credit at a cheaper rate.

Ends