Rwanda's budget deficit is projected to soar to 3.8 percent of Gross Domestic Product (GDP) in the Financial Year (FY) 2010/11, reflecting a rise in government spending, the Ministry of Finance and Economic Planning said.

The overall budget deficit in the FY 2009/10 was Rwf77.8bn or 2.5 percent of GDP. It is expected to rise to Rwf134.9bn in the FY 2010/11, the Ministry said in the 2010/11 Budget Framework Paper (BFP).

John Rwangombwa, the Minister of Finance and Economic Planning told a joint session of Parliament last week that a fraction of the shortfall in the 2009/10 budget which is equivalent to Rwf38.8bn will be financed through foreign borrowing.

This could worsen the countrys external debt status. Official figures suggest that in 2009 Rwandas external debt stood at US$736.6m (Rwf422.9bn), which is 14 percent of GDP.

Rwanda will also increase domestic borrowing and draw on her reserves to bridge the deficit by 51 percent or Rwf39bn, Rwangombwa said.

Government plans  to slash the recurrent expenditure that is largely devoted to salaries and wages by about 0.6 percent of GDP. But it also seeks to increase spending on various projects in order to boost local productivity.

Imports are expected to outstrip exports, which will further widen the current account deficit.

The current account deficit will continue to rise up to 7.9 percent of GDP in 2010, 8.8 percent in 2011 and will settle at 5.3 percent in 2012, Rwangombwa said. 

The Minister says that the growth in the current account deficit in 2010 and 2011 is due to governments plan to increase investment into selected projects, hence stimulating high importation of materials.

The current account deficit leaped from 5 percent of GDP in 2008 to 7 percent in 2009 as exports dwindled due to the global economic downturn while imports rose significantly on account of increased government spending and growth in investment.

In 2009, support from development partners and Foreign Direct Investment (FDI)  continued to rise, resulting into growth in gross international reserves of 6.2 months of imports compared to 5 months in 1008, the BFP states.

Rwanda projects a GDP growth rate of 7.6 percent in the FY 2010/11 mainly due to the growth in manufacturing and service sectors that are projected to grow by 7.3 percent and 7.6 percent respectively.

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