Gov’t, consumer expenditures should thrust the economy

A lot of positives can be taken from the first quarter of this year. With the Rwanda Revenue Authority (RRA) beating its tax and non tax revenue collections by a huge margin of Rwf7.7 billion, the economy is performing better than was projected. The annual average inflation also fell to 13.64 percent in April against 17.08 percent in March. The national statistics body said that there was a significant fall in prices of food and non-alcoholic beverages. But more so, the prices of imported commodities are rising less than the prices of local goods, signaling less spending on imports. The 2009 first quarter statistics by the Ministry of Finance and Economic Planning indicate that nearly all sectors of the economy have braved the current effects of the global economic recession with the exception of the mining sector. And the ministry has said that there are no projections for layoffs of workers. Even tourism, exports and remittances, the areas which had been considered vulnerable across the African continent, have instead registered significant growths in Rwanda. Government’s projection is that these sectors will decline by 15 percent this year. With inflation falling significantly, it implies more ability to consume and or save. It is an indication of money gaining value. The more money you have, the greater your potential power to push the economy to growth through higher demand. I am strongly convinced that as we increase local consumption, we are as well reducing the impact of the global economic recession on our exports. By this we can mitigate the impact of falling prices and demand for our exports. Considering production by firms, businesses produce output and therefore employ workers because there is some ultimate consumer demand for the final output being produced. So, with less consumer spending, businesses would reduce production, and they would thus cut spending on expansion. Consequently, consumer spending not only has a large direct impact on overall GDP; it also dictates the extent to which firms would like to undertake new capital investment and production. Though business production and investment in Rwanda is somehow currently affected by diminishing liquidity in the banking sector, it is unlikely that there will be a business turnaround when there is high private sector demand. Minister of Finance and Economic Planning, James Musoni, told parliamentarians that in 2009/10 donor and government funds shall continue to be committed to expenditure plans. He said: “This will bring much needed fiscal stimulus to the economy.” Adding thus, “More spending will be directed towards increasing domestic production of power and scaling up the crop intensification program and improving storage facilities to smooth out seasonal price movements.” Of course these are productive investments which should reduce unit cost of electricity for all producers, as well as increasing food production in the country. But government expenditure only helps when the government share is not so large and public finance does not entirely rely on distortionary taxation. gahmanyi1@gmail.com