We could not have had a better budget

James Musoni, Minister of Finance and Economic Planning this week released the Rwf838 billion budget, promising to boost productivity amidst the spiraling global economic recession. With the global financial and economic crisis mounting, demand for exports such as tea and coffee is expected to decline considerably. The crisis will also have enormous impacts on income and revenues from tourism and diaspora remittances. Government has even predicted that there is possible reduction in aid flows in the medium term as the western governments reduce their spending. The 2009/10 budget has so far enjoyed widespread public backing because of its focus on infrastructure rollout, maintaining growth in productive sector, development of human capital and promotion of good governance. In the new budget, about Rwf190.4 billion has been set aside to develop the physical infrastructure. A total of seven national roads and 11 rural roads have been earmarked to be rehabilitated in this financial year. It is said that 233 km of water pipes will be rehabilitated while some 183 km of water pipes will be finalized. And 47.5 megawatts of power will be generated. Focus on energy generation and distribution, road construction and rehabilitation, and ICT development should reduce the cost of doing business in Rwanda, creating an impact on the final consumer through reduced prices. In his budget speech, Musoni stressed the need for the development of the productive sector with emphasis on the agriculture supply, agri-business, land reform and promotion of value addition for exports. He said this is line with the recommended measures to mitigate the impact of the global financial crisis. This planned spending could drive the economy to the targeted growth of 5.7 percent. However, I have very huge reservations on the continued growth of commercial banks, which have been hit by diminishing liquidity, leading to a slowdown in loan disbursement to the private sector. Musoni said government will work with the central bank to help commercial banks access external lines of credit at cheaper rates. This is a good strategy but how soon these lines of credit will be accessed matters a lot. Besides, in accessing these lines of credit, banks will face the risk attached to changes in the value of one currency against another. This could lead to significant foreign exchange losses, causing higher lending rates. Unfortunately, Musoni did not mention ways by which banks will be helped to hedge against these risks. In his “stimulus package”, Minister Musoni should have allocated some hard cash for banks, either through the Development Bank of Rwanda or the National Bank of Rwanda. With the exception of the plans to revive the banking sector, which I think are not strong enough, we could not have had a better budget than this. It looks strong enough to address issues affecting the ordinary person and also cushion the economy against external shocks. gahamanyi1@gmail.com