IMF, ADB hail new budget

Donors have commended Rwanda’s newly read 2009/10 budget estimates, specifically the increased expenditure by 24 percent, as this will facilitate economic growth. The development partners also lauded government’s efforts to increase the use of grants to finance the budget rather than loans. Jacob Diko Mukete, African Development Bank (ADB)’s resident representative in an interview with Business Times said that given the context of the current financial crisis, donors are optimistic that increase in spending is justified. “This fiscal stimulus will boost domestic demand, thereby compensating for the decline in external demand resulting from the global economic slowdown,” he said. “Development expenditure has a larger import component and lower inflationary effects while increasing the prospects for future economic growth and poverty reduction,” he added. Mukete also observed that the composition of planned expenditure (capital and recurrent), reflects the importance the government attaches to development expenditure. Finance and Economic Planning Minister James Musoni while presenting the budget speech on Thursday last week said that resource allocation in the next financial year was done with emphasis in spending and financing development of projects to create more jobs and to generate growth. 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. According to Mukete the fact that in the next financial year much of the donor financing of the budget will be grants other than loans, is a reflection of the country’s good macro-economic performance and good economic governance. “Grant financing is preferable to loans because it reduces the cost of financing to the country, thereby keeping external debt at a sustainable level,” In a parallel interview with Business Times, Dmitry Gershenson, the International Monetary Fund (IMF) Resident Representative also echoed support for the country’s resource allocation for the financial year, saying that the IMF supports the government budget for 2009/10. “We feel that it strikes the right balance between allocating the resources to the poverty-reducing areas, stimulating the economy, and ensuring medium-term fiscal sustainability,” he said. Gershenson also said that the overall fiscal stance of the government (as measured by either overall deficit or net domestic financing) will become more expansionary in 2009/10 compared with 2008/09. He explained that the overall deficit will increase from the estimated 1.6 percent of Gross Domestic Product (GDP) in 2008/09 to 2.3 percent of GDP in 2009/10. According to Gershenson, the IMF supports this expansion of deficit and the corresponding use of the previously-accumulated government deposits in the central bank “in order to provide a stimulus to the economy at the time of the deteriorating global economic environment.” The government has indicated that in the next financial year, grants will increase by 11 percent to Rwf342.2 billion from Rwf307.6 billion in 2008. The ADB resident representative, Muteke said that, “the proportion of the budget financed through external grants and loans is decreasing, meaning that a larger proportion of the budget is being funded by Rwandans.” Ends