VZCZCXYZ0006
RR RUEHWEB

DE RUEHLGB #1005/01 3060635
ZNR UUUUU ZZH
R 020635Z NOV 07
FM AMEMBASSY KIGALI
TO RUEHC/SECSTATE WASHDC 4859
INFO RUEHNR/AMEMBASSY NAIROBI 1058
RUEHDR/AMEMBASSY DAR ES SALAAM 0996
RUEHJB/AMEMBASSY BUJUMBURA 0182
RUEHKM/AMEMBASSY KAMPALA 1753
RUEHFR/AMEMBASSY PARIS 0361
RUEHKI/AMEMBASSY KINSHASA 0320

UNCLAS KIGALI 001005 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF/C 
DEPARTMENT PASS USTDA: EEBONG 
DEPARTMENT PASS USTR: WJACKSON 
DEPARTMENT PASS COMMERCE: RTELCHIN 
DEPARTMENT PASS OPIC: BCAMERON 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON PGOV PREL RW
SUBJECT: Rwandan 2008 Budget Highlights 
 
 
¶1.  Summary.  Minister of Finance James Musoni officially presented 
the 2008 budget to the Parliament on October 16.  The overall budget 
is approximately USD 1.1 billion, a 15  increase from the previous 
year.  Musoni predicted 6.6  growth in the economy with inflation 
dropping to 5  by 2008.  He proposed significant budget increases 
for the Ministries of Infrastructure, Agriculture and Health, while 
proposing budgets cuts for the Prime Minister's Office and the 
Ministries of Information and Justice.  Parliamentary examination of 
the budget is now underway as ministers defend their individual 
budgets.  The Parliament's Budget Commission will work with the 
Minister of Finance to make potential adjustments within each 
ministry before presenting a final budget back to the plenary 
session of Parliament and to receive final Senate confirmation.  The 
budget appropriately reflects the priorities outlined by the 
government and the international donors for economic development and 
poverty reduction.  The budgetary process, including the questioning 
of each minister's priorities by the Parliament, while imperfect, is 
a sign of increased transparency, open debate, and growing 
Parliamentary independence.  End Summary. 
 
 
2007 ECONOMIC PERFORMANCE AND 2008 PROJECTIONS 
 
¶2.  During his October 16 presentation of the budget to the 
Parliament, Minister Musoni reviewed the 2007 economic performance 
of the country, noting continued progress on several fronts, and 
suggesting the economy is on track to reach a GDP growth of 6.6%. 
Foreign currency receipts increased 22% from USD 414 million to USD 
506 million from December 2006 to September 2007.  Musoni stated 
that increased exports and increased donor funding will augment 
Rwanda's foreign currency account.  He predicted that exports will 
continue to rise by 15% next year.  Private sector credit increased 
by 11.3% in 2007 compared to 2006, expanding the amount of money 
lent by financial institutions.  Musoni projected this to increase 
at a rate of 12% over the next three years.  He also promised to 
develop strategies to decrease existing credit rates which average 
15% per year. 
 
¶3.  Minister Musoni estimated that inflation will average 7.5% by 
the end of 2007, but predicted that prices will stabilize in 2008 at 
an annual inflation rate of 5% (septel will address the rising cost 
of living in Rwanda).  Export receipts increased by 7% in 2007, but 
imports increased by 23%, widening the existing trade deficit by 30% 
in 2007. 
 
¶4.  Other predictions for 2008 included a 15% increase in farm 
exports, 7% increase in industrial production, and a 9% increase in 
tourism receipts.  In addition, tax revenues are projected to 
increase to USD 600 million by 2010 from USD 417 million collected 
in 2007. 
 
¶5.  The overall domestic fiscal deficit was lower than projected, 
Musoni reported, because the Rwanda Revenue Authority (RRA) 
collected more domestic revenues than expected and the Government of 
Rwanda (GOR) initiated a successful policy of monitoring performance 
contracts of all institutions. 
 
¶6.  The Ministries of Heath and Education reported overspending 
19.8% and 2% respectively on salaries and wages, while the Ministry 
of Education reported underspending on goods and services by 36%, 
primarily on books and other school materials as well as on the 
construction of schools. 
 
¶7.  Following the presentation of the budget, Duncan Overfield, 
Chief Economist at United Kingdom Department for International 
Development (DFID) and chair of the budget support group (a working 
group composed of donors providing direct budget support to the 
Ministry of Finance), confirmed to EconOff that the government 
reporting (including expenditures and inflation figures) are 
accurate and dismissed any suggestion of GOR misreporting.  He 
commented that project support aid, as provided by the USG, is 
difficult to capture in the overall budget.  He urged all donors to 
provide direct budget support as he believes the large amounts of 
money spent off-budget make it difficult to monitor and to have a 
complete picture of government expenditures. 
 
 
 
REVENUES 
 
¶8.  Domestic revenues are projected to be USD 595.2 million, 
representing 54  of the entire budget, while foreign grants will 
account for 46  or USD 516.4 million.  Domestic revenue will 
represent 13  of GDP in 2008.  85  of domestic revenues consist of 
fiscal revenues, 8  will be foreign loans, and 5  will be domestic 
borrowing. 
 
¶9.  The World Bank, the African Development Bank, United Kingdom, 
Sweden, Germany, the Netherlands, and the European Union will 
provide approximately USD 516.4 million in direct budget support for 
2008, representi 
ng 46  of the overall budget.  Other donors, notably 
the USG, will continue to provide project support and the GOR will 
work to capture these figures in budget reports to provide the most 
complete 
 
¶10.  In compliance with the Multilateral Debt Relief Initiative 
(MDRI) conditions and to keep its debt sustainable, the GOR will 
favor grants as a form of financing and will maintain borrowing 
levels at highly concessional rates of 50% (i.e., 50% loan and 50% 
grant).  However, if adequate grant financing is not made available, 
he said, the GOR would seek loans with only 35% concessionality. 
This would require a waiver from current international arrangements. 
 
 
 
EXPENDITURES 
 
¶11.  Pending Parliament's approval, the following ministries will be 
targeted for significant increases: the Ministry of Infrastructure 
will receive the largest share of the 2008 budget to be mainly 
allocated for roads and energy development.  Its allocation will 
increase by 17% to USD 187 million.  The Ministry of Agriculture 
will receive a 37% increase to USD 47 million; the Ministry of 
Health budget will increase by 21%; the Ministry of Education budget 
will increase by 6%; the Ministry of Commerce budget will increase 
by 20% directed mainly at export promotion and construction of the 
free trade zone; the Ministry of Lands and Environment budget will 
increased by 40%. 
 
¶12.  Other GOR offices' budgets are being cut.  The Office of the 
Prime Minister, which encompasses the Prime Minister's Office, the 
Ministry of Information, and the Ministry of Gender and Family 
Planning received a 17% cut to USD 9 million.  Of note, the Ministry 
of Justice received a 34% budget reduction to USD 15 million for 
¶2008.  Musoni explained that the reduction is because the gacacca 
traditional court system that has been trying genocide suspects is 
winding down its mandate. 
 
 
OPEN DEBATE 
 
¶13.  Members of Parliament openly questioned Musoni's rationale for 
budget allocation. For example, Juvenal Nkusi of the Social 
Democratic Party (PSD) felt more energy resources should be 
dedicated towards the methane extraction projects in Lake Kivu. 
Aron Makuba, another PSD member, pushed Musoni for solutions to 
rising costs of living.  Other issues raised during Musoni's 
presentation included East African Community (EAC) integration and 
the government plan to recover funds from students who studied on 
government scholarships. 
 
¶14.  During the week of October 22, members of the Parliament's 
Budget Commission began the process of questioning each minister 
regarding priority areas to be funded through the 2008 budget.  As 
Francois Nkurikiyimfura, Director of the Treasury, explained the 
process to EconOff, the Budget Commission will work with the 
Minister of Finance to make potential adjustments within each 
ministry before presenting a final budget back to the plenary 
session of Parliament and to receive final Senate confirmation.  The 
overall budget and each ministry's allocation cannot be increased or 
decreased, but spending priorities within each ministry can be 
adjusted.  The President of the Budget Commission, Constance 
Mukayuhi, told EconOff that her commission is not given adequate 
time and lacks staff expertise to analyze and propose adjustments to 
the budget, but appreciates being involved in the process. 
 
¶15.  According to the IMF country representative, Lars Engstrom, the 
budget as reported by the Minister of Finance, reflects the 
priorities laid out in the GOR's draft Economic Development and 
Poverty Reduction Strategy (EDPRS), balancing development goals and 
poverty reduction.  The allocations also reflect a good balance 
between productive sectors, infrastructure, and human development. 
 
¶16.  Comment:  Because Rwanda's economic performance is heavily 
based on its exports, it is important to note that world prices for 
Rwanda's main exports -- coffee and minerals, are expected to drop 
in the upcoming year.  Overall export volume must increase 
significantly to offset the decreased prices.  The international oil 
market will also be a significant factor for the Rwandan economy, as 
the GOR will continue to provide subsidies to the petroleum sector. 
The current upward trend in world oil prices could put an 
unanticipated burden on budget 
 expenditures if the GOR continues its 
policy of subsidizing markets to curb inflation.  The GOR has 
competing interests it must balance, but it has outlined a long-term 
strategy for itself and the 2008 budget appears to keep true to that 
vision.  The budgetary process, including the questioning of each 
minister of his/her priorities by the Parliament, while imperfect, 
is a sign of increased transparency, open debate, and growing 
Parliamentary independence.  End Comment. 
 
ARIETTI