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newtimes - 15 days ago

How will Rwanda raise resources for 2020/21 budget?

While the government expenditure is expected to rise in the 2020/2021 fiscal year, by about Rwf 228.7 billion to Rwf 3245.7 billion, how will resources be mobilized amid COVID-19 which has trimmed revenue? The government’s key sources of capital are taxes, non-tax revenue collections such as visa charges, loans and grants. However, following the COVID-19 pandemic and its effects on the economy, tax resources are expected to drop as a large section of business operations had come to a halt during the lockdown. Total tax revenue collections for the fiscal year 2020/21 were projected at  Rwf 1,421.4 billion which is low compared to Rwf  1,569 billion for the current fiscal year ending June this year. The decline according to the budget framework paper presented by Finance and Economic Planning Minister Uzziel Ndagijimana is a result of the current economic situation caused by effects of the COVID 19 pandemic. “This projected amount for the fiscal year 2020/21 reflects the trend of other macroeconomic variables envisaged in the FY2020/21,” the budget framework paper read in part. Non-Tax Revenue collections are also expected to dip slightly by Rwf 48.6B to Rwf 184.3 in comparison to the current fiscal year.  The dip is among other things due to lower reimbursements from the United Nations for the cost of peace-keeping operations in the fiscal year 2019/20 as well as a decline in visa fees reflecting the recent Cabinet decision to remove entry visa fees of some group of countries visiting Rwanda. In the Fiscal Year 2020/21, non-tax revenue collections have been estimated at Rwf 184.3 billion. This figure is Rwf 48.6 billion lower than the estimated amount of Rwf 232.9 billion in the fiscal year 2019/20. The estimated figure also includes an amount of Rwf 12.0 billion from various administrative fees and charges such as passport and driving license fees as well as internally generated non-tax revenue collections of the various Government Agencies. The agencies include Rwanda National Police and the Rwanda Development Board, Rwanda Revenue Authority, Rwanda Mines, Petroleum and Gas Board and the Rwanda Correctional Service. According to the Ministry of Finance and Economic Planning, the institutions will be allowed to spend the collections which will be added to their allocations in the budget. To finance the expenditure for 2020/21, the government will also turn to external loans seeking an estimated Rwf 783.4 billion which is higher by Rwf 210.2B compared to loans in the current fiscal year. External loans fall under the categories of budgetary loans that go to the treasury while project loans finance specific projects. Budgetary loans take the lion’s share at Rwf 477.4 billion which is 102.5 billion higher than the current fiscal year. Among the top creditors who the government will be looking for credit from are the World Bank, the African Development Bank and for JICA. The latest Debt Sustainability Analysis (DSA) conducted in March 2020 according to the Ministry of Finance noted that public debt will be maintained at a manageable level.  However given COVID 19 effects, it will require careful monitoring and continuing mechanisms to strengthen macroeconomic performance most importantly spending prioritization, export receipts and domestic revenue collection. According to the Ministry of Finance, Rwanda’s Present Value of debt-to-GDP is expected to remain below the 50 per cent of GDP threshold with 31.1 percent of Present Value of debt to GDP projected for end 2020. Minister Ndagijimana’s statement in parliament noted that as government anticipates the potential impact of the COVID-19 pandemic on the economy the debt strategy will focus on keeping public debt at manageable level, with public debt indicators remaining below the indicative thresholds and minimizing the risk of default. The government, he noted, will also seek to maximize concessional funding which has lower and fixed interest rate, longer maturity and grace period as well as. Non-concessional borrowing which is more expensive and short term will only be used for targeted investments with high economic impact and within the limits of Debt Sustainability Assessment. Fixing the economic impact of the COVID-19 pandemic could cost the Government over Rwf882 billion over two fiscal years with projections of bouncing back to economic growth rate of 8 per cent by 2022.

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