Rwanda faces a dilemma of mobilising resources in the coming months to complete key strategic investments, particularly in infrastructure.

The government is seeking to finance key projects in priority areas such as water, energy and transport.

This is because while aid to the country has been fully restored following delayed donor aid disbursements in 2012, it remains insufficient.

“Aid flows have increased, but donor disbursements are expected to be about 1 per cent of GDP lower relative to the 2014/15 budget,” said the International Monetary Fund mission in a statement this week.

Now, the government is expected to adjust its spending in line with available resources, according to the Fund.

Dwindling resources as result of delayed aid disbursements and low domestic revenue have forced the government in recent months to borrow from the domestic market to fund its expenditure, which analysts say is making it difficult for the private sector to access credit.

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At the end of August, the government issued a five-year $21.6 million bond on the Rwanda Stock Exchange to raise funds for infrastructure projects.

This was the second bond this year, having been preceded by a $18.3 million bond with a maturity of three years issued earlier this year. 

But despite credit to the private sector expanding by 11.7 per cent between December 2013 and August 2014 against 7.6 per cent in the same period of 2013, the cost of financing has remained relatively high at an average of 17.4 per cent.

“Banks have become more stringent — it takes a long time to get a loan approved and it is also very expensive. The reality is that for someone who runs a small business, the cost of a loan is as high as 19 per cent. You cannot get it lower unless you have serious collateral,” a small business owner in Kigali said.  

“Banks prefer to lend to big businesses, which makes it difficult for us start ups to access credit. If you borrow at 19 per cent, the chances of defaulting are high,” he added. 

The government plans to spend Rwf1.75 trillion($2.58 billion) in the 2014/15 fiscal year, an increase of Rwf75.5 billion($110 million) over the Rwf1.6 trillion($2.3 billion) over in the 2013/14 revised budget, to address the slowdown experienced in 2013 that saw growth drop to 4.6 per cent from 7.3 per cent in 2012.

Meanwhile, total collections, both tax and non-tax, in the fiscal year 2013/2014 were $1.11 billion (Rwf769 billion) against a target of $1.14 billion (Rwf793.2 billion).

While economic growth in the first half of this year rebounded to 6.8 per cent according to the International Monetary Fund, analysts say there are significant risks that not addressed that could undermine growth prospects going forward.  

“Key to sustaining high growth will be the implementation of the authorities’ strategy to reduce the cost of doing business and remove impediments to private sector development,” said Paulo Drummond, deputy division chief in the African Department of the IMF, following a mission visit to the country. 

In view of the above challenges, the Fund said that it supports the government’s plan to improve project implementation, including through increased oversight.

The government also plans to prepare a targeted public investment plan for infrastructure projects in priority areas, such as water, energy, and transport.

Despite a rebound in the economy as shown by the composite index of economic activities — which rose by 6.4 per cent up in the first half of this year, up from 4.6 per cent and 0.3 per cent in the first and second half of 2013 respectively — analysts say the government will have to spend more to boost growth.

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Eric Rutabana, the chief executive officer of Business Partner International Rwanda, said government spending is needed to stimulate economic activity.   

“The government is still the largest employer and spender in the economy. If it suspends spending it affects the private sector and the growth of the economy,” Mr Rutabana said.  

Growth rates are unlikely to recover to the pre-aid shortfall levels, with growth projected at 5.7 per cent in 2014 and 6.6 per cent in 2015, says the World Bank in its recent economic update for Rwanda.

The projected growth rate for 2014 is downgraded from the 7.2 per cent the World Bank had forecast in December 2013. 

This, the World Bank says, was due to delayed implementation of capital expenditure and a continued slowdown of credit growth to the private sector.

“We were coming from a difficult situation where there were delayed resources from the donor community and that affects the projects. We had to do a readjustment to make sure that the government can chip in and work within its means,” Rwanda’s Finance Minister Claver Gatete told The EastAfrican.

Mr Gatete added that though all donors have restored aid, the lagged impact of the aid shortfall has affected the pace of completion of projects.

“We expect to grow by 6 per cent in 2014, then next year we expect growth of 7 per cent and continue going up,” he said.