Rwanda is projecting a 1 per cent drop in the budget deficit for the 2017/18 fiscal year, even as expenditure goes up by $170 million.

Finance Minister Claver Gatete is proposing a Rwf2 trillion ($2.5 billion) budget, which will be Rwf140.7 billion ($170.5 million) more than the current one.

According to the 2017/2020 Budget Framework Paper that he presented to parliament, the bigger part of the budget will be financed through domestic revenues (estimated at Rwf1.4 trillion or $1.7 billion), concessional borrowing and grants.

Economic growth is expected to be 6.2 per cent in 2017 with foreign direct investment expected to increase from $258.9 million in 2016 to $307.2 million in 2017 before rising to $ 404.4 million in 2018 and $439 million in 2019. The government expects $67 million from foreign investors and $81 million as external loans to finance imports.

A drawdown

“In the light of the above projections, the National Bank of Rwanda is expected to draw down $109.5 million of its reserves in 2017. This drawdown, partly offset by the $100 million expected from IMF in 2017, will reduce the gross official reserves from $1001.5 million at end 2016 to $989.2 million at end 2017,” the minister said.

A fiscal deficit of Rwf322.2 billion ($390 million) is expected to be financed through concessional borrowing. According to Dr Gatete, the government’s fiscal policy in the medium term will seek to bring Rwanda closer to meeting the East African Community’s macroeconomic convergence criteria through reduction of the current account deficit and reliance on external financing.

“In line with these policies, the overall fiscal deficit, including grants, will be maintained at 3.5 per cent to 4 per cent of GDP during the 2017/182019/20 period, from the 4.7 per cent projected for 2016/17,” Dr Gatete said, adding that this would set the pace toward the EAC fiscal deficit requirement of 3 per cent of GDP by 2022.

Rwanda is also expecting a slight erosion of the tax to GDP ratio from 15.6 per cent to 15.3 per cent in the new financial year due to the impact of exemptions to domestic manufacturers engaged in import substitution activities. The Finance Minister said the government will slow down on borrowing from the domestic market to leave room for increased lending to the private sector.

Recurrent and capital expenditure are projected at Rwf1.1 trillion ($1.35 billion) and Rwf774 billion ($937 million) respectively. Part of the money will be used to pay interest on a loan the government acquired to finance the development of the Kigali Convention Centre. The government has also to contribute its equity funding for the construction of the Bugesera International Airport.