Rwanda plans to spend more in the coming months to fast-track government-financed projects that are expected to create jobs and drive growth.

This is because — while the economy has recovered this year, rebounding to grow 6.8 per cent, according to the International Monetary Fund — the lagged impact of the aid shortfall in 2012 has affected the pace of completion of government projects, undermining growth prospects.

Aid flows have increased but the disbursements are expected to be about one per cent of GDP lower relative to the 2014/15 budget, according to the IMF.

Finance Minister Claver Gatete is expected to present a supplementary budget to parliament in February seeking billions of francs and outlining the new spending plans that are likely to see reallocation of funds as the government seeks to cope with the budget deficit occasioned by delayed aid disbursements.

“This (delayed aid disbursement) is a programming issue because the donors’ programme it differently — in some cases the money that is supposed to have come does not come in on time while at some point you find that many are disbursing at the same time,” Mr Gatete told The EastAfrican.

“This is the kind of shortfall we are faced with but it is being addressed in such a way that we can fill the gap with domestic borrowing.”

Pointing out that donor aid has been fully restored despite delays in disbursement, Mr Gatete added: “It would be better if they disbursed in a timely manner but that depends also on their own situation — they also get money from their own taxes.”

Dwindling resources

This week, Germany pledged financing worth 69.5 million euros ($89 million) to support Rwanda’s second Economic Development and Poverty Reduction Strategy (EDPRS II).

Dwindling resources as a result of delayed aid disbursements and low domestic revenue have in recent months forced the government to borrow from the domestic market to fund its expenditure.

READ: Target to cut dependency on aid unlikely

The government is expected to issue its next seven-year Treasury bond worth Rwf15 billion ($21.6 million) on November 26 to fund infrastructure projects and facilitate capital market development. This will be its third such issue this year, following a five-year $21.6 million bond in August and another of $18.3 million with a maturity of three years earlier in the year under what is now a quarterly programme.

“The money that we borrow is the money that creates work for the private sector,” said Mr Gatete. “We tender and it is the private sector people who come and take our money.”

Mr Gatete allayed fears that the government’s domestic borrowing is likely to make it difficult for the private sector to access credit. Increasing government spending, he argued, facilitates the private sector to increase investment.

“This is not money that is being taken from the private sector and kept somewhere,” he explained. “It comes back because, once we have it, we immediately start the tendering process.”

While economic activity has generally picked up, boosted by increasing credit to the private sector, which expanded by 11.7 per cent between last December and August against 7.6 per cent in the same period of 2013, business executives are calling for more government spending to boost domestic demand.

This is because, 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 from 4.6 per cent and 0.3 per cent in the first and second half of 2013, respectively —the country’s rate of inflation has remained low at 0.5 per cent in October. That was well below this year’s central bank target of five per cent.

READ: IMF forecasts 7.5pc economic growth rate for 2014-2016

While the low inflation has been largely due to low imports and food prices, it is raising concern within the business community, who feel that the trend could undermine consumer spending.

“Low inflation is not always a good thing for a fast-growing economy that requires external long-term investment,” said Maurice Toroitich, the managing director of Kenya Commercial Bank, Rwanda.

“The appropriate inflation rate should be in the context of the economic fundamentals of the country — the appropriate level being that which does not stifle long-term investment.”